Trade

Imports from China are expected to increase sharply as Chinese products will be cheaper, while Vietnam’s exports will be less competitive, which will increase Vietnam’s trade deficit.

In 2014, the trade deficit was reported at $29 billion. The figure was $16 billion in the first six months of the year.

Forex policy

The State Bank of Vietnam has many times affirmed its policy on stabilizing the dong/dollar exchange rate. However, just one day after the Chinese central bank announced the yuan devaluation, it decided to widen the foreign exchange trading band from one to two percent.

The move immediately heated up the financial market. The dollar price soared, exceeding the VND22,000 per dollar threshold, while the gold price hit the VND35 million per tael threshold.

Ban Viet Securities predicted that the dong would be devalued sooner or later. If the State Bank still insists on dong stabilization, it will have to pay a heavy price as the foreign exchange reserves will decrease.

Stock market

The Vietnamese stock market lit up red for the last three consecutive years with the VN Index falling by 20 points.

However, the Chinese central bank’s decision on devaluing the yuan may make the US Federal Reserve delay its plan to raise the prime interest rate. If so, foreign capital will stay in developing economies, including Vietnam. Foreign investors still bought more than the sold, by VND290 billion, or $13 billion, on August 11-13.

Investment

China is the ninth largest foreign investor out of 103 investors in Vietnam with $8.1 billion worth of registered capital. However, the figure is modest compared with investments from Japan, South Korea, Singapore and the US.

According to VEPR (the Vietnam Centre for Economic and Policy Research), the yuan devaluation has not had clear influences on Chinese investment in Vietnam, because Chinese capital has been mostly flowing to Vietnam through imports of machines and equipment.

As for Chinese-funded infrastructure projects, Vietnam would get benefits as it can buy equipment from China at lower prices. However, a problem would arise that yuan-based payments to domestic contractors would be lower.

Budget

MOF’s Bulletin No 7 showed that by the end of 2010, Vietnam owed $551.7 million to the Chinese government, which accounted for 2 percent of Vietnam’s total debts.

Tourism

The tourism industry will be strongly affected by the weaker yuan, because it will make it more expensive for middle class Chinese to travel. Chinese travelers account for 25 percent of total foreign travelers to Vietnam.

VNE