Trade
Is Vietnam swimming naked?
Author: David Dapice, Harvard Kennedy School
Vietnam’s economy has benefitted from a redirection of FDI from China due to a combination of rising wages in China, a shrinking domestic labour force and trade tensions. With US$1.5 billion entering Vietnam every month, employment is full, poverty is declining and growth sits at a brisk 7 per cent. This could spark further reform aimed at addressing the low value-add still in many exporting industries and a weak domestic private sector. But cross-currents make deep reforms more difficult, in spite of a reform-oriented prime minister.
One factor at play is the uncertain future of the strict anti-corruption campaign, given the health problems facing Communist Party Secretary and President Nguyen Phu Trong. He may not be able to prosecute corruption with the same energy and effectiveness as before. This would give space to those who prefer a more closed system in which privileged officials can convert power into substantial wealth.
Corruption is a chronic problem in any system but especially in one where the press and online discussion is heavily controlled and sanctioned. The recent Internet Law makes it more likely that only intra-party discipline will be used to control corrupt Party and government members, leaving the Party leadership itself with the discretion to decide internal discipline.
A second factor is the current political economy of taxes and transfers within Vietnam. Vietnam’s Central Committee is more like the US Senate — one state has two senators regardless of the size of its population. This makes redistribution from rich to poor provinces very popular — Ho Chi Minh City transfers 82 per cent of its tax collections to the central government. This is so that poor provinces will have more to spend, even though most of these provinces are exporting younger workers to thriving areas that need more infrastructure.
Binh Duong, a poor rural province not long ago, spent less per capita in 2016 than Thanh Hoa. Binh Duong’s population growth rate was eight times higher in the last decade. Binh Duong collected 21 million Vietnamese dong (US$897) per capita and spent only 6.5 million dong (US$277), while Thanh Hoa collected 5.8 million dong ($247) per capita and spent more than 9 million dong (US$384).
While some transfers are needed, the absence of meaningful mass transit in either HCMC or Hanoi is a bad sign for reform. Starving the healthy and feeding the slow is not a growth strategy.
The future of Vietnam’s growth will probably be in higher value-added activities, particularly services or highly-skilled manufacturing. These activities depend on individuals who are internationally mobile. If Vietnam’s cities offer pollution, congestion and flooding, they are not likely to attract or retain those who have the choice. Cities provide about four-fifths of the economic growth and virtually all of the population growth in Vietnam. If their development is starved of funding and available funds are ill-spent, the private sector will not grow and FDI will subside as wages rise.
Third is the unease with which the Communist Party views the domestic private sector, especially small and medium domestic firms. FDI is needed.Inefficient state enterprises are part of a system that provides funding for state priorities. Oligarch firms that rely on political connections are growing, resulting in a crop of billionaires that understand the need for good standing with the Communist Party. While acceptable to most, small and medium private firms may form interest groups to challenge the Community Party. Some at the top recognise the importance of these firms, but further down they are sometimesseen as a source of revenue.
The share of private, non-household output in GDP was less than 9 per cent in 2017, compared to 20 per cent for FDI and 29 per cent for the state sector. These small private firms would benefit from reforms in access to land, credit, contracts and a fairer legal system. Vietnam is ranked 69th out of 190 countries in terms of the World Bank’s Ease of Doing Business index but is in the bottom half for starting a business, paying taxes, trading across borders or resolving insolvency. Unless the private sector is given legal space to organise and present its concerns more effectively, reforms will not address these problems.
The questions posed by Party Secretary Nguyen Phu Trong to the recent Party Plenum suggest the elite are questioning current policies. He asked whether state enterprises were necessary, whether calls for political reform…
Trade
Self-Reliance and Openness: Core Principles of China’s Third Plenary Session
The Third Plenum communique from the CCP indicates a prioritization of stability and compromise in response to China’s economic challenges. It highlights the concept of Chinese-style modernization and establishes political guidelines for balancing regulation and market forces.
The CCP’s Third Plenum communique signals a focus on stability and compromise in the face of China’s economic challenges. It emphasises Chinese-style modernisation and sets political directions for balancing regulation and market forces. While not as groundbreaking as previous plenums, it acknowledges the importance of market mechanisms and technological self-reliance, aiming to address issues like high youth unemployment and private sector uncertainty. The communique seeks to navigate the complexities of global competition and domestic innovation, potentially reshaping global supply chains and trade dynamics. Overall, it presents a pragmatic blueprint for China’s economic future.
Source : Self-reliance and openness central pillars of China’s Third Plenum | East Asia Forum
Trade
Trade Prevails Over Political Persuasions in China-Germany Relations
China and Germany maintain a strong bilateral relationship, rooted in economic cooperation despite ideological differences. Recent visits and agreements focus on expanding trade and addressing mutual concerns, navigating challenges while nurturing ties.
Evolving Bilateral Ties
China and Germany share a strong bilateral relationship, rooted in history since 1972. This connection has seen moments of cooperation intertwined with periods of tension. German Chancellor Olaf Scholz’s April 2024 visit underscores Germany’s commitment to fostering this partnership, reflecting a mutual interest in maintaining economic ties despite ideological differences.
Economic Pragmatism
As the second and third largest global economies, China and Germany’s economic interdependence is crucial. Germany emerged as China’s primary trading partner in 2023, with trade values reaching €254.4 billion (US$280 billion). In response to global scrutiny, Germany has taken a balanced approach, emphasizing economic stability over political discord. This was evident during Scholz’s prior visit in November 2022, where his diplomatic tone contrasted with broader EU sentiments.
Facing Challenges Together
Despite increasing public skepticism in Germany regarding China’s global influence and human rights issues, both nations continue to seek common ground. Their October 2023 Joint Statement highlights intentions to pursue cooperation in areas like carbon neutrality and open markets. To navigate these complex terrains, Germany can utilize its institutional frameworks to enhance dialogue, while also considering supply chain diversification to reduce dependency on China. The intertwining nature of their economies suggests that, despite challenges, both countries will continue to prioritize their substantial trade relations.
Source : Trade trumps political persuasions in China–Germany relations
Trade
Fixing fragmentation in the settlement of international trade disputes
Fragmentation in global trade due to the lack of development in multilateral trade rules at the WTO has led to an increase in FTAs. The Appellate Body impasse has further exacerbated fragmentation, requiring a multilateral approach for reform.
Fragmentation in Global Trade
Fragmentation in global trade is not new. With the slow development of multilateral trade rules at the World Trade Organization (WTO), governments have turned to free trade agreements (FTAs). As of 2023, almost 600 bilateral and regional trade agreements have been notified to the WTO, leading to growing fragmentation in trade rules, business activities, and international relations. But until recently, trade dispute settlements have predominantly remained within the WTO.
Challenges with WTO Dispute Settlement
The demise of the Appellate Body increased fragmentation in both the interpretation and enforcement of trade law. A small number of WTO Members created the Multi-Party Interim Appeal Arbitration Arrangement (MPIA) as a temporary solution, but in its current form, it cannot properly address fragmentation. Since its creation in 2020, the MPIA has only attracted 26 parties, and its rulings have not been consistent with previous decisions made by the Appellate Body, rendering WTO case law increasingly fragmented.
The Path Forward for Global Trade
Maintaining the integrity and predictability of the global trading system while reducing fragmentation requires restoring the WTO’s authority. At the 12th WTO Ministerial Conference in 2022, governments agreed to re-establish a functional dispute settlement system by 2024. Reaching a consensus will be difficult, and negotiations will take time. A critical mass-based, open plurilateral approach provides a viable alternative way to reform the appellate mechanism, as WTO Members are committed to reforming the dispute settlement system.
Source : Fixing fragmentation in the settlement of international trade disputes
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