China’s reopening is expected to boost Viet Nam’s GDP growth by over 2 percentage points next year, driven by the full resumption of Chinese tourist arrivals in the second half of 2023, Michael Kokalari, chief economist at investment fund VinaCapital, said in a recent report.
“We expect China's reopening will have a bigger impact on the economies of other ASEAN countries than it will for Viet Nam due to those countries’ greater exposure to China’s domestic economy," the report said.
“The most immediate impact of China’s scrapping of its COVID restrictions has been a circa 5 per cent appreciation in the value of the dong, driven by a 5 per cent appreciation in the value of China’s currency.
“That said, the major benefit that Viet Nam will accrue from China’s re-opening is likely to be a circa 2 percentage point boost to GDP growth next year driven by a resumption of Chinese tourist arrivals.”
But China’s reopening is also likely to cause some inflationary pressure in Viet Nam though the impact could be mitigated by several factors, including a more prolonged reopening compared to the US and Europe as well as less pent-up savings and demand in China compared to the US and EU.
Though China is Viet Nam's largest trading partner, Viet Nam’s exposure to China’s domestic economy was quite modest, resulting in Viet Nam’s GDP growth not being significantly hindered by COVID restrictions and resultant economic problems in that country.
Viet Nam’s export growth to China was nearly flat in the first nine months, but since only 14 per cent of its exports went to China its GDP had soared 8.8 per cent year-on-year despite China’s lockdowns in part because exports to the US and the EU, which accounted for nearly half of all exports, grew by 25 per cent in the first nine months of the year.
Furthermore, most of Viet Nam’s exports to (and imports from) China were of production inputs and/or other intermediate goods used in the manufacture of electronics and garments.
Some Vietnamese companies would benefit from China’s reopening, such as those that sell seafood and farm produce, but exports of products consumed by Chinese customers only accounted for around 5 per cent of Viet Nam’s total exports.
Foreign tourism had contributed about 10 per cent of Viet Nam’s GDP pre-COVID, and tourist arrivals were on track to reach 25 per cent of pre-pandemic levels this year.
“We expect the number of foreign tourists will climb above 50 per cent of pre-COVID levels in 2023 based on the assumption that Chinese tourist arrivals fully recover in the second half of next year," the report added.
“However, the pace of recent developments in China point to a possible faster full resumption of Chinese tourist arrivals, which could lead to an even larger contribution to Viet Nam’s GDP growth next year than we currently expect.
“We are aware of concerns some investors have that the reopening of China’s economy could detract from Viet Nam’s appeal as a destination for FDI investment. We see no possibility of this happening given that China has irrevocably damaged its appeal as an investment destination for multinational firms, and US-China trade tensions have dramatically escalated this year.”
Besides, there had been strong structural factors prompting FDI inflows to Viet Nam even before US-China trade tensions had emerged.
Factory wages in Viet Nam were around two-thirds less than in China, but the quality of Viet Nam’s workforce was comparable to that of China according to surveys by JETRO and others.
Also, Japan and South Korea, which accounted for over half of Viet Nam’s FDI inflows, both faced serious demographic and intractable economic issues that compelled companies in both countries to invest abroad. — VNS