Is the trade deficit with ROK a concern for Vietnam?

China remains Vietnam’s biggest supplier of goods, but the ROK has the highest growth rate of exports to Vietnam. 

In the first six months of the year, Vietnam imported US$22.5 billion worth of products from the ROK, an increase of 51.2% over the same period last year.

Nguyen Thi Ngoc Linh, secretary general of VEXA (Vietnam Exporters’ Association), commented on Tuoi Tre that while the volume of goods Vietnam exports to SK has increased modestly, the imports have risen sharply.

Bui Trinh, an economist, commenting about the ‘import wave from SK’, noted that the structure of the imports remains unchanged. The only change is that Vietnam now imports more products from the ROK instead of China.

“The figures show the changes in Vietnam’s import partners – Vietnam has shifted to importing more from the ROK instead of China – but they don’t mean changes in economic structure,” he said, adding that the imports are still mostly machines, equipment and input materials that serve domestic production. 

Some experts think that Vietnam would rather have a trade deficit with SK than with China, Thailand and Malaysia, because the ROK is a member of OECD countries and its products have better quality.

Consumer imports just accounted for 8% of the import turnover from the country. However, analysts pointed out that the figure is also on the rise, and this is worrying because the increased supply of money may lead to high inflation and bad debts. 

As money doesn’t go to production, but to consumer goods, it will only help the GDP in the short term, and won’t contribute to sustainable economic development.

Dinh Trong Thinh from the Finance Academy said the imports are input materials for domestic production or consumer goods. When trade deficit occurs, the income in foreign currencies is not high enough to cover payments for imports.

However, the high import turnover is unavoidable. Since the domestic support industries remain weak, the ROK-invested enterprises have to import input materials from their home country, rather than look to domestic supply sources.

Samsung, for example, exported US$40 billion worth of products last year. It had to import a big volume of input materials, which contributed to Vietnam’s high trade deficit with the ROK.