Wary of the risk of Renminbi depreciation

In April 2022, the CNY plummeted 3.8 percent against the USD, closing at 6.5866 CNY/USD.

In April 2022, the CNY plummeted 3.8 percent against the USD, closing at 6.5866 CNY/USD, as China maintained its "zero COVID" plan, leading to its economy's decline. China's GDP growth prediction has been reduced by the IMF from 4.8 percent to 4.4 percent, well below the 5.5 percent China had projected.

Non-stop downtrend

In addition to the "zero COVID" plan, the CNY's fast depreciation was triggered by foreign investors' dumping of Chinese stocks and bonds as the Fed hiked interest rates, making US government bonds more attractive. Furthermore, the Russian-Ukrainian conflict fueled this surge.

Whether the People's Bank of China (PBoC) would devalue the CNY against the USD, as it did in 2015, depends on the aforementioned fact.

According to Mr. Robin Brooks, Chief Economist at the Institute of International Finance, the CNY was so stable in 2015 that some Chinese authorities acknowledged it required some "shock therapy." That is currently impossible. However, the CNY might lose another 2% to 3% against the USD.

Vietnam's response

Dr. Le Xuan Nghia, a financial expert, noted that if a weaker CNY does not result in a significant trade deficit for Vietnam, the latter should exercise caution as well.

"If the CNY continues to fall, goods importers from China will benefit, but product exporters to China will suffer. Therefore, Vietnamese enterprises should expand their export markets beyond China", Dr. Le Xuan Nghia said.

Furthermore, Chinese goods will be cheaper in other markets, particularly in the EU and Japan... So, Vietnamese goods will have a lower competitive advantage, perhaps losing market share to Chinese firms in these markets.

Besides, a drop in the CNY will put downward pressure on the USD/VND rate, which is already under strain due to the USD's rising value since the FED began raising rates abruptly.

In addition, cheaper Chinese goods may flood the Vietnamese market, causing native items to lose their competitive advantages.

If a severe drop in the CNY will have a more detrimental impact on the Vietnamese economy, particularly if it leads to a significant trade deficit, experts advise the State Bank of Vietnam to consider adjusting the VND devaluation against both the USD and the CNY.