Vietnam,replacing China as next global exports hotspot?(02)

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A shop in Vietnam sells “Made in Vietnam” goods.

02 Demographic dividends,A group of post-80s are changing the country

Vietnam, this country, is long and narrow from north to south, up to 1,650 kilometers long, and only 48 kilometers wide at the narrowest point from east to west; it has a coastline of more than 3,260 kilometers, facing the southwest Pacific Ocean, with an excellent geographical location.Vietnam is covering area about 330,000 square kilometers, roughly equivalent to the combined areas of ​​Guangdong and Jiangxi Provinces from China ; the population is about 93 million, a little less than Guangdong (112 million), also the population density is very high.

At present, Vietnam is divided into 8 districts and 58 provinces, of which 5 are directly under the central government’s administration, namely Can Tho, Da Nang, Hai Phong, Hanoi, and Ho Chi Minh City.Thus,Vietnam’s economy as a whole is relatively far more developed in the South than in the north. The economically strongest city in the south,Ho Chi Minh City,also known as Chai Bang and Saigon, is the largest city around whole Vietnam, and its status equivalent to Shanghai in China.It can be said,Ho Chi Minh City is the economic center of the country, the largest port in the country, and the city with the largest population (over 13 million). Its total GDP accounts for 22.6% of the country’s total GDP volume and in the absolute leading position.

Due to the latest rapid development, there are many high-rise buildings and brand-new shining infrastructures in Ho Chi Minh City, therefore its real estate price is boomed to generally between $3300 to 5000 / ㎡, surpassing most of China’s Tier 2 cities.It is worth pointing out that,although Hanoi is the capital of Vietnam, but its urban construction level equivalent to that of a Tier 4 city in China. Haiphong is the largest port city in the North. Da Nang is an important industrial city and seaport in Central. Can Tho is the largest city on the Mekong Delta, a distribution center for agricultural products and a light industry base around the Southern Mekong Delta area.

Generally speaking, Vietnam is supported by port cities from South to North, which is a high-quality condition for developing an export-oriented economy.The Vietnamese are mainly formed by the Jing ethnic group, accounting for 86.2% of the population. Vietnam local language is also called Jing language. Whether Jing language belongs to the Chinese language family or the South Asian language family is still Highly debated. There are also 10,000 or 20,000 Jing people living in Fangchenggang, Guangxi, which is adjacent to North Vietnam. Some Chinese businessmen who go to Vietnam to do business will often hire Jing people from Fangchenggang to go with them.

At present, Vietnam has about 93 million people and its cheap abundant labors playing an important role supporting its rapid economic development. Due to the long-term war and chaos, in the early 1980s, there were only a little more than 50 million people in Vietnam, among which there were fewer men. To cope with this,In the 1980s and 1990s, Vietnam rushed to boost baby booms, soon afterwards with waves of massive population sudden rapid jumps in less than 30 years.Until now, Vietnam has more than 54 million young and below middle-aged laborers, most of whom are post-80s and post-90s in their twenties and thirties. Surveys in 2017 showed that the median age of Vietnam’s population is only 30.5 years old. Meanwhile,The average salary per human in Vietnam is only one-third of that in China. Therefore, Vietnam’s population structure is very high-quality, and the young cheap workers’ dividend would bring great competitive advantages for Vietnam to develop into export-oriented economy and processing and manufacturing hub in the foreseeable future.

However, it is worth noting that after more than ten years of rapid development, Vietnam’s basic wage levels are also rising fast. Basic wages in Vietnam rose by 6.5% in 2018. Since 2016, the Vietnamese government has raised mandatory requirements on companies to pay social security fees for their employees, and the average human cost of companies has increased sharply accordingly.Even though, compared with China and other Southeast Asian countries, Vietnam still has maintined a certain labor price Competitive advantage,but based on historical datas,this kind of man-made labor cost Competitive advantage,often gradually fade away in about 8 to 10 years.

In order to reduce the cost of enterprises, Vietnam has granted many preferential policies in terms of taxation. The Ministry of Finance of Vietnam submitted a draft tax reduction plan to the National Assembly in October 2016, proposing to reduce the corporate income tax rate for small and medium-sized enterprises and start-ups. The applicable tax rate from 2017 to 2020 will be reduced from the previous 20% to 17%. Under this fresh released tax incentives, enterprises with an annual turnover of less than VND 100 billion can enjoy fully tax exemption.

At the same time, Vietnam learned from China, vigorously developed Export Processing Zones, and provides preferential policies for enterprises in the zones. At the beginning of 2016, the Vietnamese government approved the plan to establish three special economic zones (SEZs). Enterprises in the SEZs enjoy reductions and exemptions in import and export tax, corporate income tax, etc., and enjoy preferential treatment in land rent and credit extension.Until now, 80% of Vietnam’s population still engaged in agricultural activities, but the proportion of industrial production is rapidly increasing. Different from Thailand and Myanmar, Vietnam vigorously develops manufacturing industry and tries to build a country focusing on manufacturing.This approach is similar to China however different from most Southeast Asian countries.

In 2018, Vietnam’s industrial production index increased by 9.4%, of which manufacturing increased by 14.5%, electricity production and supply increased by 9.4%, and tap water supply and wastewater treatment increased by 8.7%.Also same year, Vietnam absorbed US$17 billion in foreign direct investment. Until currently, Japan and South Korea have a large portion of direct investment into Vietnam. In 2018, Japan, South Korea and Singapore invested more than US$4 billion.At present, Vietnam’s manufacturing industry is oriented towards trade exports. In 2018, Vietnam’s total import and export volume hit a new record of US$482.2 billion, with a trade surplus of US$7.2 billion, the largest trade surplus in history.

To be specific,China, South Korea, the United States, ASEAN, Japan, and the European Union are Vietnam’s six largest export markets. The United States is Vietnam’s largest exporter, but Vietnam’s export structure is relatively reasonable and does not depend heavily on a certain market. At present, Vietnam’s exports to the three major markets of the United States, the European Union and China are relatively balanced.Vietnam’s exports mainly included telephones and parts, machinery and accessories, electronic products and accessories, textiles, footwear, and aquatic products,meanwhile,The main imported products into Vietnam are raw materials for textile shoes and hats, conventional metals, plastics, steel, cloth, telephones and accessories, mechanical equipment and accessories, electronic products and accessories.As a result,It can be seen from the import and export categories that Vietnam mainly developed labor-intensive industries and gave full play to its natural endowment advantage of cheap labor.

However, Vietnam’s processing trade is still relatively backward. Due to the lack of basic domestic industrial facilities and the equipments necessary to upgrade manufacturing industry, Vietnam’s most important economical imperative is to import machinery, equipment and accessories from China. Quite similar to the 1980s, when China just started to develope its processing trade industry, yet mainly focused on processing raw materials, importing equipment and materials from Japan and South Korea, and exporting them after processing.

Another interesting phenomenon, As Vietnam’s economy seemed like optimistic,real estate investment wasmore open to the outside world, thus,Vietnam’s housing prices had also risen rapidly. In 2016, the total transaction volume of condominiums in Ho Chi Minh City reached 30,972 units. In 2017, the transaction volume jumped to 47,163 units, a growth rate of 52%.Housing prices in Ho Chi Minh City are between US$3000 and US$6000 per square meters. South Koreans were the most likely dudes invested in real estate in Vietnam, and Chinese investors were also increasing. Vietnamese locals enjoyed freehold property rights when buying houses, but foreigners could only buy apartments. The property rights were only 50 years but could be renewed after expiration, other than that,with relatively few restrictions.

According to the research report “Connecting Southeast Asia” released by HSBC in 2016, the middle-class population in Vietnam was expected to increase to 33 million by 2020.The continuous improvement of Vietnam’s economy, the large population of Vietnam, the rose up of the middle class and the low urbanization rate are important reasons why the outside world is so keen on putting money into Vietnam’s real estates market.

At present, Vietnam’s entrepreneurial vitality is still relatively strong. In 2016, there were more than 110,000 newly established enterprises; in 2017, the No. reaching 127,000 nationwide, with a total registered capital of 1,478.1 trillion VND (about 64.2 billion US dollars). In 2018, companies contributed nearly 3,900 trillion VND (169.5 billion U.S. dollars) of funds to economic development.Also same year, FDI invested in 3,046 new projects with a registered capital of US$17.976 billion, a 17.6% increase in the number of projects and a 15.5% decrease in registered capital compared to the same period in 2017.

Inflation was once a severe stumbling obstacle for Vietnam’s economy. In the past ten years, Vietnam’s inflation rate has been well controlled. The average underlying inflation rate in 2018 increased by 1.48% compared to the past year’s averagefigure.In recent years, Vietnam’s income per capita has increased rapidly. In 2018, the monthly income per capita was about 3.76 million VND (about 1,106 yuan), which was 660,000 VND (about 194 yuan) higher than in 2016. The average monthly revenue growth rate for the period 2016–2018 was 10.2%.

Therefore,the next pivotal question is,how long would Vietnam still enjoy this demographic dividend mainly caused by International capitals always seeking for fatter interests? since this cheap labor add-value itself does not automatically generate Sustained high economic growth forever?