Vietnamese officials aim to expand their economy by 7% this year, among its fastest rates ever and quicker than world factory powerhouse China, due to investment in manufacturing, lack of trade disputes and the rise of a middle class.
The central government has formally decided to pursue GDP growth this year of 6.8% to 7%, securities analysis firm SSI Research in Hanoi said January 3. Manufacturing will be the “leading growth vector going forward, with the service sector forecasted to follow closely behind,” the research firm said.
A 7% showing would rank Vietnam among the 10 fastest-growing economies in Asia this year, according to Asian Development Bank data, and place it ahead of China. The development bank forecasts China’s GDP to grow at 6%. GDP, or gross domestic product, means the value of all goods and services produced over a given timeframe.
Money flowing into factories, offices and ports makes up much of Vietnam’s total, said Song Seng Wun, an economist in the private banking unit of CIMB in Singapore. Consumption is now becoming more obvious he said.
Factories, tourism, education
Foreign-invested manufacturing is expected to lead Vietnam’s economy this year as it has over the past seven, country analysts say. Minimum wages as low as $132 a month and what Song calls “government stability” make Vietnam attractive to capital from abroad.
Investors normally come mainly from Japan, Singapore, South Korea and Taiwan. Their Vietnam factories make garments and auto parts as well as consumer electronics. In the first half of 2019, foreign-invested projects were due to allocate $9.1 billion, up nearly 8% over same period of 2018, the Ministry of Planning and Investment said on its website.
Outside manufacturing, analysts point to growth in tourism and higher education.
Between 2010 and 2018, the number of foreign tourists in Vietnam expanded from 5 million to more than 15 million due largely to an influx of Chinese visitors. In higher education, enrollment by 10% of the population in 2000 has about tripled.
Education matters now because investors want workers with stronger problem-solving skills, said Murray Hiebert, senior associate of the Southeast Asia Program at the think tank Center for Strategic and International Studies in Washington, D.C. They’re looking for technical staff as well as office managers. “
“One of the key strengths is that education is a high priority,” he said. “One key weakness is that the Confucian education system teaches students to memorize so they can pass exams, but they don’t really learn how to think critically or problem solve.”
More than one-third of Vietnam’s 97 million people will be middle class or more within the year, the Boston Consulting Group forecasts. A lot of people are living better as export manufacturing creates new jobs. Consumers often tilt their spending toward electronics, motor scooters, travel and their children’s education.
Trade war diversion
Foreign investors who had prepared in 2018 to take capital out of China and escape the Sino-U.S. trade dispute are now bringing that money in, analyst say. Diversion from China makes up about 1% of Vietnam’s GDP, said Adam McCarty, chief economist with Mekong Economics in Hanoi. The GDP was $241.3 billion as of December 2018. “
It’s very easy for a relatively small economy (to attract) investment ever since the trade fight escalated,” Song said.
The Sino-U.S. dispute that erupted in 2018 led to tariffs on U.S.-bound goods worth $550 billion. Diversion to Vietnam at first raised the specter of relabeling goods already made in China for re-export, but fear of reprisals from Washington has stopped those ideas, McCarty said.
"Now the actual investments are happening,” he said. “First people did their thinking, then they made plans and then they’d moved their factories, so factories are actually moving now after about one year of trade dispute.”
Faster than China
The same trade dispute will contribute to slowing GDP growth in China, the world’s second-largest economy, said Scott Kennedy, director with the Center for Strategic and International Studies’ Project on Chinese Business & Political Economy.
The Chinese GDP was forecast to grow 6.1% last year after rising 6.6% in 2018, down from double-digit percentages each year a decade ago. The trade dispute “has hurt business confidence,” Kennedy says, while years of efforts to ease credit growth have muted the private sector.
Foreign investors had quit offshoring to China even before the trade row. China is still the country widely known as the world’s factory but labor and land began to cost more. Countries in much of Southeast Asia have picked up some of their capital.