Weakening of Yuan likely to have negative impact on Vietnamese exports in the long term

The yuan weakening likely to have negative impacts on Vietnam’s economy in the long term, according to Dang Phuong Dung, deputy chair of the Vietnam Textile and Apparel Association (Vinatas), as Chinese imports to Vietnam will increase in the time to come as a result of the weaker yuan. This will discourage enterprises to spend money to increase their localization ratios. With low locally made content, Vietnamese products will not be able to satisfy the requirements on product origin to enjoy preferential tariffs within the framework of FTAs and the Trans Pacific Partnership (TPP).

The Ministry of Planning and Investment (MPI) has a warned that the weaker yuan will badly affect Vietnam’s exports to China, especially farm produce exports. Chinese exports will become more competitive in the world market thanks to low prices.
In fact, it will be more difficult for Vietnamese exports to compete with made-in-China products. Warns the Ministry of Planning and Investment (MPI).

However, according to Le Quang Hung, Chair of Garmex, a textile and garment export company, devaluation in yuan would not have an impact on the company’s production plan, because Garmex is implementing contracts signed with Chinese partners under which the payment will be made in US dollar. However, things will get worse next year, when the company takes new orders.

Vietnamese exporters expect to enjoy benefits from the Vietnam-EU Free Trade Agreement (FTA) as the import tariff on Vietnam’s textile & garment products will be cut from 9 percent to zero percent after seven years.

The benefits would not have much significance for Vietnamese exporters because of the 3 percent yuan devaluation.

Hung said that Vietnam has widened the foreign exchange trading band by one percent so as to help boost exports. However, Vietnamese products are still more expensive than Chinese.

Moreover, it is still unclear when Vietnamese exporters can enjoy the benefits from FTA as the agreement still needs to be officially inked. Meanwhile, the risks from the yuan devaluation will come immediately.

With the yuan/dollar exchange rate at 6.2298/1, the company could earn $482,000 when exporting a consignment of products worth 3 million yuan. Now as the dollar has appreciated, the company will earn $474,000 only for the same consignment of goods.

According to the report by The HCM City Securities Company (HSC), yuan depreciation would have a negative impact on Vietnam-China trade balance. It is estimates that Vietnam’s trade deficit will incrase by 0.6-0.8 percent with every one percent of the yuan devaluation.