China’s yuan rise and inflation have made a number of products more expensive than those of local firms on the home market, but that will have little impact on Vietnam’s hefty trade deficit with its northern neighbor.

According to a network sponsored by the China International Electronic Commerce Center (CIECC) at the Chinese Ministry of Commerce, the Chinese currency last Friday rose to 6.4990 yuan to the U.S. dollar, hitting the 6.5 mark for the first time.

Vo Tri Thanh, deputy director of the Central Institute for Economic Management (CIEM), said the yuan appreciation was a dab quicker than forecast but its pace remained slow.

The rise is attributable to the fast fall of the U.S. dollar against the yuan, also known as renminbi. Moreover, China has taken measures to curb inflation, and respond to international pressure on its exchange rate policy, Thanh told the Daily on the phone on Wednesday.

According to CIECC, the yuan has appreciated 1.8% against the dollar this year and nearly 5% since June 19 last year.

The strengthening yuan and rising inflation that hit a 32-month high of 5.4% in March this year has partly contributed to an increase in prices of Chinese goods exported to Vietnam.

Truong Thi Thuy Lien, director in Lien Phat Footwear Company in Binh Duong Province, said prices of materials imported from China by the domestic footwear industry, including leather and fabrics, last month surged 40% year-on-year. Lien Phat’s partners in China have put the blame on inflation and material price hikes, Lien said.

“My company’s footwear outsourcing partners have had strong reactions to the price increases,” Lien said, adding 80-90% of materials for shoe making were imported from China.

Many provinces in southern China supply materials and accessories for Vietnam’s garment and footwear manufacturers. According to Vietnam’s Customs, Vietnam imported US$2.81 billion worth of materials in the first quarter this year, mostly from China, to produce US$4.19 billion worth of footwear and garments for export.

This import value grew nearly 50% year-on-year.

As for consumer goods, Chinese products have begun relinquishing some of its price competitiveness in the Vietnamese market.

At the Tam Binh wholesale market for veggies and fruits in HCMC’s Thu Duc District, director Nguyen Thi Thanh Ha said veggie imports from China had dropped sharply since the Lunar New Year holiday in February.

Prices of some import items are far more expensive than local products. For instance, local broccoli costs only VND9,000 per kilo compared to VND20,000 for Chinese broccoli, and Dalat spinach sells for VND2,300 per kilo while the price of Chinese spinach is VND7,000.

On Monday this week, Chinese veggie imports dropped to the lowest level of 100 tons compared to the market’s demand of 1,300 tons.

A vendor identified as Tam at the Tam Binh market said purchases of Chinese veggies had dropped due to their rising prices, coupled with increasingly high cost of transport from the north to the south of Vietnam.

The rise in Chinese goods prices has led to an improvement in Vietnamese exports to China. Vietnam’s shipments to China have surged recently, with many Chinese traders struggling to import a variety of materials from Vietnam, such as rubber and cassava.

But Vo Tri Thanh of CIEM said the impact was small and acceptable in a short while but this was not good in a long time because too much of Vietnam’s raw material export would have an adverse effect on the economy in the long run.

The yuan rise will have no impact on Vietnam’s trade deficit with China since Vietnamese goods are generally less competitive than those of China, said the economist.

Vietnamese customs statistics put the country’s first quarter imports from China at over US$5 billion, making China the biggest exporter to Vietnam. Vietnam had a trade deficit of US$2.8 billion with China in the period, up 9.6% year-on-year.

Source: SGT