Yuan fall worries Vietnamese firms

The decline of Chinese yuan (CNY) against the U.S. dollar over the last two weeks as a result of trade tensions between the world’s two largest economies has sparked fears among Vietnamese businesses that they will not be able to compete with their Chinese counterparts.

Although the yuan rose sharply to 6.6242 against the U.S. dollar on Wednesday, this was just a recovery from a bigger tumble that had begun in mid-June and hit the lowest in 11 months at 6.7294 per dollar on Tuesday, according to Reuters.

The fall in yuan’s value against the dollar will open the door for Chinese exporters to up sales of products to increase profits, economist Vu Dinh Anh told the Thanh Nien newspaper.

The effect won’t be immediate, but eventually Vietnamese main lines of export will be affected as they would have to face strong Chinese exporters, he added.

For Vietnamese textile businesses, the E.U. is currently the second largest export market, after the U.S. If the yuan continues to drop, China might increase its textile exports to the E.U., making things hard for Vietnamese businesses, said Pham Xuan Hong, chairman of the HCMC Garment and Textiles Association.

Vietnam may not reap expected benefits of signing the Free Trade Agreement (FTA) with the E.U. if China exports its textile products to this bloc in large quantities and competes with Vietnamese products, Hong said.

The CEO of a steel firm in Vietnam, who did not want to be named, said that if local steel businesses keep importing large quantities of Chinese rolled steel, the consequences will be severe.

Vietnam applied a self-defense tax on imported rolled steel in April 2016, but businesses have been trying to label their purchased steel from China as another type of steel to avoid it.

“Steel businesses need to refrain from importing cheap steel from China, or Vietnam’s steel industry won’t be able to compete in the regional market,” the source told VnExpress International.

China will also seek to export its steel to ASEAN as the yuan weakens, reducing Vietnam’s opportunity to do well in the regional market, the source added.

Other industry insiders fear that as the yuan’s value is low, manufacturing firms will rush to import made-in-China products in large quantities and neglect investing in their facilities and technology to increase export capability.

In turn, this could reduce the benefits Vietnam could receive when the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) comes into effect, they worry.

‘Just sit tight’

Meanwhile, Vietnamese importers will gain from the weakened yuan as most of them are importing machines and goods to Vietnam first and paying back in CNY at a later time, economist Vu Dinh Anh said.

Local firms getting things on credit from their Chinese counterparts will have the advantage if CNY stays low, he added.

Other experts believe that Vietnam will not be immensely affected by the currency fall, and need not be too worried.

The country should not be too concerned and make the mistake of lowering the Vietnamese dong to follow the yuan, said economist Bui Trinh.

“Vietnam has made that mistake in the past, but in this circumstance, it should just sit tight and not worry,” he said.

He added that the fall of CNY will only benefit local firms that have been taking large amounts of goods from Chinese businesses on credit, which they can pay at back with a lower exchange rate.

Trade turnover between Vietnam and China reached $93.69 billion last year, up 23.2 percent from 2016 and accounted for 22 percent of Vietnam’s total trade turnover, according to Vietnam Customs. The figure is estimated to reach 100 billion this year.