The main exports made by the domestic mechanical engineering sector are automobile parts, machine tools and motorized machinery for agricultural and forestry production, and electrical equipment. — Photo vietnamnet

HCM CITY (Biz Hub) — The domestic mechanical engineering sector needs to change dramatically to become one of the "spearhead" industries designated by the Government, insiders have said.

The government has invested time and money in the mechanical engineering sector, as it plays a key role in Viet Nam's industrialisation and modernisation.

As a result, it has gained significant achievements. In 2013, the production value of the mechanics sector reached US$11.8 billion, up seven times compared to that in 2000. Export value rose to nearly 35 per cent of the sector's total value.

However, the industry's growth has not been stable because most of the production lines and technology have been imported.

Do Phuoc Tong, vice chairman of the HCM City Mechanics Association, said the domestic manufacturing industry was the top importer in the country of production lines and raw materials.

However, it had not been able to sell many of its products.

"Product quality, pricing and delivery are decisive factors that can help sales of mechanical products. However, most domestically manufactured mechanical products have not been competitive in these aspects," Tong was quoted as saying in Sai Gon Giai Phong (Liberated Saigon) newspaper.

Domestic enterprises that manufacture mechanical products from iron alloy are weak, mainly due to workers' poor skills. As such, the quality of foundry products is uneven, he said.

Also, the prices of domestically made mechanical products are not attractive since 80 per cent of the production lines and input materials, particularly carbon steel, have been imported from abroad.

The manufacturers also cannot deliver their products on schedule since many of the products are returned due to poor quality.

Tong said that HCM City had one of the most developed mechanics industry in the country, with 3,537 enterprises. However, many are small-scale with a limited workforce and financial capacity.

The Government's policy to support the industry has been ineffective as it has not fit enterprises' demands, Tong said.

Foreign-invested companies under current regulations are allowed a zero import tax rate when they import production lines and equipment. However, domestic manufacturers have to pay taxes for imported production materials.

Dr. Huynh Thanh Dien of the HCM City Economics University said the country was still unable to manufacture special-purpose machine tools because of the weakness of the domestic industry.

As a result, enterprises involved in other industrial sectors had to import sophisticated machine tools, limiting their competitiveness, Dien said.

The main exports made by the domestic mechanical engineering sector are automobile parts, machine tools and motorized machinery for agricultural and forestry production, and electrical equipment.

Most of the machinery and tools are exported to ASEAN countries, and China and South Korea.

Adjusting rates

Tong suggested that the Government adjust tax rates on equipment and material imports of the domestic mechanics sector, particularly carbon steel used to make machine tools.

Also, in the long term, it is necessary to outline a development strategy for production of carbon and alloy steel to serve machine manufacturing in the country.

He also said there was a need to establish financial leasing companies able to offer loans at preferential interest rates, or to lease machinery and equipment to help mechanical engineering companies improve their production technology and skills of workers. — VNS