Vietnam's Exports Drop 17.1%, Disappointing US Expectations

In recent years, Vietnam's economy has been performing impressively, largely due to the attraction of a significant amount of foreign investment and the robust development of foreign trade. Particularly in 2022, amidst a global economic downturn, Vietnam's GDP surpassed 400 billion US dollars for the first time, with an annual economic growth rate of 8.02%. This not only set a new record high in 12 years but also ranked first globally.

As a result, Western countries, especially the United States, have high expectations for Vietnam, hoping that it can become a new world factory and the next China. However, as we entered 2023, Vietnam's economy suddenly hit the brakes.

In the first quarter, exports decreased by 11.9% year-on-year, and GDP grew by 3.32% year-on-year, marking the second-lowest growth in 12 years for Vietnam, significantly below expectations. Following the release of April's data, exports decreased by 17.1% year-on-year, further exacerbating the downturn and making the economic situation more severe.

Advertisement

From January to April, Vietnam's exports decreased by 11.8% year-on-year, and imports decreased by 15.4% year-on-year. How could Vietnam, which was experiencing rapid economic development, suddenly falter and collapse?

The decline in exports has led to a crisis in Vietnam's economy. The reason for Vietnam's rapid economic development in recent years is primarily due to the benefits of trade and manufacturing exports.Vietnam is one of the world's largest exporters of garments, footwear, and furniture, and is also recognized as a major exporter of electronic products. Due to its cheap labor force, Vietnam has attracted a large number of foreign factories to invest locally, and the main function Vietnam plays in this process is mainly assembly, processing, etc. With the help of a huge amount of processing trade, Vietnam exports a large amount of light industrial goods to the world, with the United States alone accounting for 30%, which can be said to be Vietnam's largest "golden sponsor". However, this development model can indeed promote the rapid development of Vietnam's economy in the short term, but because it is too dependent on exports, it is very susceptible to the impact of the economic environment. Since last March, the United States has started a rate hike cycle, Western countries are generally facing economic recession, especially the United States, where domestic inflationary pressures are high, and a wave of layoffs has also occurred, and people's confidence in consumption has dropped significantly. As a result, affected by the global economic winter, Vietnam's export order volume has decreased significantly. In the first quarter of this year, the order volume of textiles and footwear decreased by 70%-80%, and the shipment volume of electronic products also decreased by 10.9% year-on-year. Due to the significant decrease in export orders, many enterprises in Vietnam are facing a situation of "order shortage". In the first quarter, there were as many as 42,900 enterprises that went out of business nationwide, a year-on-year increase of 20.1%, and 12,800 enterprises are currently suspended and waiting to be dissolved, a year-on-year increase of 13.1%. It can be said that Vietnam's economy is both successful and unsuccessful in exports, and changes in the external environment have brought great challenges to it. The financial anti-corruption storm is sweeping towards Vietnam's industrial economy. In recent years, Vietnam has attracted widespread attention, not only because of its rapid economic development but also because of its extremely hard-core anti-corruption measures.According to Vietnamese law, anyone found guilty of embezzling 500,000 Vietnamese dong (approximately 300 USD) can be sentenced to imprisonment, while embezzling 100 million Vietnamese dong (approximately 60,000 USD) can lead to life imprisonment or even the death penalty.

In 2022, the Vietnamese government initiated a financial anti-corruption campaign, conducting an indiscriminate "cleansing" of the real estate market. Even Zhang Meilan, known as the "richest woman" among the Vietnamese Chinese community, was arrested, causing a state of panic throughout the Vietnamese real estate market.

Although this financial anti-corruption campaign has been effective, it has also scared away a significant number of property investors. In particular, the Vietnamese government has increased its regulatory oversight of the real estate industry and tightened policies on the issuance of new debts by real estate developers, leading to an increasing funding gap in the Vietnamese real estate sector.

Data indicates that this year, the Vietnamese real estate industry will see tens of billions of dollars in bonds maturing successively. If there is a default, it could potentially trigger a broader crisis in the banking sector and the economy.

In February of this year, even Vietnam's second-largest developer had to seek an extension for 10 trillion Vietnamese dong (approximately 420 million USD) of short-term promissory note debt due to failure to repay bonds on time. The crisis faced by small and medium-sized property enterprises is expected to be even more severe.

Overall, the anti-corruption campaign in Vietnam's financial sector has spread to upstream and downstream industries, significantly impacting the industrial economy. According to statistics from the General Statistics Office of Vietnam, as of March 2023, Vietnam's steel rebar production was 2.146 million tons, a significant year-on-year decrease of 15.76%.

Moreover, in the first quarter of this year, Vietnam's industrial production GDP decreased by 0.4% year-on-year, making it the only industry with negative growth among the three major sectors and the core factor contributing to the poor economic data for the first quarter in Vietnam.Both Coincidence and Inevitability

Indeed, after letting go of historical grievances and embracing the West, Vietnam has seen an improvement in its relations with the United States, which has provided significant support and has been highly anticipated by the U.S.

However, despite the seemingly smooth economic growth in Vietnam in recent years, there are substantial systemic risks hidden behind the scenes.

Firstly, Vietnam's economy is primarily driven by manufacturing, which in turn heavily relies on foreign investment, accounting for a significant portion of the total.

Take South Korea's Samsung as an example; in 2018, Samsung's annual output value in Vietnam exceeded 60 billion U.S. dollars, accounting for 28% of Vietnam's Gross Domestic Product (GDP), nearly one-third.

What does this mean?

At its peak, Samsung's operating revenue only accounted for 20% of South Korea's GDP. Samsung's GDP share in Vietnam has even surpassed that of South Korea.

Due to the manufacturing industry's heavy dependence on these foreign investments, Vietnamese local enterprises do not actually make much money; at best, they earn a "hardship fee."

In the event of an economic downturn and unstable financial markets, if foreign investments choose to significantly withdraw from Vietnam, the Vietnamese economy would immediately hit the reverse gear.

Furthermore, constrained by a population of just over 100 million and a small economic scale, Vietnam also finds it difficult to follow a path of independence like China, developing its own industrial chain.It can be said that the Vietnamese economy inherently suffers from an over-reliance on foreign capital and a weak ability to withstand risks.

Moreover, with the sudden outbreak of the pandemic, which has dealt a heavy blow to the global economy, it is not surprising that Vietnam's economic development has encountered difficulties, as it is an inevitable result amidst randomness.

In conclusion:

In recent years, the Vietnamese economy has grown rapidly, creating a significant miracle.

However, to truly become the "new world factory" or even the "next China" is unlikely.

Vietnam's domestic economic development is dominated by foreign capital, which ultimately means it is subject to others' control, making its economy more fragile than imagined, especially in the current context of persistently weak global demand and the Federal Reserve's consecutive aggressive interest rate hikes, making the issues increasingly prominent.