2 min read.Updated: 30 Jun 2020, 09:37 PM ISTVivek Kaul
Vietnam has been a major success story on the exports front over the last decade. Its exports between 2008 and 2018 have increased at a very fast pace from $69.7 billion to $259.5 billion. Can Vietnam become the next China over the coming decade? Mint takes a look
Vietnam has been a major success story on the exports front over the last decade. Its exports between 2008 and 2018 have increased at a very fast pace from $69.7 billion to $259.5 billion. Can Vietnam become the next China over the coming decade? Mint takes a look.
Vietnamese exports had fallen to $66.4 billion after the financial crisis of 2009. However, they have risen ever since, reaching $259.5 billion in 2018. In 1992, Chinese exports were $66.8 billion. By 2001, they had reached $272.1 billion. As such, the increasing exports of Vietnam have followed a trajectory almost similar to that of China, leading to comparisons. The trouble is that Indian exports followed an almost similar trajectory between 2000-2009, increasing from $60.9 billion to $273.8 billion, a jump of close to 350%. However, the growth in exports from India slowed down majorly between 2009 and 2018.
Is there another reason for the comparison?
One reason for the success story of Chinese exports is that the manufacturing sector has become a part of global supply chains, which make network products. As the Economic Survey of 2019-20 puts it: “In general, these products are not produced from start to finish within a given country. Instead, countries specialize in particular tasks or stages of the good’s production sequence…Labour abundant countries, such as China, specialize in low-skilled labour-intensive stages of production such as assembly, while richer countries specialize in capital, skill-intensive stages such as R&D." Vietnam is moving along a similar line.
What part of Vietnamese exports are network items?
The share of network products, such as electronic and electrical equipment, telecommunication equipment in the Vietnamese goods exports in 2000 stood at 6%. By 2018, this had jumped to 47%. During the same period, China’s share increased from 34% to 52%. In Vietnam’s case, these exports include assembled end products, and parts and components.
As the Economic Survey points out: “Bangladesh, China, and Vietnam… have more than 80% of market value of exports by large enterprises, India has 80% by small enterprises. Moreover, in India it can take 7-10 days to reach a port whereas in countries like China, Bangladesh and Vietnam it takes less than a day." Network products are made across countries and, hence, need quick turnaround times. In Vietnam, it takes 0.3 days for a consignment to reach a port. In Bangladesh it takes about a day.
What about Vietnam’s agreement with EU?
In early June, Vietnam ratified a free trade agreement with the European Union. This will mean tariffs on most products that the country exports to the European Union will either be cut or eliminated totally. Hence, it makes even more sense for companies moving their operations out of China to move to Vietnam now. Meanwhile, in India, we are still harping about our low-cost advantage. While that matters, it is not the only factor.
Vivek Kaul is the author of Bad Money.
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