Despite the limited short term impact of growing tensions with China, Vietnam should accelerate economic reform to improve its competitiveness and reduce its dependence on its northern neighbor, according to the Hong Kong and Shanghai Banking Corporation Limited (HSBC).
While registered FDI from China into Vietnam has risen in recent years, its total stock is small and Vietnam’s dependence on China is primarily a supply chain issue.
Core investors in Vietnam will stay put, HSBC predicted.
Few countries advance economically on foreign investment alone and domestic investment will have to become more efficient.
There are some signs that the Vietnamese government is making efforts to curb inefficient public investment and plans to begin focusing on economically vibrant areas of the country , HSBC said
This is due to the fact that Vietnam primarily relies on cheap labor and fertile land to compete on the international market.
As a result, HSBC urged Vietnamese manufacturers to invest in localized inputs as well as improve their supply chain management to lessen dependence on China in order to meet the “yarn forward” tariff exemptions offered by the Trans-Pacific Partnership Agreement (TPP).
Specifically, the domestic garment and textile industry aims to reach a localization rate of 60 percent by 2015.
Vietnam’s exports to China in 2013 topped $10 billion, while imports from the country reached some $30 billion, according to the Ministry of Industry and Trade.
Source : Thanh Nien News | June 10, 2014