Coping with China’s yuan devaluation

11:47 | 09/09/2015 Finance - Banking

(VEN) - China’s devaluation of the yuan has affected Vietnamese businesses. For this reason, the Ministry of Industry and Trade has recommended that businesses take urgent measures to mitigate the adverse affects of the devaluation.

Coping with China’s yuan devaluation

Obvious impact on agricultural exports

According to the Ministry of Industry and Trade’s Export and Import Department Director Phan Van Chinh, the devalued yuan has affected Vietnamese exports in many respects. Localities said that their exports via border crossings had not yet been affected and that their export contracts had not been delayed or re-negotiated. However, exports, mostly including agricultural products such as cassava, rice, rubber, cashew nuts, pepper and seafood, would be affected in the near future. Among these items, the biggest worry lies in cassava exports. Vietnam has exported an average of five million tonnes of cassava to China annually which has been paid directly at border crossings. “Agricultural exports would be adversely affected by the devalued Chinese yuan significantly affecting farmers,” said Phan Van Chinh.

Vietnamese exports to third markets such as iron and steel, textiles and garments, leather and footwear, and electronics would face fierce competition with Chinese goods. Electronic appliances in particular would be greatly affected if China continues adjusting the exchange rate.

According to the Export and Import Department’s director, 80 percent of imports from China are machinery, equipment and production materials. For this reason, the devalued Chinese yuan would lead to increased trade deficit but create opportunities for Vietnamese businesses to import materials, particularly materials for textile, garment, leather and footwear production at lower prices contributing to increasing the competitiveness of Vietnamese goods in the home and foreign markets. However, the Ministry of Industry and Trade’s Asia-Pacific Market Department Director Le Hoang Oanh said that businesses could import materials at low prices but would suffer the pressure from foreign partners who would force them to reduce prices, particularly with orders signed after the yuan devaluation.

Immediate solutions

Deputy Minister of Industry and Trade Tran Quoc Khanh said that China had shifted from a fixed to a floating exchange rate. For this reason, the exchange rate could go up or down, and there needed to be a careful assessment of the impact of the Chinese yuan over the long-term.

Tran Quoc Khanh was worried as the Chinese economy has shown signs of slowing due to changes in the exchange rate. As a result, demand for imports will reduce causing a decline in Vietnamese exports to this market.

Regarding immediate solutions, Phan Van Chinh proposed that businesses pay in other currencies to reduce the reliance on yuan.

He also said that it is necessary to better notify businesses, particularly direct exporters to China or other countries which have competed with China in terms of goods, in order for them to make the most of tax preferences.

The Ministry of Industry and Trade’s Export and Import Department and related authorities will use proper tools to better manage imports, particularly cheap goods which enter Vietnam via border crossings.

In the current situation, businesses need to increase payment in other currencies, rather than the Chinese yuan.

 

Nguyen Phuong

Theo ven.vn