Major Economic Indicators
- Vietnam’s economy rose 5.9% year-on-year (YOY) in the first nine months of 2016, easing from 6.5% recorded in the same period of 2015 amid a decline in the mining industry and slower growth in agriculture.
- Consumer price inflation in Vietnam edged up by 4.1% YOY in October 2016, with healthcare and medicine prices rising the most.
- In July 2015, Vietnam adopted a “negative list” in its inward investment policy with foreign businesses allowed to operate in all areas except six prohibited sectors.
- Hong Kong was Vietnam’s third largest source of inward FDI in the first nine months of 2016, valued at about US$843.7 million.
- Vietnam is part of the China-ASEAN Free Trade Area, and it has signed double taxation agreements with over 60 countries/territories including the Chinese mainland and Hong Kong.
- Vietnam’s exports in the first nine months of 2016 surged 6.7% YOY to US$128.2 billion, while imports rose 1.3% YOY to US$125.4 billion, resulting in a trade surplus of US$2.8 billion.
- Hong Kong’s exports to Vietnam dropped by 8.1% YOY to US$6.6 billion in the first nine months of 2016, while imports increased by 9.0% to US$5.1 billion over the same period.
Current Economic Situation
Vietnam is the sixth largest economy in the 10-member ASEAN bloc, trailing the Philippines yet followed by Myanmar. Its service, industry and agriculture sectors account for, respectively, 44%, 39% and 17% of GDP. Major industry and service sectors of the country include manufacturing, mining, construction, real estate and finance.
Vietnam’s economy rose 5.9% YOY in the first nine months of 2016, easing from 6.5% recorded in the same period of 2015, mainly due to a decline in mining and quarrying activities and slower growth in an agriculture sector hit hard by a prolonged drought and salinisation of the Mekong River Delta. In the same period, industrial growth recorded a solid 7.5% increase, supported by double-digit growth in manufacturing. The service sector also rose 6.7% YOY in the January-to-September period, boosted largely by wholesale and retail trade. For the whole year of 2016, the IMF expects the Vietnamese economy to expand by around 6%, having taken into account the adverse agriculture shock, lower external demand and spill-over of tighter global financial conditions.
Following subdued GDP growth and slower inflation in 2013, Vietnam has pursued an accommodative monetary policy to support growth. The State Bank of Vietnam (SBV) lowered its benchmark interest rate nine times between February 2012 and March 2014 before keeping the rate at the current level of 6.5%. In October 2016, Vietnam’s average consumer price inflation rate edged up by 4.1% YOY with healthcare and medicine prices rising the most.
The Vietnamese government has increased the minimum wage over the past few years, leading to an average annual growth rate of 18% between 2010 and 2015. The country’s National Wage Council has announced that the minimum wage will go up by 7.3% from January 2017, a smaller increase than 12.4% for 2016. Nevertheless, this will raise Vietnam’s new monthly wage to about US$166 in Hanoi and Ho Chi Minh City (HCMC). The Minimum Wage Adjustment Road Map to 2020 released by the Ministry of Labour expects the minimum wage in Region One covering both Hanoi and HCMC to rise to around VND4.8 million (US$213) in 2020.
Under the Master Plan on Economic Restructuring in 2013-2020 approved in 2013, the restructuring of public investment, banks, and state-owned enterprises (SOEs) are government priorities. Through full or partial privatisation, the Vietnamese government aims to reduce the number of SOEs by about half to 690 by 2015, and then to 200 by 2020. Regarding the privatisation plans of 432 SOEs, a total of 182 SOEs were privatised in 2015, up from 143 SOEs in 2014, yet falling short of the official target of 289 for the year. SOEs targeted for divestment include the country’s largest listed company Vinamilk, and leading brewers Saigon Alcohol Beer and Beverages Corporation (Sabeco) and Hanoi Beer Alcohol and Beverage Joint Stock Corp (Habeco).
To accelerate restructuring of the banking system, the government has allowed foreign investors to own a bigger share in local banks, in which the shareholding limit for foreign strategic investors has been lifted from 15% to 20% from 2014. In June 2015, it was announced that Vietnam will further loosen its restriction on foreign ownership in public companies by allowing foreign investors to increase their share holdings to 100% in most public Vietnamese companies, with the exception of a few sensitive industries such as banking and defense starting from September 2015.
In the first nine months of 2016, Vietnam’s exports surged 6.7% YOY to US$128.2 billion, while imports rose 1.3% YOY to US$125.4 billion, resulting in a trade surplus of US$2.8 billion. The exports surge was caused by the rise in demand of telephone and spare parts as well as electronics, computers and components.
Exports of electronic items accounted for 29% of total merchandise exports in 2015. In particular, exports of phones and components rose to US$30.6 billion, up 30% over the year-earlier period, driven by the foreign-invested manufacturing sector. Vietnam’s top export markets in 2015 were the US, the EU, ASEAN, China, Japan and Korea.
Major imported items in 2015 consisted of machinery, equipment and parts, and electronics, computers and accessories. A large part of its imported capital goods is related to assembling goods for export. China is the largest source of Vietnam’s imports, followed by Korea, ASEAN, Japan, the EU and the US.
Vietnam seeks to attract investment across a wide range of sectors, with priority given to areas such as infrastructure projects, manufacturing of high-tech products (biotechnology, IT and mechanical engineering), R&D, and education and training. Eligible projects receive investment incentives including lower corporate income tax (CIT), tax cut or exemption, land-rent reduction and import-duty exemption. More information on Vietnam’s investment environment and regulations can be found at the official website of its Foreign Investment Agency (FIA).
In July 2015, Vietnam adopted a “negative list” approach in its investment policy with the aim to further relax its FDI regulations. Under the new rules, foreign businesses are allowed to operate in all areas except for six prohibited sectors, including certain specified drugs and chemicals, and specified wild plants and animals either under local law or the Convention on International Trade in Endangered Species (CITES). Besides, the list of conditional business sectors was cut from 391 to 267.
In the wake of the anti-Chinese riots which damaged foreign-invested factories in May 2014, the Vietnamese government announced a series of remedial measures, including tax breaks and land rent exemption, to compensate the affected companies. It is reported that with security conditions enhanced in the industrial zones, firms have resumed operations. Foreign investors’ confidence, once badly affected, has gradually recovered with investors remaining positive on Vietnam’s business environment and economic potential.
Vietnam’s impressive growth of exports is largely driven by FDI. According to the Ministry of Industry and Trade, the FDI sector accounted for 71% of Vietnam’s total exports and nearly all of its telephones, electronics and computers and components exported in 2015.
In 2015, Vietnam attracted over 2,000 licensed FDI projects with a total registered investment capital of US$15.6 billion, down marginally by 0.4% from 2014. Korea was Vietnam’s largest FDI source, with a registered FDI of US$2.7 billion, followed by Malaysia, Samoa, Japan and the UK. China’s registered FDI in Vietnam amounted to US$665.5 million in 2015.
In 2015, the largest FDI sector in Vietnam was manufacturing and processing, accounting for 67% of total inward FDI, followed by the production and distribution of electricity, gas, hot water and steam, and air conditioners (12%) and real estate (11%).
Vietnam became a World Trade Organisation (WTO) member in 2007. While facing fewer restrictions and lower tariffs in export markets, Vietnamese manufacturers also benefit from the improving access to imports of cheaper raw materials and semi-processed inputs as Vietnam's import tariffs drop.
Upon its WTO accession, Vietnam was committed to bound tariff rates on most products ranging from zero to 50%, although tariffs on textiles, cars and motorbikes remain high, with certain sensitive products (such as eggs, tobacco, sugar and salt) subject to tariff quotas (higher duties for quantities exceeding the quotas).
Among other benefits, WTO accession allows Vietnam to take advantage of the phase-out of the Agreement on Textiles and Clothing, which eliminated quotas on textiles and clothing for WTO partners in 2005.
In 2009, Vietnam allowed foreign investors to operate 100% foreign-owned retail business as per its WTO commitments. Previously, foreign companies had to form joint ventures with local companies if they wanted to enter the retail market.
The China-ASEAN Free Trade Area (CAFTA), formally established in 2010, is the world’s largest free trade area by population (2.0 billion), with a combined GDP of more than US$13 trillion. Under CAFTA, Vietnam will eliminate 90% of its tariff lines for goods traded with China by 2015, with the remaining 10%, which cover items on the sensitive list such as textiles, seeing their import tariffs lowered more slowly. Following a surge of 14.6% to US$95.8 billion in 2015, bilateral trade between Vietnam and China is targeted to reach US$100 billion in 2016.
Free trade agreements
Vietnam actively pursues regional economic integration through its ASEAN membership, in particular adopting measures in the lead up to the formal launch of the ASEAN Economic Community (AEC) by end-2015. It signed free trade agreements (FTAs) with the Korea and the Eurasian Economic Union (EEU) in May 2015 and reached an FTA agreement with the EU in August 2015. Vietnam is one of the four ASEAN member countries participating in the Trans-Pacific Partnership (TPP) arrangement to advance market opening and liberalisations among its 12 participating members. While TPP was signed in February 2016, pending for country ratifications, US President-elect Trump indicated that he would scrap TPP when assuming office in January 2017.
Vietnam has signed double taxation agreement (DTAs) with over 60 countries/territories, including Australia, France, Germany, Japan, Korea and China. Its Comprehensive Double Taxation Agreement with Hong Kong was concluded in 2014 to take effective in 2015.
Hong Kong's Trade with Vietnam
In the first nine months of 2016, Vietnam was the 5th largest export market for Hong Kong. Hong Kong’s total exports to Vietnam dropped by 8.1% YOY to US$6.6 billion. Major export items included telecom equipment & parts (19.5% share), other meat & edible meat offal (fresh, chilled or frozen) (7.2%) and semi-conductors, electronic valves & tubes, etc. (6.6%).
Hong Kong’s imports from Vietnam gained 9.0% YOY to US$5.1 billion in the same period. Major import items included semi-conductors, electronic valves & tubes, etc. (43.6% share), telecom equipment & parts (22.9%) and footwear (3.7%).
Vietnam’s involvement in Hong Kong
Vietnamese residents in Hong Kong reached 5,886 as at October 2016, according to the Immigration Department of Hong Kong. In addition, Vietnamese visitors to Hong Kong totalled 45,594 in the first nine months of 2016, decreasing by 0.1% YOY.
More information on the Belt and Road countries’ economic and investment environment, tax and other subjects that are important in considering investment and doing business are available in The Belt and Road Initiative: Country Business Guides.
Related information: Vietnam infographics
 ASEAN consists of 10 members: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.
 Theses 12 countries include: Australia, Brunei Darussalam, Chile, Japan, Malaysia, Peru, Singapore, the US, Vietnam, Mexico, Canada and New Zealand.