HSBC Bank said in its latest report that Vietnam should focus on organising and developing a strong supply chain in the long term to make full use of the opportunities from international pacts and free trade agreements (FTAs).
A strong supply chain will help the country earn more from the products made and outsourced in this market and lessen its heavy dependence on material imports.
In the Asia Economics quarterly report released on July 17, HSBC said Vietnam still relies on input imports to turn out major export items, including textiles, footwear and electronics.
Vietnam is in negotiations for the Trans-Pacific Partnership (TPP). The nation is expected to be the largest gainer of this multilateral trade pact once it is passed. However, one of the non-tariff sticking points for Vietnam is the Rule of Origin, which requires the TPP country to use TPP member-made materials.
"We believe TPP considerations and recent tensions with China will accelerate the pace of reforms," HSBC said in the report.
Concerning macro-economic issues, the bank projected inflation in Vietnam to stay stable, with some seasonal acceleration at the beginning of the third quarter. The central bank is estimated to keep interest rates steady at 5 percent.
HSBC also reiterated the limited impact of the East Sea tensions on Vietnam's economy though several sectors like tourism have felt some impact. Chinese tourist arrivals will likely decelerate but the situation is expected to return to normal in the coming months.
Core investors in Vietnam will stay put, as foreign direct investment (FDI) tends to be sticky. The major foreign investors in Vietnam are Japan, Korea, the United States and Taiwan, according to the report.
Since last December, HSBC's Purchasing managers' Index (PMI) has stayed above 50, showing the upward trend of the sector. Output and quantity of purchases have been strong as the response to price discounts and better external demand.
In June, the country's exports gained double-digit growth, albeit with some deceleration. But with the export performance primarily driven by foreign invested enterprises, the concern is that the East Sea tensions with China could affect its prospects.
In addition to waiting for the conclusion of the European Union (EU) FTA and good news from the TPP negotiations, HSBC said observers will also watch out for the progress of State-owned enterprise (SOE) and banking sector reforms.
Prime minister Nguyen Tan Dung stated that the government would be equitising 432 SOEs by 2015. Numerous regulations were passed to streamline the process and now everyone is waiting to see whether this will galvanise the momentum for reform, the report said.
Vietnam's GDP accelerated to 5.5 percent year-on-year in the second quarter from 4.8 percent in the first quarter on higher manufacturing and resilient service growth.
Saigon Times Daily
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