Trade
Vietnam’s economy weathers the COVID-19 storm — good policy or luck?
Author: Suiwah Leung, ANU
Vietnam’s economy and people are often described as ‘resilient’. Nowhere is this more befitting than in relation to the COVID-19 pandemic. After successfully tackling COVID-19, Vietnam still recorded 1.8 per cent GDP growth during the first half of 2020 despite negative growth in most parts of the world.
According to the World Bank’s July 2020 Taking Stock report, Vietnam’s recent economic performance is a result of its twin engines of growth — export demand and domestic consumption — firing sequentially during the first two quarters of 2020.
From January to mid-April, Vietnam’s exports recorded a 13 per cent per month increase before its trading partners, such as the United States, Japan and China, began contracting. During this period, domestic consumption was subdued because of strict social distancing and lockdowns. Then from mid-April to the end of June, the domestic economy was in recovery mode with manufacturing growing at 30 per cent while merchandise exports collapsed. The World Bank forecasts an annual growth rate of 2.8–3 per cent for Vietnam in 2020, and a return to pre-crisis growth of 6.8 per cent in 2021.
This forecast is subject to the government actively using fiscal policy to support growth in the very short-term, and the economy continuing to benefit from the trade and investment diversion in the medium-term through participation in regional free trade agreements like the EU–Vietnam Free Trade Agreement concluded in June 2020.
One of the immediate measures to support growth is to ease mobility restrictions given tourism contributes around 10 per cent to GDP growth. After months of very few COVID-19 infections and no deaths, reports in August swirled of some 1000 infections with 25 deaths originating from the Da Nang region, a popular domestic tourist destination. As at the end of September, the tally is reported to be 1100 cases of infections, 35 deaths, but no domestic transmission for 27 days. Hence restrictions imposed are again being lifted, and the economic impact from this episode may not be significant.
Other fiscal measures include ramping up spending on the approved public investment program, in particular spending on Official Development Assistance projects in the pipeline. Strategic support from the private sector, such as investment in the country’s digital infrastructure, is also being implemented.
In mid-August, the Ministry of Information and Communications announced the launch of the akaChain blockchain platform which helps companies shorten the time spent on tasks like electronic Know Your Customer procedures, credit scoring and customer loyalty programs. Improved security and transparency are also possible in future developments of this technology. In a country with a relatively young demographic, remote teaching and learning, as well as telemedicine, are advancements that have been given impetus by COVID-19.
The formal private sector is only one area that needs support. Vietnam’s informal private sector (in tourism and other services) is large, and can rebound faster than the formal sector once COVID-19 restrictions are eased. The World Bank report points out a number of risks associated with this short- to medium-term strategy.
First, in terms of Vietnam’s external position, strong export growth, foreign direct investment and remittance inflows in the last five years have resulted in a reasonably comfortable buffer of international reserves. Vietnam’s industrial structure is such that exports are strongly linked to imported inputs. So a significant reduction in merchandise exports is generally accompanied by a fall in imports so that the merchandise trade balance is not seriously affected. Paradoxically, this lack of backward linkage in Vietnam’s industrial structure is a serious impediment to rapid growth in the longer term.
Second, fiscal consolidation in the past three years means there is some space for a fiscal boost in the short run without significantly increasing the burden of public debt, which has fallen to around 55 per cent of GDP. Indeed, the expected uptick in public debt could add pressure to reinvigorate the privatisation of state-owned enterprises (SOEs) — a program that has been stalled since 2018. This would have significant long-term benefits.
Finally, monetary easing is necessary now, but could result in a further deterioration of loan quality and an increased amount of non-performing loans in the banking system. Management of this risk would test the effectiveness of the regulatory…
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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