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Country Report

Vietnam

Generated on January 26th 2021

Economist Intelligence Unit
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Vietnam 1

Vietnam
Summary
2 Briefing sheet

Outlook for 2021-25

4 Political stability
4 Election watch
5 International relations
6 Policy trends
7 Fiscal policy
7 Monetary policy
7 International assumptions
8 Economic growth
8 Inflation
9 Exchange rates
9 External sector
9 Forecast summary

Data and charts

10 Annual data and forecast
11 Quarterly data
12 Monthly data
13 Annual trends charts
14 Monthly trends charts
15 Comparative economic indicators

Summary
15 Basic data
17 Political structure

Recent analysis
Politics
20 Forecast updates
22 Analysis

Economy
30 Forecast updates
30 Analysis

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 2

Briefing sheet
Editor: John Marrett
Forecast Closing Date: December 1, 2020

Political and economic outlook

The Economist Intelligence Unit expects Vietnam to remain a tightly controlled one-party state
in the 2021-25 forecast period. The ruling Communist Party of Vietnam (CPV) will transition
smoothly to a new leadership after the 13th National Congress in early 2021.
Vietnam will maintain its omnidirectional foreign policy, deepening ties with the US, as well as
with regional powers such as Japan and India. Political relations with China will fail to develop,
owing to simmering territorial disputes.
After tackling the economic impact of the coronavirus (Covid-19) pandemic, the govern-ment
will resume its focus on economic liberalisation. This will include incenti-vising foreign direct
investment (FDI) and restructuring state-owned enterprises (SOEs).
The State Bank of Vietnam (SBV, the central bank) will maintain an accommodative monetary
policy stance until at least late 2021, after cutting policy rates and easing macroprudential
measures in early 2020, in response to the coronavirus pandemic.
Economic growth will recover gradually in 2021-22, in line with a slow recovery in external
demand and subdued investment among private domestic firms, many of which will prioritise
deleveraging.
Vietnam will continue to record trade and current-account surpluses in 2021-25, despite the
pandemic, trade-related pressure from the US, and a persistent primary-income deficit. It will be
one of the main Asian beneficiaries of rising production costs in China.
Key indicators
2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth (%) 3.1 5.5 6.7 7.2 6.9 7.0
Consumer price inflation (av; %) 3.2 2.1 3.7 3.4 3.3 2.9
Government balance (% of GDP) -7.0 -4.6 -3.5 -3.2 -3.2 -3.0
Current-account balance (% of GDP) 5.5 2.0 0.2 1.3 1.7 2.5
Money market rate (av; %) 2.5 3.0 3.8 4.2 4.9 4.9
Unemployment rate (%) 4.9 4.1 3.4 3.2 3.2 3.0
Exchange rate D:US$ (av) 23,227 23,134 23,008 22,810 22,674 22,683
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 3

Key changes since November 6th

A rapid fall in nominal average wages in the second quarter of 2020 has led us to revise down
our estimate for growth in annual wages in 2020, from 2.8% to 0.6%. We have also revised
down our forecast f0r 2021, from 3.6% to 3%.
Largely on the basis of our new outlook for wages, we now expect private consumption to grow
by 4.6% in 2021, compared with 4.8% previously.

The month ahead

December 30th—Trade data (December): A recent surge in demand from China and the US is
likely to ease slightly as the seasonal holiday period in the West comes to an end.

Major risks to our forecast

Scenarios, Q4 2020 Probability Impact Intensity
Foreign firms face extensive legal action from regulators in relation to the
High High 16
cyber-security law
The government drastically increases rules-of-origin enforcement actions High High 16
Protests erupt in response to encroachment by China on Vietnam’s
Very High Moderate 15
maritime territorial claims
Plans to expand the capacity of ports and airports suffer multi-year delays High Moderate 12
Inflation surges Moderate High 12
Note: Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 4

Outlook for 2021-25

Political stability
The Economist Intelligence Unit expects Vietnam to remain a one-party state, tightly controlled by
the ruling Communist Party of Vietnam (CPV), throughout the 2021-25 forecast period. There will
be few sources of political instability in the public sphere. This is largely because of an increasing
range of restrictions on freedom of speech, as well as proactive enforcement of measures against
political dissent. Moreover, Vietnam's effective handling of the coronavirus (Covid-19) pandemic
has bolstered the legitimacy of the CPV and its preference for centralised administration.
Factional tensions ahead of the 13th National Congress in early 2021, at which the successor to
the CPV general secretary and state president, Nguyen Phu Trong, will be appointed, will play out
largely behind closed doors. These will not destabilise Vietnam's system of government. We
believe that the prime minister, Nguyen Xuan Phuc, will be chosen to replace Mr Trong as CPV
general secretary, with the role of president going elsewhere. Mr Phuc will maintain Mr Trong's
centrepiece anti-corruption drive. The CPV will continue to view widespread graft as a credible
threat to the party's legitimacy and will also be eager to distract the public from territorial disputes
with China in the South China Sea. Prosecuting cases of grand corruption, rather than
implementing political and institutional reform, will remain the primary focus. Anti-corruption
efforts will pose an inherent risk to government stability in the forecast period, particularly if
officials with links to the upper echelons of the CPV continue to be implicated.
The authorities will remain sensitive to public opinion on matters relating to the preservation of
domestic ownership and national sovereignty. The govern-ment will face continued public
pressure over disputes in the South China Sea, including occasional small protests. Many
Vietnamese are critical of the CPV's reluctance to respond more forcefully to perceived Chinese
provocation. Similarly, there will be public outcry from time to time over major investments by
Chinese firms in the country, owing to perceptions of China's creeping influence over the
economy; long-term land-licensing arrangements have been flashpoints in the past, for instance.
Other social tensions will come to the fore as more Vietnamese (in addition to international trading
partners) call on the state to adhere to international norms of civil and labour rights, as well as to
improve environmental protection for local communities. The government will occasionally be
willing to adjust policy to placate protesters, but high-profile critics of the CPV will continue to
find it difficult to express their opinions freely. Penalties against those who speak out against the
regime have been raised in recent years. Another factor is foreign governments' relative lack of
interest in human-rights violations in Vietnam. The authorities will continue to clamp down on
high-profile dissident activity and to restrict avenues for the expression of discontent, including
on the internet. Foreign-headquartered social-media firms are, at present, at least partially
compliant with censorship requests made under local cyber-security legislation. We believe that
the authorities would readily bar public access to specific platforms if these firms repeatedly
refused to comply with government demands during the forecast period.

Election watch
Appointments to leading political posts will continue to take place behind closed doors at party
congresses, which are held every five years. The next will take place in early 2021 (probably in late
January), and we believe that Mr Phuc will replace Mr Trong as CPV general secretary—the
highest position in the party. The next election for the Quoc Hoi (National Assembly) is
scheduled for May 23rd 2021. However, this is not a meaningful ballot, as candidates are vetted
by the Vietnam Fatherland Front, a CPV-controlled body.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 5

International relations
Vietnam's relations with China will remain prone to setbacks resulting from long-standing
territorial disputes in the South China Sea, which will not be resolved in 2021-25. Non-military
maritime confrontations will continue to strain ties, even as the two sides ostensibly show
commitment to resolving these disputes through dialogue. We do not expect tensions to escalate
into outright military conflict, in large part because of Vietnam's awareness that its naval and air
capabilities are dwarfed by those of China. Nevertheless, Vietnam will enhance its maritime
defence capabilities while bolstering its facilities in the South China Sea. It will be aided in these
efforts by the US, which will continue to encourage countries to challenge China's maritime claims.
Vietnam will remain cordial towards China at diplomatic level, however, owing to the countries'
extensive economic links.
With the aim of reducing its exposure to China, Vietnam will maintain an omnidirectional foreign
policy. The country will forge stronger economic and security ties with regional powers that have
their own territorial spats with China, such as India and Japan. Relations with some fellow
members of the Association of South-East Asian Nations (ASEAN), including the Philippines and
Indonesia, will be prone to minor setbacks, however, amid occasional disputes over incursions by
fishing vessels into disputed territories. Security ties with the US will deepen, reflecting the latter's
eagerness to counterbalance China's regional influence. However, Vietnam's growing trade
surplus with the US will be a source of tension in 2021. This will culminate in the US labelling
Vietnam a currency manipulator and imposing a narrow range of tariffs on Vietnamese goods in
that year (it has already imposed preliminary tariffs on Vietnam-manufactured vehicle tyres in
November, at least partly in response to alleged currency manipulation). This will slow the broader
develop-ment of relations with the US, but will not force a permanent reorientation of Vietnam's
diplomatic ties.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 6

Policy trends
In the near term, policy will focus on mitigating the economic impact of the coronavirus pandemic,
which has affected Vietnam since January 2020. The govern-ment successfully arrested major
local outbreaks in March-April and July-August. Further localised outbreaks are likely until the
latter part of 2021, but the authorities' evolving response between the two outbreaks suggests
that it will be able to contain future surges swiftly. In spite of the outbreaks' considerable impact
on both consumer and business expenditure, fiscal-stimulus measures will be relatively minor,
with the government instead focusing on expediting investment and land-licence approvals to
spur private economic activity. In the second quarter of 2020 the authorities mandated a set of
fiscal responses that included tax breaks and delayed tax-payment schedules; reduced land-lease
fees; and import-tax exemptions on certain hygiene goods. State-owned banks are offering
concessionary terms to existing business customers affected by the crisis. These include delaying
loan repayments, reducing interest rates and cutting service fees. Many of these special financial
measures will be phased out from early 2021, but some major ones—most likely loan rescheduling
and concessionary interest rates in severely affected sectors—will be extended until late in that
year.
In the medium term, the government will oversee a period of continued economic liberalisation.
This will be anchored by new international trade agree­ments—most importantly a free­trade
agreement (FTA) with the EU, which took effect in August 2020, and the multilateral
Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which began
to be phased in from end-2018. Trade tensions with the US will incline the government to liberalise
modestly its exchange-rate policy, allowing for stronger appreciation of the local currency, the
dong, against those of the country's major trading partners from late 2021.
Vietnam's economic liberalisation will also entail the continued "equitisation" (part-privatisation)
of state-owned enterprises (SOEs). The success of some initial public offerings (IPOs), in addition
to initiatives such as Decree 126 and the Committee for State Capital Management, underline the
government's greater resolve on this matter. Decree 126 has eased restrictions on strategic
investors who want to buy at least 10% of a firm.
The government will remove the 49% foreign-shareholding cap on public companies in selected
industries in 2021. However, restrictions will still apply to industries with national security
implications, such as petroleum extraction and air transport, and those seen as important to
indigenous industrial develop-ment, mostly in the energy, high-technology and shipbuilding
industries. The government had aimed to privatise 128 SOEs in 2017-20 (from a total of more than
500 in 2016), but deep-rooted structural issues mean that it has fallen far short of this ambitious
target: by August 2020 it had privatised only 37 SOEs.
Ridding the banking sector of bad debt will be reinstated as a priority following the pandemic. The
task will be expedited by Resolution 42, which came into effect in 2017, allowing banks to liquidate
pledged assets if the borrower is not co-operative. The legislation will help to improve commercial
banks’ finances and aid consolidation in the banking sector, as healthier balance sheets give
larger lenders the capacity to acquire smaller banks.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 7

Fiscal policy
We expect the fiscal deficit to narrow to the equivalent of 4.6% of GDP in 2021, from 7% in 2020.
However, this will still be wide compared with recent years—we estimate the deficit at 2.5% in
2019. Fiscal stimulus, as well as depressed consumer spending and lower corporate profits, will
continue to limit tax revenue next year.
Temporary tax cuts, suspended tax payments and cash transfers to vulnerable households will
make up the bulk of stimulus in 2021. Most of these policies will be extensions of those introduced
in 2020. Cash transfers to economically vulnerable households announced to date are worth
D36trn (US$1.6bn)—around 0.5% of GDP. A lesser­value extension of this policy is likely to be
introduced before the end of 2021. A one-to-two-year reduction in the value-added tax (VAT) rate,
by 1-2 percentage points from the current 10%, is a significant possibility, but remains outside of
our baseline forecast. The deficit will continue to narrow over 2022-25, to reach a low of 3% of
GDP by the final year of that period, with SOE privatisation and a rise in indirect tax revenue
(driven by robust consumption growth) making major contributions. The expansion of the export
sector will also help to boost the size of the formal (taxed) economy.

Monetary policy
Vietnam's main policy interest rates, the benchmark refinancing rate and the discount rate, will
stay at 4.5% and 3%, respectively, for most of 2021, after the State Bank of Vietnam (SBV, the
central bank) cut them in early 2020. The SBV has also lowered its interest-rate cap for local-
currency deposits with maturities of 1-6 months, from 5% to 4.75%, and reduced the lending-rate
cap for short-term loans by 30-50 basis points, with an additional 50-basis-point reduction for
priority sectors. These measures will also remain in place for most of next year. The state-owned
Vietnam Social Policy Bank (VSPB) is operating an interest-free loan scheme for firms affected by
the pandemic, for the purpose of making salary payments to furloughed workers. These measures
are underpinned by a higher permitted ratio of short-term wholesale funding to long-term loans,
which will be extended until the latter part of 2021. The SBV will raise interest rates by a small
increment in late 2021 and begin a tightening cycle in earnest from mid-2022, on account of
strengthening economic growth and quickening inflation. Another cycle of substantial policy
easing is unlikely in the remaining years of the forecast period. This follows from our assumption
that monetary policy tightening will be slow, with policy rates returning to their 2019 levels only
by 2024, amid relatively low inflation throughout the forecast period.

International assumptions
2020 2021 2022 2023 2024 2025
Economic growth (%)
US GDP -3.8 3.2 2.5 2.3 1.9 2.0
OECD GDP -5.8 3.7 2.8 2.1 1.9 1.9
World GDP -4.7 4.2 3.4 3.0 2.8 2.7
World trade -10.6 7.0 5.4 4.3 4.0 3.8
Inflation indicators (% unless otherwise indicated)
US CPI 0.7 1.7 1.9 2.2 1.9 1.8
OECD CPI 1.0 1.6 1.9 2.1 2.0 2.0
Manufactures (measured in US$) -2.0 3.9 3.1 4.0 2.4 2.5
Oil (Brent; US$/b) 41.7 45.0 53.0 57.5 55.0 50.0
Non-oil commodities (measured in US$) 1.2 7.9 3.0 -2.2 2.0 1.5
Financial variables
US$ 3-month commercial paper rate (av; %) 0.6 0.1 0.2 0.2 0.6 1.0
¥ 3­month money market rate (av; %) 0.1 0.1 0.1 0.1 0.1 0.1
¥:US$ (av) 106.69 104.12 103.02 103.45 104.73 105.58

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 8

Economic growth
Vietnam's economy will avoid recession during the coronavirus pandemic, but the pace of real
GDP growth will return to trend only gradually over 2021-23. This will be largely the result of a
slow recovery in external demand to pre-pandemic levels in major markets (including for tourism
services, which will lag behind the recovery in goods exports). It will also reflect elevated levels of
unemployment and under-employment, which will crimp household spending, while the winding-
down of private-sector concessionary financing initiatives in 2021 will subdue investment by
domestic firms. Although unemployment will fall to near pre-crisis levels by early 2022, a trend of
significantly lower investment in the domestic private sector will persist into the latter part of that
year. Nonetheless, overall gross fixed investment growth will be strong in 2021 on account of a
recovery in foreign direct investment (FDI), mainly into export-oriented manufacturing.
While weaker external demand will dictate slower headline growth in the early part of the forecast
period, Vietnam's exports of goods and services will never-theless perform better than those of its
regional peers in 2021 (relative to the pre-crisis period). This will be largely on account of Vietnam
gaining a greater share of international production in key industries, even as overall global
demand stagnates. Foreign-invested production of electronics, machinery and footwear will be
some of the main industries propelling this expansion. Rising labour costs in China will continue
to be a major underlying driver of this trend. It will also reflect the advantages of the recent
proliferation of trade agreements with major export markets. From a longer-term perspective, it is
notable that much of the increase in export-oriented manufacturing in 2021-25 will be highly
labour-intensive; the average share of fixed capital in production will increase only modestly, even
as the economy-wide level increases rapidly. This will serve to limit growth in exports' value added
and undermine the expansion of up- and downstream industrial linkages, even towards the end of
the forecast period.
Economic growth
% 2020a 2021b 2022b 2023b 2024b 2025b
GDP 3.1 5.5 6.7 7.2 6.9 7.0
Private consumption 2.5 4.6 6.9 6.7 7.1 6.8
Government consumption 7.4 6.5 6.3 6.1 6.2 6.4
Gross fixed investment 2.9 6.6 8.7 9.2 9.0 9.3
Exports of goods & services -1.5 5.7 9.8 10.8 10.5 11.0
Imports of goods & services 0.0 4.9 9.1 10.2 10.6 10.2
Domestic demand 3.3 5.0 7.4 7.3 7.5 7.4
Agriculture 1.8 3.4 2.7 2.6 1.5 2.2
Industry 4.0 7.3 7.4 8.0 7.3 7.5
Services 3.0 5.0 7.2 7.6 7.6 7.5
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Inflation
We forecast annual average consumer price inflation to decelerate from 3.2% in 2020 to 2.1% in
2021. Disinflationary pressure will come from falling pork prices following a recovery from the
African swine fever epidemic, which carries a high mortality rate for infected pigs and swept
across the country in 2019-20. The pace of inflation will peak in 2022, at 3.7%, as global oil prices
increase more rapidly and household spending growth accelerates. It will ebb slightly thereafter
amid a strengthening of the local currency and a gradual decline in oil prices, which will weigh
against the effects of persistently strong domestic demand.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 9

Exchange rates
The value of the dong will appreciate by 0.5-1% against the US dollar in real consumer price index
(CPI)-based annual average terms in 2021. This limited strengthening, amid a persistent current-
account surplus and softening inflation, will be the result of the Vietnamese authorities continuing
to hold stronger appreciation at bay to ensure export competitiveness. In combination with
Vietnam's growing trade surplus with the US, this will prompt the US government officially to label
the country a currency manipulator in 2021. Partly because of this, we expect Vietnam to allow a
stronger appreciation of the dong from the latter part of 2021 (in both nominal and real-effective
terms). This policy will extend throughout 2022-24. We forecast the local currency to gain 2-2.5%
in annual average real (CPI-based) terms against the US dollar over 2022-24. This will be
supported by the SBV's tightening of its monetary policy in 2022-23.

External sector
Vietnam will maintain a current-account surplus throughout 2021-25, on the basis of a large trade
surplus. The latter will vary, owing in large part to fluctuations in global oil prices. Meanwhile, the
services account will post a narrowing deficit as inbound tourism recovers and continues to
expand. The largest drag on the overall balance in 2021-25 will be the primary income account. The
will be driven by increased borrowing by Vietnamese firms on international markets and the
repatriation of profits by the growing number of foreign-owned enterprises operating in
the country.
On the capital-account side net inward direct investment will be strong throughout the period,
while net portfolio flows will be small in comparison. The latter will reflect significant restrictions
on capital flows that we expect Vietnam to ease only slightly in the forecast period, as it continues
to prioritise monetary policy autonomy and strong influence over its exchange rate.

Forecast summary
Forecast summary
(% unless otherwise indicated)
2020a 2021b 2022b 2023b 2024b 2025b
Real GDP growth 3.1 5.5 6.7 7.2 6.9 7.0
Industrial production growth 2.8 9.3 11.4 11.0 10.5 11.7
Gross agricultural production growth 1.8 3.4 2.7 2.6 1.5 2.2
Consumer price inflation (av) 3.2 2.1 3.7 3.4 3.3 2.9
Consumer price inflation (end-period) 0.3 5.0 1.7 4.5 3.1 2.8
Lending rate 7.1 6.8 7.0 7.3 7.4 7.4
Government balance (% of GDP) -7.0 -4.6 -3.5 -3.2 -3.2 -3.0
Exports of goods fob (US$ bn) 275.8 290.0 314.8 359.5 398.6 444.8
Imports of goods fob (US$ bn) 242.6 269.1 300.1 340.2 377.6 419.3
Current-account balance (US$ bn) 19.0 7.4 0.8 6.0 8.8 14.1
Current-account balance (% of GDP) 5.5 2.0 0.2 1.3 1.7 2.5
External debt (end-period; US$ bn) 110.1 127.7 139.1 151.2 162.3 172.9
Exchange rate D:US$ (av) 23,227 23,134 23,008 22,810 22,674 22,683
Exchange rate D:US$ (end-period) 23,180 23,071 22,909 22,742 22,679 22,688
Exchange rate D:¥100 (av) 21,770 22,219 22,333 22,049 21,651 21,486
Exchange rate D:¥100 (end­period) 22,213 22,294 22,320 21,836 21,578 21,424
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 10

Data and charts

Annual data and forecast
2016a 2017a 2018a 2019a 2020b 2021c 2022c
GDP
Nominal GDP (US$ bn) 252.3 277.2 302.8 326.8 346.0 373.0 408.2
Nominal GDP (D trn) 5,639 6,294 6,968 7,591 8,037 8,629 9,391
Real GDP growth (%) 6.7 6.9 7.1 7.0 3.1 5.5 6.7
Expenditure on GDP (% real change)
Private consumption 7.3 7.4 7.3 7.4 2.5 4.6 6.9
Government consumption 7.5 7.3 6.3 5.8 7.4 6.5 6.3
Gross fixed investment 9.9 10.2 8.6 8.3 2.9 6.6 8.7
Exports of goods & services 13.9 16.7 14.3 11.8 -1.5 5.7 9.8
Imports of goods & services 15.3 17.5 12.8 11.9 0.0 4.9 9.1
Origin of GDP (% real change)
Agriculture 1.4 2.9 3.8 2.0 1.8 3.4 2.7
Industry 7.6 8.0 8.9 8.9 4.0 7.3 7.4
Services 7.0 7.4 7.0 7.3 3.0 5.0 7.2
Population and income
Population (m) 93.6 94.6 95.5 96.5 97.3 98.2 99.0
GDP per head (US$ at PPP) 8,232 8,997 9,763 10,529 10,817 11,498 12,382
Recorded unemployment (av; %) 3.2 3.2 3.1 3.1b 4.9 4.1 3.4
Fiscal indicators (% of GDP)
General government balance -3.4 -2.8 -2.9 -2.5b -7.0 -4.6 -3.5
Net public debt 50.3 48.4 45.8b 43.9b 48.8 49.6 48.8
Prices and financial indicators
Exchange rate D:US$ (end-period) 22,740 22,690 23,180 23,170 23,180 23,071 22,909
Exchange rate D:€ (end­period) 23,970 27,212 26,541 26,029 27,353 26,301 26,689
Consumer prices (end-period; %) 4.7 2.6 3.0 5.2 0.3 5.0 1.7
Stock of money M1 (% change) 18.1 16.7 9.8 13.3 7.9 19.5 11.1
Stock of money M2 (% change) 17.9 14.3 12.7 13.6 12.5 18.9 19.1
Lending interest rate (av; %) 7.0 7.1 7.4 7.7 7.1 6.8 7.0
Current account (US$ m)
Trade balance 11,042 10,846 16,540 21,494 33,264 20,958 14,706
Goods: exports fob 176,581 215,119 243,697 264,189 275,824 290,041 314,812
Goods: imports fob -165,539 -204,273 -227,157 -242,695 -242,560 -269,084 -300,106
Services balance -4,258 -4,030 -3,679 -2,351 -9,431 -8,805 -7,441
Primary income balance -14,144 -16,993 -15,818 -15,283 -11,848 -11,622 -13,618
Secondary income balance 7,985 8,528 8,857 9,241 7,014 6,890 7,132
Current-account balance 625 -1,649 5,899 13,101 19,000 7,421 779
External debt (US$ m)
Debt stock 85,665 104,092 106,861 118,490b 110,105 127,707 139,149
Debt service paid 7,334 13,557 18,191 16,503b 17,215 16,062 17,849
Principal repayments 5,734 11,249 14,708 13,052b 14,856 14,078 15,777
Interest 1,600 2,309 3,483 3,451b2,359 1,984 2,072
International reserves (US$ m)
Total international reserves 36,906 49,497 55,868 78,810 92,239 117,535 134,431
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts.
Source: IMF, International Financial Statistics.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020
Vietnam 11

Quarterly data
2018 2019 2020
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr
2 Qtr 3 Qtr
Prices
Consumer prices (2014=100) 98.1 98.4 99.2 99.7 101.8 103.9 102.0 102.9
Consumer prices (% change, year on year) 3.4 2.6 2.7 2.2 3.7 5.6 2.8 3.2
Financial indicators
Exchange rate D:US$ (av) 23,307 23,192 23,299 23,214 23,191 23,247 23,326 23,170
Exchange rate D:US$ (end-period) 23,180 23,190 23,290 23,210 23,170 23,565 23,195 23,275
Deposit rate (av; %) 4.9 5.0 5.0 5.0 4.9 4.8 4.4 n/a
Lending rate (av; %) 7.3 8.0 7.4 7.6 7.8 7.9 7.3 n/a
Refinancing rate (end-period; %) 4.9 4.8 4.3 4.1 4.2 3.6 2.8 1.7
Treasury bill rate (av; %) 5.0 5.1 4.7 4.7 4.8 4.7 4.4 4.1
M1 (end-period; D trn) 2,142 2,152 2,178 2,214 2,427 2,428 2,434 n/a
M1 (% change, year on year) 9.8 4.3 6.1 10.9 13.3 12.9 11.8 n/a
M2 (end-period; D trn) 8,760 9,006 9,328 9,513 9,954 10,108 10,417 n/a
M2 (% change, year on year) 12.7 10.9 10.5 12.2 13.6 12.2 11.7 n/a
Foreign trade (US$ m)
Exports fob 64,100 58,819 63,744 72,087 69,618 63,307 59,334 79,738
Imports cif -63,815-57,404-63,441 -66,530 -66,019 -59,328 -57,411 -69,017
Trade balance 286 1,415 303 5,557 3,599 3,979 1,922 10,721
Foreign payments (US$ m)
Merchandise trade balance 2,947 3,811 2,851 8,175 6,657 6,180 n/a n/a
Services balance -884 -335 -953 -850 -213 -740 n/a n/a
Primary income balance -4,912 -3,820 -4,124 -3,591 -3,748 -3,271 n/a n/a
Net transfer payments 2,679 2,866 2,863 2,784 3,096 2,658 n/a n/a
Current-account balance -616 1,999 -36 5,919 5,219 4,153 n/a n/a
Reserves excl gold (end-period) 55,453 62,376 64,280 69,187 78,335 81,679 83,747 n/a
Source: IMF, International Financial Statistics.

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Vietnam 12

Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate D:US$ (av)
2018 22,701 22,705 22,762 22,776 22,773 22,840 23,093 23,280 23,299 23,335 23,313 23,273
2019 23,191 23,193 23,194 23,206 23,353 23,340 23,223 23,211 23,207 23,204 23,197 23,172
2020 23,163 23,230 23,349 23,446 23,326 23,207 23,172 23,165 23,172 23,170 23,158 n/a
Exchange rate D:US$ (end-period)
2018 22,700 22,745 22,775 22,755 22,795 22,945 23,265 23,285 23,320 23,335 23,310 23,180
2019 23,195 23,190 23,190 23,265 23,415 23,290 23,200 23,190 23,210 23,210 23,170 23,170
2020 23,220 23,225 23,565 23,405 23,265 23,195 23,165 23,165 23,275 23,165 23,125 n/a
Money supply M1 (% change, year on year)
2018 13.0 22.3 23.5 22.9 22.2 20.7 15.3 13.6 13.1 12.9 10.1 9.8
2019 17.1 5.2 4.3 3.7 5.0 6.1 8.6 10.1 10.9 10.1 10.9 13.3
2020 5.3 10.7 12.9 11.4 11.5 11.8 14.3 n/a n/a n/a n/a n/a
Money supply M2 (% change, year on year)
2018 13.1 15.4 15.4 16.9 17.4 16.1 14.7 14.0 13.1 14.0 12.8 12.7
2019 14.4 11.6 10.9 9.7 10.1 10.5 11.0 11.3 12.2 12.0 12.4 13.6
2020 12.1 12.4 12.2 11.6 11.4 11.7 12.0 n/a n/a n/a n/a n/a
Deposit rate (av; %)
2018 4.8 4.8 4.8 4.8 4.7 4.6 4.6 4.6 4.7 4.9 4.9 5.0
2019 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 5.0 4.9 4.8
2020 4.8 4.8 4.7 4.7 4.3 4.2 4.0 n/a n/a n/a n/a n/a
Lending rate (av; %)
2018 7.4 7.4 7.2 7.4 7.4 7.4 7.6 7.6 7.2 7.1 7.3 7.5
2019 8.1 7.9 7.9 7.7 7.3 7.3 7.3 7.8 7.8 7.8 7.8 7.8
2020 8.0 7.9 8.0 7.4 7.2 7.2 7.8 n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2018 2.6 3.2 2.7 2.7 3.9 4.7 4.5 4.0 4.0 3.9 3.4 3.0
2019 2.6 2.6 2.7 2.9 2.9 2.2 2.4 2.3 2.0 2.2 3.5 5.2
2020 6.4 5.4 4.9 2.9 2.4 3.2 3.4 3.2 3.0 2.5 1.5 n/a
Goods exports fob (US$ m)
2018 20,276 14,376 21,256 18,507 20,004 19,902 20,683 23,444 21,103 22,531 21,778 19,791
2019 22,184 13,879 22,757 20,419 21,889 21,437 22,930 25,856 23,301 24,292 22,798 22,528
2020 18,323 20,854 24,130 17,583 19,186 22,565 24,873 27,703 27,163 27,259 24,800 n/a
Goods imports cif (US$ m)
2018 20,177 14,039 19,014 17,510 21,044 19,278 21,330 21,204 19,458 21,745 21,527 20,544
2019 21,563 14,694 21,147 20,901 23,077 19,463 22,668 22,363 21,500 22,263 21,344 22,412
2020 18,600 18,579 22,149 18,523 18,176 20,713 22,097 22,717 24,204 24,320 24,200 n/a
Trade balance fob-cif (US$ m)
2018 98 337 2,242 997 -1,040 624 -647 2,239 1,645 786 252 -752
2019 620 -815 1,610 -482 -1,189 1,974 262 3,493 1,802 2,029 1,454 116
2020 -276 2,275 1,980 -940 1,010 1,852 2,776 4,986 2,959 2,940 600 n/a
Foreign-exchange reserves excl gold (US$ m)
2018 53,101 55,935 56,265 56,271 56,707 57,762 57,822 57,286 57,006 55,138 55,060 55,453
2019 59,375 60,683 62,376 64,261 63,556 64,280 64,745 66,727 69,187 70,511 73,828 78,335
2020 81,525 81,120 81,679 81,791 83,222 83,747 84,509 n/a n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; Haver Analytics.

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Vietnam 13

Annual trends charts

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Vietnam 14

Monthly trends charts

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Vietnam 15

Comparative economic indicators

Basic data
Land area
331,051 sq km

Population
96.5m (2019; UN estimate)

Main towns
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Vietnam 16

Population (of province) in ’000 (2017; General Statistics Office)

Ho Chi Minh City: 8,445
Hanoi (capital): 7,420
Thanh Hoa: 3,544

Climate
Tropical monsoon; north cool and damp in winter (November-April), hot and rainy in summer;
south more equable; centre most subject to typhoons. The rains are highly unpredictable

Weather in Hanoi (altitude 216 metres)

Hottest month, June, 26­33°C; coldest month, January, 13­20°C; wettest month, August, 343 mm
average rainfall; driest month, January, 18 mm average rainfall

Weather in Ho Chi Minh City (altitude 9 metres)

Hottest month, April, 24­35°C; coldest month, January, 21­32°C; wettest month, September, 335
mm average rainfall; driest month, February, 3 mm average rainfall

Language
Vietnamese (spoken by about 90% of the population); English (increasingly favoured as a second
language); minority languages such as Hmong, Thai, Khmer in more remote rural areas

Weights and measures

Metric system. Local land measurement: 1 mau = 3,600 sq metres (north);
1 mau = 5,000 sq metres (centre)

Currency
Dong (D). Average exchange rate in 2019: D23,224:US$1

Time
7 hours ahead of GMT

Public holidays
January 1st (New Year's Day); January 23rd-29th (Tet, Lunar New Year); April 2nd (Gio To Hung
Vuong Day); April 30th (Liberation of Saigon Day); May 1st (Labour Day); September 2nd
(National Day)

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Vietnam 17

Political structure
Official name
Socialist Republic of Vietnam

Form of state
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Vietnam 18
One-party rule

The executive
The cabinet is constitutionally responsible to the Quoc Hoi (National Assembly), which is elected
for a five-year term

Head of state
The president, Nguyen Phu Trong

National legislature
The 500-member unicameral National Assembly meets biannually and typically serves a five-year
term. Its chairwoman is Nguyen Thi Kim Ngan. The assembly formally appoints the president, the
prime minister and the cabinet

Local government
Centrally controlled provinces and municipalities are divided into towns, districts and villages,
which have a degree of democratic accountability via elected people's councils

Legal system
The regional people's courts and military courts operate as courts of first and second instance,
with a Supreme Court at the apex of the system

National elections
An election for the National Assembly took place in May 2016: 496 candidates secured enough
valid votes to be lawmakers, including 475 directly affiliated with the ruling Communist Party of
Vietnam (CPV). The next poll is expected to be held in May 23rd 2021

National government
The CPV, and in particular its politburo, controls the electoral process and the executive

Main political organisations

The CPV (general secretary: Nguyen Phu Trong); the Vietnam Fatherland Front

Members of the cabinet

Prime minister: Nguyen Xuan Phuc
Deputy prime ministers:
Vuong Dinh Hue
Truong Hoa Binh
Trinh Dinh Dung
Vu Duc Dam
Pham Binh Minh

Key ministers
Agriculture & rural development: Nguyen Xuan Cuong
Construction: Pham Hong Ha
Culture, sports & tourism: Nguyen Ngoc Thien
Education & training: Phung Xuan Nha
Finance: Dinh Tien Dung
Foreign affairs: Pham Binh Minh

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Vietnam 19
Health: Nguyen Thi Kim Tien
Home affairs: Le Vinh Tan
Industry & trade: Tran Tuan Anh
Information & communications: Nguyen Manh Hung
Justice: Le Thanh Long
Labour, war invalids & social affairs: Dao Ngoc Dung
National defence: Ngo Xuan Lich
Natural resources & environment: Tran Hong Ha
Planning & investment: Nguyen Chi Dung
Public security: To Lam
Transport: Nguyen Van The

Central bank governor

Le Minh Hung

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Vietnam 20

Recent analysis
Generated on January 26th 2021

The following articles were published on our website in the period between our previous forecast and this one,
and serve here as a review of the developments that shaped our outlook.

Politics
Forecast updates
Change and continuity in Biden's Asia policy
November 9, 2020: International relations

Event
Following the US presidential election on November 3rd, Joe Biden has been widely accepted as
US president-elect, defeating the incumbent, Donald Trump.

Analysis
Mr Biden and the vice-president-elect, Kamala Harris, have already received congratulations from
several leaders in Asia, including those in India, Indonesia, Japan, South Korea and Taiwan
(China is a notable abstainer). While Mr Trump continues to dispute the election outcome,
attention will shift to the policies that Mr Biden's administration will take towards Asia and his
appointees for key cabinet portfolios.
A foreign-policy focus for Mr Biden will be repairing the strained transatlantic relationship.
However, he also appears to recognise the centrality of the Asia-Pacific region to US security and
prosperity. The incoming president has extensive experience in the region and, as vice-president
in 2009-17, played a role in developing the US "pivot to Asia". We expect his administration to
remove the uncertainty cast by the outgoing administration over US military alliances with Japan
and South Korea and to lend more support to regional multilateral forums. The Quad alliance will
develop as Mr Biden seeks to build a coalition of "like-minded" countries to compete with
Chinese influence.
Mr Biden's approach to China will not be as antagonistic as that under Mr Trump. Tariffs are
unlikely to feature in his trade policy. However, with a bipartisan consensus having formed
around the view of China as a strategic competitor to the US, policy will otherwise remain
unchanged. US-China competition will persist in areas such as technology, finance and defence,
while issues such as human-rights abuses in Xinjiang could generate sharper confrontations
under Mr Biden. Among the foreign-policy challenges Mr Biden will face over his presidency, the
Taiwan issue will also loom large.
We doubt Mr Biden will choose to expend domestic political capital by joining the Comprehensive
and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and this will act as a constraint
on the ability of the US to project power in the region. Instead, his administration may look to
other policy issues, such as climate change and health security, as avenues through which to
foster regional co-operation.

Impact on the forecast

In the near term, risks associated with US-China ties and regional hotspot issues (such as North
Korea) will heighten as Mr Trump's tenure ends and the transition begins. Once Mr Biden is in
office, we expect a renewed multilateral approach to the region and a de-intensification of bilateral
trade-policy pressures.

RCEP signing harmonises Asia's trade deals

November 16, 2020: International relations

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Vietnam 21

Event
On November 15th representatives of 15 countries signed the Regional Comprehensive Economic
Partnership (RCEP), a mega trade agreement in Asia-Pacific.

Analysis
The deal, signed virtually on the side-lines of the 37th Association of South-East Asian Nations
(ASEAN) Summit in Vietnam, represented the conclusion of a near-decade-long negotiating effort.
The agreement had originally been finalised in November 2019, but was subsequently frustrated
by the last-minute withdrawal of India.

The pact affirms a regional commitment to a limited form of trade liberalisation in an era of growing
protectionism, particularly amid the disruptions induced by the coronavirus (Covid-19) pandemic.
Overall, however, The Economist Intelligence Unit expects the concrete economic benefits of
RCEP to be modest. This will be owing to the existing degree of trade liberalisation within ASEAN
and under the ASEAN free-trade agreements (FTA) signed with Australia-New Zealand, China,
India, Japan and South Korea. It will also reflect the flexibility in phasing in trade concessions
under the RCEP framework. Implementation of certain articles, for instance, will be staggered by
country; Cambodia, Vietnam and Laos will have a five-year grace period to phase in certain
obligations tied to crossborder digital trade. Goods tariff-reduction commitments also differ by
market, with some countries—including Australia, Brunei, Malaysia, Singapore and Thailand—
offering a standard schedule for all signatories, while others—including China, Indonesia and
Vietnam—will outline tailored schedules either for ASEAN or specific markets.
The tangible benefits of RCEP will be more pronounced in North-east Asia, amid longstanding
efforts at a trilateral FTA between China, South Korea and Japan. Efforts around customs
harmonisation and investment facilitation could, however, also drive more capital flows in
developing ASEAN markets, particularly as supply-chain diversification remains a regional theme.
Six ASEAN signatories and three non-ASEAN signatories will need to ratify RCEP for it to
become effective, which will happen 60 days after all parties have notified the ASEAN secretary-
general. This could prove difficult in the coming months should the agreement be overshadowed
by larger regional disputes, such as the Australia-China and South Korea-Japan trade conflicts.
Enduring pro-trade attitudes among most Asian governments, however, mean that we expect the
pact to enter into force in 2021.

Impact on the forecast

The signing of the RCEP was anticipated and the modest positive lift to external trade we expect
from it has been factored into our medium-term regional trade forecasts. The provisions on
investment will, however, cause us to reassess this impact on a country-by-country basis,
particularly in relation to supply-chain shifts.

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Analysis
RCEP set to strengthen Asian supply chains
November 17, 2020: International relations
On November 15th China, the ten members of the Association of South-East Asian Nations
(ASEAN), Japan, South Korea, New Zealand and Australia signed the long-awaited Regional
Comprehensive Economic Partnership (RCEP), a multilateral free-trade agreement (FTA).
RCEP will help to integrate regional supply chains more effectively and reduce risks
associated with the US-China trade war. However, it will provide a modest demand boost for
trade, given that most goods tariff reductions have already been provided for under existing
trade agreements, while planned liberalisation of services trade is limited.
The Economist Intelligence Unit believes that RCEP will have come into effect by the end of
2021, although ratification challenges will probably linger in some countries.
On its conception in 2012, RCEP seemed tokenistic. The US was pushing its allies in Asia to sign
up to its futuristic Trans-Pacific Partnership (TPP; subsequently rebranded as the Comprehensive
and Progressive Trans-Pacific Partnership, or CPTPP), which covered new ground in services
trade, intellectual property and environmental protection, as well as limited state aid for industries.
It was a bold offer to China: come and play by our rules, or risk being frozen out. By contrast,
RCEP, which has been led by ASEAN but backed enthusiastically by China, is a shallower
agreement proposed to an overlapping group of countries.

Galvanise and harmonise

RCEP is the first FTA to include two of the world's three largest economies. It is also the first time
that China, Japan and South Korea have signed the same trade deal. However, it is not strictly
comparable to the CPTPP, as it is not primarily a tariff-focused trade deal. Many goods categories
already qualify for duty-free status through existing FTAs via the ASEAN Economic Community
and bilateral deals between ASEAN and other participant countries. The tariff reductions between
China, Japan and South Korea are more significant, although these schedules will be introduced
gradually and will extend into the late 2020s.
The limited movement on tariffs means that RCEP will provide only a modest boost for demand in
Asia, with the cost of goods unlikely to shift substantially. It seems unlikely to erode the goods
surpluses traditionally maintained by most RCEP signatories and, by driving improvements in the
regional supply chain, could actually help to embed them further. Meanwhile, trade flows with
Europe or North America—the major drivers of regional export demand—are not affected by the
deal. As a result, we do not expect the agreement to increase regional trade flows substantially in
the coming five years.
RCEP focuses more on the supply side, by tidying up the patchwork of pre-existing FTAs.

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Vietnam 23
It harmonises rules-of-origin provisions and establishes a single set of regional content rules,
effectively creating a single market for intermediate goods that will promote the creation of supply
chains across the region. This could help firms looking to dodge US tariffs on Chinese goods to
keep more of their production in Asia. An integrated regional customs regime could also help to
drive foreign investment into smaller ASEAN markets, such as Myanmar, Laos and Cambodia.
This will be positive for firms that are seeking to take advantage of such low-cost environments
but have hesitated to invest because of regulatory uncertainty.
The deal also has its flaws, particularly because the diversity of RCEP's membership has forced
compromise in certain areas. Laos and Cambodia, for example, have up to five years to bring their
customs arrangements up to standard. The tariff reductions have a very long timeframe, of up to
20 years in some cases, while the dispute-settlement mechanism risks being drawn out and easily
frustrated by dissenting parties. For example, it is difficult to envisage the mechanism being an
effective means of resolving the sort of trade frictions currently in evidence between Australia
and China.
The biggest concern is the non-binding nature of much of the agreement, especially in key areas
such as information sharing, standards adoption and conformity assessment. This presents the
risk that compliance with RCEP could be uneven and difficult to enforce. Commendable aspects of
the CPTPP, such as intellectual property, labour and environmental protection, were never within
the scope of RCEP. Services trade, which represents a growing share of regional trade, is largely
untouched, while agriculture remains heavily protected, reflecting the broad powers of negotiators
to maintain tariffs on "sensitive" sectors.

The missing member

India was part of the negotiations until 2019, when the government decided that it dare not risk its
domestic industries being overwhelmed by imports of Chinese goods. It was also disappointed by
the lack of progress on services trade—an export strength for the country. The inclusion of India
would have been a huge feather in RCEP's cap, given not just the size of its economy, but also the
fact that it has largely held out against trade liberalisation. However, the deterioration in China-
India relations since mid-2020 suggests that a change of heart is very unlikely. Nevertheless,
the agreement allows new members to join in the first 18 months after RCEP comes into force;
as one of the original negotiating partners, India can exercise this right at any time.
It is hard to avoid the conclusion that the signing of RCEP benefits everyone apart from the US.
ASEAN members can boast that their softly-softly, consensus-driven approach eventually bears
fruit, while Japan has new access to Chinese consumers. China will argue that it is now at the
forefront of trade liberalisation, particularly following the protectionist shift in US trade policy.
RCEP will further weaken US economic influence in the region, particularly because we do not
expect the US president-elect, Joe Biden, to see joining CPTPP as a priority for his administration.

The next steps towards ratification

Six ASEAN signatories and three non-ASEAN signatories will need to ratify RCEP for it to
become effective, which will happen 60 days after all parties have notified the ASEAN secretary-
general. Ratification will not be without political complications: Australia's strained relations with
China mean that the process is likely to take longer there than elsewhere, for instance, particularly
in consideration of the ruling coalition's razor thin majority in the parliament's lower house.
Malaysia has still not ratified CPTPP, and the government's parliamentary standing is fragile,
suggesting difficulty in pushing RCEP through.

The likelihood of RCEP ratification in 2020-21

Country Outlook
Non-ASEAN
Australia Unlikely
China Very likely
Japan Likely
South Korea Very likely
New Zealand Likely
ASEAN

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Vietnam 24
Brunei Likely
Cambodia Likely
Indonesia Likely
Laos Likely
Myanmar Likely
Malaysia Unlikely
Philippines Likely
Singapore Very likely
Thailand Likely
Vietnam Very likely
Nevertheless, we are more optimistic about other governments. China, Japan and South Korea are
strong backers of RCEP, while the lack of a major regional economic or diplomatic dispute
involving New Zealand would suggest few qualms in its parliament. Within ASEAN, we see the
pro-trade stance of Singapore and Vietnam as likely to guarantee rapid ratification in those
countries. Other countries are less certain, but still positive: Cambodia, Laos, Myanmar and the
Philippines are keen on export diversification, particularly into North-east Asia, and will see
themselves as benefiting from supply-chain shifts facilitated by the agreement. Brunei, as a
monarchy, does not face the constraints of a national parliament. Although Indonesia struggles
with protectionist instincts, particularly in regards to non-tariff barriers, its government is a vocal
backer of RCEP, suggesting a strong willingness to ensure ratification next year. Ongoing protests
in Thailand will dominate the domestic agenda in the near-term, but the pro-trade stance of its
government should keep RCEP as a policy priority next year.
Our baseline view is therefore that sufficient ratification, both within and outside ASEAN, will
have been secured by the third quarter of 2021, suggesting that RCEP will probably become
effective by the end of that year. With it in place, the future of regional trade dynamics will remain
driven increasingly by Asia itself.

Pandemic dominates ASEAN summit

November 18, 2020: International relations
The summit of the Association of South-East Asian Nations (ASEAN) shifted focus this year to
the coronavirus (Covid-19) pandemic and its immediate economic fallout, as well as preparing for
future international public-health emergencies. However, binding commitments were lacking,
while economic integration and geopolitical issues, including the South China Sea, remain
unresolved. While the willingness to engage in dialogue is still strong, the outcomes of the
meetings continue to be minor in their impact.
The signing of the Regional Comprehensive Economic Partnership (RCEP) dominated news from
the biannual summit of ASEAN on November 12th-15th, in spite of the fact that the pact was not a
product of the annual meetings (the agreement was simply signed on the sidelines of the summit).
While RCEP served to distract attention from activity at the actual meetings, there were few
tangible outcomes, although there was a notable shift away from the issues that are usually
addressed.

Pandemic takes precedence

The agreements made during the summit focused on tackling the pandemic and its economic
fallout, while the goal of furthering economic integration within ASEAN was sidelined. The
existing Covid-19 ASEAN Response Fund set up in April was ratified, as well as an agreement on
the ASEAN Regional Reserve of Medical Supplies, which can be drawn upon during future health
emergencies. Also signed was the ASEAN Strategic Framework for Public Health Emergencies,
which provides for notification to bloc members of any serious outbreaks of disease and the
framework for joint investigations. Crucially, however, legally binding mechanisms for all these
agreements were lacking, meaning implementation of these mechanisms is likely to be sidelined
amid a deluge of national issues in the immediate term.
A declaration on an ASEAN Travel Corridor Arrangement Framework was signed that should see
corridors for essential business travel established between all South-east Asian countries

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Vietnam 25
eventually being expanded to other forms of travel. This will likely turn out to be the most
effective agreement in the near term, given strong domestic economic incentives among member
states to restart international travel.
More forward-looking in nature, the ASEAN Comprehensive Recovery Framework and related
Implementation Plan contained a list of steps that member states should adopt. However, the
general wording of the plan, including items such as improving healthcare, ensuring social welfare
for the vulnerable and keeping markets open for trade, highlights the lack of quantifiable
outcomes, let alone legally binding commitments. In any case, assuming the coronavirus outbreak
will be successfully tackled globally over the coming year, in alignment with The Economist
Intelligence Unit's forecast, these are, for the most part, backward-looking mechanisms that will
help in future pandemics, but are not relevant to the development of the region in normal times.

International disputes shelved

Another permanent function of the ASEAN summits is to mitigate or help to resolve multilateral
disputes. Similar to economic integration initiatives, efforts in this area were put on the back
burner at the latest summit. The South China Sea issue is undoubtedly the most significant
dispute of this kind and the summit did not pass without discussion of the issues, but no
progress was made. Li Keqiang, the premier of China (China joined the summit as an official
"dialogue partner", along with Japan and South Korea) called for a rapid conclusion to
negotiations on a code of conduct in the South China Sea, but did not repeat his suggestion of a
deadline of 2021 for this, first posited at the 2018 summit. Partly on this basis, we do not expect the
code of conduct to be finalised in 2021.
In sum, the energy devoted to ASEAN summits and meetings appears disproportionate to the
results achieved. The most important lasting effect may simply be to emphasise that the region
remains committed to a multilateral approach, support for which has faltered in some Western
countries in recent years. More successful handling of the coronavirus pandemic within Asia than
in most Western countries puts the region at an advantage in some respects, as the global
economy moves towards a recovery phase. However, the results of the summit further confirm
that, without a stronger framework for regional integration, ASEAN will struggle to turn words
into actions.

Anticipating Vietnam's leadership renewal

November 24, 2020: Election watch
The Communist Party of Vietnam (CPV) will hold its leadership transition, the National
Congress, in January 2021.
Regardless of the choice of personnel, a focus on anti-corruption will be carried over to the
government's new policy agenda and outlast the near-term priority of economic recovery from
the coronavirus (Covid-19) pandemic.
The CPV dominates all of the country's institutions, including the government, the army and the
bureaucracy. Its highest body is the Politburo, comprising 15-20 members, formally elected by the
Central Committee (comprising 180 permanent and 20 alternate members) during the CPV Congress
held every five years. The last Congress was held in January 2016 and the next is due to take place
in January 2021.
However, the choice of personnel for the highest positions (and the decision as to who will be
retired) is normally decided ahead of this summit, at the CPV's plenum meetings, when the Central
Committee comes together to prepare officially for the Congress. Choices for the top positions in
government are rubber-stamped a few months subsequently by the five-year-term National
Assembly, which will be elected in May 2021.

Still up in the air

The most recent plenum adjourned in early October with few details of what was discussed shared
publicly, as per normal practice. The end­of­meeting communiqué revealed only that the Central
Committee members discussed "personnel matters". However, it can be concluded that decisions
on the leadership positions are yet to be finalised, as official briefers announced that there will be
another plenum in late December, shortly before the Congress is expected to reconvene in the

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capital, Hanoi.
It is likely that Mr Trong has been unable to persuade his peers to endorse Tran Quoc Vuong,
currently head of the Central Committee's Inspectorate Commission (effectively Mr Trong's chief
lieutenant in a high-profile anti-corruption campaign), as his successor as general secretary of the
party. The anti-corruption campaign has received broad support from the general public and
bolstered the legitimacy of the ruling party. However, it has been unpopular with many members
of the Central Committee on account of the risks it poses to their positions and networks of
allegiances. This shortfall in party support for Mr Vuong means that the current prime minister,
Nguyen Xuan Phuc, is still in a strong position to contest the position of general secretary; he
already commands the support of most Central Committee members. This underlies our forecast
that Mr Phuc will secure the role.
Other outcomes are less predictable, but it is likely that the current chief justice, Truong Hoa Binh,
will be appointed as state president; Mr Trong's joint position as both general secretary and
president will not be replicated in the new administration. Hanoi party chief, Vuong Dinh Hue, will
succeed Mr Phuc as prime minister. Either Truong Thi Mai, now the head of the Party's Civil
Affairs Board, or two-term foreign minister, Pham Binh Minh, will be likely to take up the role of
chair of the National Assembly, rounding out the key politburo portfolios. The ranking of the
positions is determined by an undisclosed method but the position of general secretary is certain
to remain paramount, while the new president is likely to be ranked second or third in command.

No change in policy trajectory

In spite of our expectation that Mr Vuong will lose out on the top position to Mr Phuc, we do not
expect the new leadership in the Politburo to de-prioritise anti-corruption efforts that were brought
to the fore by the outgoing Mr Trong. The CPV not only views widespread graft as a threat to the
party's legitimacy, but is also eager to draw attention from intractable territorial disputes with
China in the South China Sea.
Under this assumption, Mr Phuc's appointment as general secretary might appear to be a
compromise, particularly given his strong links to the local business community. However, the
importance of engineering, as quickly as possible, an economic recovery from the current
pandemic-induced downturn will remain high in the near term. This should ensure that Mr Phuc is
seen as the rational choice for the role.

Belt and Road Quarterly: Q3 2020

November 25, 2020: International relations
The performance of merchandise trade between China and countries participating in the Belt
and Road Initiative (BRI) continues to be uneven. Investment activity remains strong, however,
amid Chinese efforts to enhance regional supply chains to reduce its trade vulnerabilities.
The Economist Intelligence Unit expects deep strains in US-China ties to persist under the
administration of US president-elect Joe Biden. Mr Biden's foreign policy will focus on
building a stronger multilateral coalition against China, which could complicate Chinese
bilateral engagement with BRI nations.
Debt default and credit restructuring remains an area of persistent concern. We expect these
topics to be the subject of tough negotiation in 2021 as economic strains spill into that year.
This could dampen China's lending activity to heavily indebted countries.
In our previous quarterly review of the BRI, we examined the impact of global recession on BRI
countries and their bilateral trade with China. Our assumption that the Association of South-East
Asian Nations (ASEAN) would emerge as the centre of economic gravity for the BRI has been
confirmed in third-quarter data. Nevertheless, the immediate outlook for the recovery in regional
trade and investment remains closely tied to the ability of individual countries to contain the
growing resurgence of coronavirus (Covid-19) cases.

The BRI trade picture

BRI merchandise trade picked up strongly in July-September, although these flows remain
lopsided. Chinese exports to BRI countries increased by 8.1% year on year, while imports from
BRI markets increased by 0.2% over the same period. Trade performance continues to vary

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between China's major trading partners: strength in Chinese outbound shipments was strongest
to Thailand, Malaysia and Singapore, reflecting both their own economic recovery from the
pandemic and the benefits of firming global demand for these entrepôt markets. By contrast,
Chinese exports to Indonesia and India fell substantially, reflecting the coronavirus-induced
demand shocks in those countries.

Headline import growth was constrained by lingering weakness in Chinese domestic demand.
However, some markets bucked the trend. Imports from Vietnam registered the strongest increase
among China's trading partners in the third quarter, reflecting strong activity in electronics
manufacturing. Despite bilateral tensions, imports from India increased by 50% year on year,
driven by surging demand for metals amid a recovery in Chinese construction. Imports from
Europe also improved, facilitated by China-Europe rail connections (which mitigated the impact of
disrupted air cargo links) and robust luxury consumption among high-end Chinese consumers.
Chinese import flows will gather momentum in 2021 as the economic recovery continues, including
via the maintenance of the country's infrastructure construction drive. Strength will also come
from China's efforts to improve its food security under its dual circulation goals. COFCO Group,
China's largest grain trader, signed agricultural purchase deals worth over US$10bn at China's
International Import Expo in early November, with the majority of these products slated to come
from BRI countries. Agricultural exporters in BRI markets could benefit from the Chinese
authorities' efforts to expand protein imports to curb domestic inflation, particularly as China's
pork supply will take several years to recover from its decimation by African swine fever (ASF).

What Mr Biden means for the BRI

New policy challenges will present a big risk to the BRI in 2021. Mr Biden has not yet formally laid
out his strategy on how the US will engage with the initiative, although he has criticised it in the
past, including on environmental grounds. Our expectation that US-China frictions will persist
(and, in some ways, intensify) under Mr Biden suggests that the BRI will remain a point of
contention in bilateral relations.
This will particularly be the case as Mr Biden aims to build a multilateral coalition against China,
which will set the stage for many BRI nations to emerge as battlegrounds for competing US and
Chinese influence; hints of this are already materialising in places including Cambodia. Most
worrying is the likelihood that the US will apply sanctions on Chinese companies involved in BRI
implementation, including large construction firms, against which the US has already begun to act.
This could disrupt the roll-out of major regional investment projects, particularly if the US moves
to prohibit US dollar-based financial transactions with targeted Chinese enterprises.
Frontier markets such as Congo-Brazzaville, Cambodia, Djibouti, Laos, Kyrgyzstan, Niger and
Zambia are likely to remain dependent on China. Issues linked to security, transparency, poor
business environments and—increasingly—human rights will continue to act as impediments to
the US government and companies making investments in those countries.

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A larger state-owned sector and a greater degree of government influence over private foreign
investment decisions in China, not least via state-directed finance initiatives, makes it difficult for
the US to compete with China's level of foreign direct investment and lending into riskier BRI
countries. Market incentives for private investment and lending into these countries remain scant
in many cases.
To help to surmount this obstacle, the US has set up a dedicated policy financing vehicle, the US
International Development Finance Corporation (IDFC), which will provide targeted subsidised
finance for development projects. However, its total lending capacity is only US$60bn—roughly
equivalent to China's financing pledges to the China-Pakistan Economic Corridor. The Biden
administration will therefore seek to employ alternative forms of influence, such as multilateral
institutions. The new president is likely, for example, to leverage US voting power at the World
Bank and the IMF to allocate additional resources to frontier markets in order to balance China's
influence.

Investment and project watch

Statistics from China's Ministry of Commerce indicate that overseas direct investment (ODI) to the
BRI rose by 51.2% year on year in the third quarter, accelerating from 28.9% growth in the second
quarter. Total (non-financial) ODI increased by 54.7% in July-September. Reflecting dynamics that
are also evident in the trade picture, ASEAN remains the destination of choice, with related
investment flows surging by 76.6% in January-September 2020.

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Beyond the relative stability enjoyed by many ASEAN economies, China's concerns over supply-
chain vulnerabilities have contributed to a greater push to diversify import sources. This has
driven Chinese attempts to expand control over strategic overseas resources and to curry political
favour with national governments, in order to preserve access to critical inputs. One example is
lithium, a necessary component in new-energy vehicle batteries; Chinese companies have recently
signed agreements to build two lithium mining projects in Indonesia and Mali.

Selected BRI projects in Q3 2020

Country Project name Investment value
Egypt 543-km coast-to-coast high-speed railway (bid won in September) US$9bn
Chile Acquisition of Compania General de Electricidad (agreed in November) US$3bn
Thailand Bangkok-Nakhon Ratchasima 253-km high-speed railway US$1.6bn
Philippines 8-km Makati City metro (signed in September) US$1.2bn
Brazil 12-km Bahia bridge (signed in September) US$1.2bn
Myanmar 28 solar power plants with capacity of 1 GW (bid won in September) US$1bn
Pakistan 700-MW solar power plant (signed in July) US$630m
Pakistan Main Line 1 railway modernisation project (approved in August) US$6.8bn
Malaysia 5G chip manufacturing and research facility (signed in August) US$360m
Indonesia Lithium battery manufacturing facility (signed in September) n/a
Mali Lithium mining project (signed in September) n/a
Zambia 200-MW solar power plant (bid won in July) n/a
Oman Bitumen refinery with capacity of 1m tonnes/year (signed in August) US$408m
Source: The Economist Intelligence Unit

However, the actual implementation of investment and construction remains challenging.

A survey conducted by China's Foreign Ministry showed that 60% of BRI projects have been
affected by the pandemic. Lockdowns, for instance, have interrupted construction work, such as
on a twice-delayed US$10bn airport project in the Philippine's Cavite province.
China is coming under pressure to discount project costs and to delay loan repayment schedules,
as part of global debt relief initiatives. Pakistan, for example, has reportedly requested an interest
rate of 1% on a proposed US$6.8bn loan for the extension of the Main Line 1 railway, the largest
BRI project in the China-Pakistan Economic Corridor. We expect China to be reluctant to concede
to the request, which may delay the construction start date beyond January 2021 (as originally
planned).
In certain cases, including Zambia and Laos, China will be willing to roll over debt in order to
cement its influence. However, this will not be the case across the board, and there is a risk that
reticence in Chinese lending will complicate regional recoveries (in Africa, emerging Asia and
other developing markets) if funding sources dry up for big-ticket projects that could otherwise be
used to sustain investment and employment.
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Economy
Forecast updates
New avenue for US tariffs emerges with Vietnam
November 9, 2020: External sector

Event
The US Department of Commerce (DOC) announced on November 4th that it would impose
preliminary countervailing duties (CVD) on passenger vehicle and light truck tires imported from
Vietnam, at rates between 6.2% and 10.1%.

Analysis
Countervailing duties are imposed regularly by the US (although less frequently than anti-
dumping duties) to adjust the import price of goods to include the estimated value of state
subsidies provided to producers. However, the decision to impose preliminary CVD in this case is
significant because the DOC cited currency manipulation as a reason, which has not previously
been considered a form of subsidy under US trade policy. The Economist Intelligence Unit has
nevertheless already made clear in its forecast that the US would begin to take this approach in
response to Vietnam's alleged holding down of the value of the dong against the US dollar.
The announcement by the DOC was made swiftly after the Office of the US Trade Representative
announced in early October that it would launch an investigation into Vietnam's alleged currency
manipulation. Nonetheless, a final decision on whether to set the tariffs is scheduled only for
March 16th 2021. In the meantime, importers will have to pay cash deposits for the preliminary
duties (to be refunded if the US eventually declines to impose the tariffs). We believe that the
tariffs will be imposed and, in any case, we expect further tariffs to be imposed on a narrow range
of goods in that year on the same grounds. We believe that these will not be sufficient to
significantly affect Vietnam's competitiveness as a regional manufacturing hub.
The rapid imposition of preliminary tariffs does, however, raise the risk of further tariffs being
imposed ahead of the conclusion of formal investigations. This would be more likely to occur
under the term of the outgoing US president, Donald Trump's, which ends in mid-January.

Impact on the forecast

The event is broadly in line with our forecast, but we will now additionally highlight the risk of
further tariffs being imposed on Vietnam in the remainder of 2020. Even so, we would not expect
duties to be broad in scope and this would not change our forecast for Vietnam to be pressured
into liberalising its exchange-rate regime slightly in 2021-23.

Analysis
Asia trade brief: November 2020
November 27, 2020: Highlights
Monthly export performance softened across a number of Asian markets in October, and
The Economist Intelligence Unit expects many of these headwinds to persist throughout the
remainder of 2020.
The signing of the Regional Comprehensive Economic Partnership (RCEP) will provide only a
mild demand-side boost for Asia. Although RCEP provides for some new tariff liberalisation
within North-East Asia, reductions will be spread over a number of years.
Tighter supply-chain integration under RCEP is more meaningful for the region. This should
position multinational companies advantageously to capitalise on the benefits of production
across different Asian markets as demand-side pressures persist throughout 2021-25.
In our previous monthly trade brief, we cautioned that regional trade performance would soften

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over the fourth quarter, owing to weaker growth in Chinese imports, which slowed to 4.7% year on
year in October. This reflected the curtailment of electronic component stockpiling, as well as
questions over domestic investment performance (and related demand for metals). This caused
growth in outbound shipments (in year-on-year, US dollar terms) to soften across several Asian
economies in October:
North-east Asia: South Korean exports declined by 3.8%, reflecting weak Chinese demand, but
also distortions caused by a reduced number of working days in October, due to a moveable
national holiday. By contrast, Japanese exports contracted less sharply (-0.2%), while Taiwanese
exports increased by 11.2% as exports to other markets offset weakness in Chinese demand.
South-east Asia: Vietnamese exports remained robust, rising by 12.2% despite slower growth in
shipments to China. Singaporean exports (-7.9%) fell back owing to weaker overseas demand for
electronics products, which will ring alarm bells for other Asian exporters. The contraction in
Indonesian exports deepened to 3.3% on the back of tepid external demand for commodities,
driven by weakness in external demand. Thailand also saw exports fall, by 6.7%, although that was
due largely to the strength of the local currency, the baht. At the opposite end of the spectrum,
exports from Malaysia rose by 14.6% in September.
South Asia: Exports from India fell by 5.1%, while Pakistani exports rose by 3.1% to reach their
highest level in eight months. Bangladeshi exports fell as well, by 4%, reflecting the fading impact
of backlogged orders cleared between July and September.
We expect economic activity in China to remain firm into early 2021, even as sequential momentum
slows. This should prevent overall regional demand dynamics from eroding too sharply, even if
slowing export momentum manifests across other Asian markets. Instead, as we have identified
previously, the biggest threat to regional exports derives from the resurgence of coronavirus
(Covid-19) cases in Europe and North America. As Western governments are keen to avoid the re-
imposition of nationwide lockdowns, we do not expect the severe trade shocks experienced in
early 2020 to recur in the immediate future.

Demand dynamics in North-east Asia

The signing of RCEP has been heralded as an important step forward in advancing trade
multilateralism, although we remain pessimistic about the deal's ability to lift Asian trade flows
substantially.
The exception to this, however, lies in North-east Asia; RCEP is the first trade agreement that
includes China, Japan and South Korea. Prior to the deal, all three countries generally operated
with each other under most-favoured nation tariffs. These tariffs are high, particularly for
agricultural products, where they range from 13.8% to 56.8%. As such, we expect RCEP to reduce
these tariffs and to improve the global trading environment.

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Under RCEP, product shipments between the three countries will be liberalised to a varying extent
over more than 30 years. Our evaluation of the goods tariff schedule finds that liberalisation
efforts carried out by all three countries in the first year will be—unsurprisingly—limited,
especially for agricultural goods.
Notwithstanding this, South Korea and China have committed to the largest liberalisations for
both agriculture and non-agriculture among the three countries. This is particularly significant for
South Korea, as it boasts high most-favoured nation tariffs for agriculture.

Agricultural tariffs completely liberalised under RCEP in the first year

(% of total tariff lines)
Liberalising Liberalised for Liberalised for Liberalised for South
economy China Japan Korea
China - 2.2% 2.2%
Japan 0.0% - 0.0%
South Korea 3.8% 1.9% -
Non-agricultural tariffs completely liberalised under RCEP in the first year
(% of total tariff lines)
Liberalising Liberalised for Liberalised for Liberalised for South
economy China Japan Korea
China - 14.4% 28.0%
Japan 0.0% - 0.0%
South Korea 30.5% 23.5% -
Further to this, the complete liberalisation of relevant tariff lines by the three countries under
RCEP will take more than five years to complete. This indicates that the benefits of tariff
liberalisation under the agreement might take more time to be felt by the signatories, particularly in
North-east Asia.

Tariff liberalised by RCEP after more than five years

(% of total tariff lines)
Liberalising economy Liberalised for Proportion of total tariff lines
China Japan 58%
China South Korea 47%
Japan China 30%
Japan South Korea 17%
South Korea China 36%
South Korea Japan 42%

Why companies should care

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International demand conditions will remain fragile throughout 2021-25, particularly as global GDP
remains below pre-crisis levels until 2022-23. For companies, this will become manifest in
numerous operational considerations, including:
discounting to capture or retain market share in price-sensitive markets;
shifting trends in the electronics industry as businesses and households acclimatise to remote
working arrangements, eroding some electronics demand;
navigating calls to reshore sensitive industries, particularly amid worsening geopolitical strains
between China and the West; and
bracing for punitive international trade actions as national stimulus plans generate concerns
over unfair subsidies and distorted competition.
RCEP does not represent an obvious solution to these problems, with near-term demand-side
dynamics more closely tied to economic performance in China, the US and the EU. However, these
trade frameworks could position multinational companies advantageously in the longer term.
The rules-of-origin and regional value content (RVC) requirements under RCEP, at 40%, are low
when benchmarked against other trade pacts, such as the 75% RVC threshold for automotive
content under the US-Mexico-Canada Agreement. Lower RVC requirements will preserve the
ability of local manufacturers to source global inputs in their production processes, including from
non-Asian markets. Harmonised customs procedures should help to expedite crossborder
assembly processes, while information-sharing pledges should grant more clarity on logistics
timelines.
All of these factors could help to reduce costs—a critical factor amid our expectation that GDP
levels across most developed markets, which are big drivers of Asian trade demand, will not
normalise until 2022-23. That outlook suggests that corporate margins will remain under some
strain for the foreseeable future.
However, there are downsides to these assumptions. RCEP is non-binding, including in regards to
many of its strongest elements; for example, it states that markets "should" or "are encouraged"
to work together on customs harmonisation. The pact does not outline consequences for non-
compliance, and the dispute-resolution system, while thorough, is relatively weak, leaving
questions over enforceability. Although some liberalisation has been carried out in North-east
Asia, it is likely only to show its full effects over time. As a result, although RCEP presents an
ambitious agenda for regional supply-chain integration, this will be much more difficult to achieve
in practice and will, in many cases, rely heavily on good-faith implementation by its signatories.
A more substantive agreement in the future may be required to supplement RCEP.

Country Report December 2020 [Link] © Economist Intelligence Unit Limited 2020