How to reduce dependence on China?

Dr. Pham Sy Thanh, Director of the Mekong - China Strategic Studies Program (MCSS) of the Vietnam Academy of Agricultural Sciences

Our reporter had an interview with Dr. Pham Sy Thanh, Director of the Mekong - China Strategic Studies Program (MCSS) of the Vietnam Academy of Agricultural Sciences, around this issue.

- It is known that Vietnam's economy is heavily dependent on China. Could you give some examples in this regard?

The dependence of Vietnam's economy on China has always been a hot topic of discussion for recent years and is reflected in many aspects.

In the bilateral trade and cooperation relationship reaching USD 130 billion in 2020, China is not only the largest trade, investment partner but also the biggest import market of Vietnam. Vietnam’s trade deficit with China has increasingly been serious. However, it is not a big concern.

As for imported goods China, only about 10% are consumer goods, the remaining 50-55% are intermediate goods, input materials, components, and equipment to serve the manufacturing activities of enterprises in Vietnam. The latter is not the only country that relies on China, however, its level of dependence tends to be heavier.

Besides, there is dependence on investment through investment channels such as BOT investment or general contractor or loan China. Notably, most of these projects fall into key sectors of Vietnam’s economy. For example, in the energy sector, my statistics in 2020 show that Vietnam has up to 21 thermal power projects under construction with most of them using loans China or being done by Chinese general contractors.

Many studies show that 80% of the energy sector, 60-65% of the heavy chemical industry, and key factories in Vietnam were built by China. According to our calculations, 40-50% of Vietnamese enterprises are using technologies imported China for their production and business activities.

Vietnam's economic integration with China offers many opportunities, but major changes are also needed to make this relationship healthier, creating durable value for Vietnamese businesses. In the short term, Vietnam needs to be more proactive in supply, technology, and resource allocation; improve commercial quality; have more reasonable foreign bidding and investment management policies…

- Will the signing of many FTAs help Vietnam reduce its dependence on the Chinese market, Sir?

In fact, Vietnam has had a strategy for quickly diversifying import and export since 2014. In particular, Vietnam signed many FTAs such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Pacific (CPTPP), the EU-Vietnam Free Trade Agreement (EVFTA), and the UK-Vietnam Free Trade Agreement (UKVFTA). FTAs help Vietnam gradually diversify its supply chains to avoid depending on one or two key export markets.

Vietnamese enterprises need to ensure the origin requirements to take advantage of tariff preferences in FTAs, thereby gradually reducing dependence on the Chinese supply chain, while expanding the latter other partners.

This shift is considered a long-term strategy to get benefits the FTAs and open up new spaces for market diversification.

- Besides FTAs, what should Vietnam do to avoid relying too much on China, sir?

In addition to taking advantage of opportunities FTAs, Vietnam can also speed up preferential policies to attract foreign investors who want to shift away China. Since then, Vietnam is fully capable to set up its own supply chain.

Besides, Vietnam could also participate in the supply chains of other countries. For example, amidst the COVID-19 pandemic, many countries around the world, led by the US, have launched initiatives on sustainable supply chains, infrastructure development, medical facilities as well as high tech. This is a great opportunity for the Vietnamese economy in general and Vietnamese enterprises in particular to become a new link in the reconfigured supply chain on a global scale.