Why bring a screw from Japan?

Vietnam’s mechanical engineering lagging

06:00 | 04/11/2020 Industry

(VEN) - Despite the role of the mechanical engineering industry as a foundation and driver of national industrial development, Vietnam’s mechanical industry is suffering persistent limitations curbing its growth. Various industry business groups are proposing solutions.

Shortcomings

According to Dao Phan Long, President of the Vietnam Association of Mechanical Industry (VAMI), the country’s mechanical engineering firms are still struggling to survive and develop to meet requirements.

vietnams mechanical engineering lagging

The Vietnam Engine and Agricultural Machinery Corporation (VEAM), for example, is urging a change of corporate income tax (CIT) policy for automobile manufacturing and assembly enterprises. Specifically, the State should encourage enterprises with foreign direct investment (FDI) to buy from domestic suppliers by regulating the percentage of corporate income tax reduction according to the proportion of domestic supply use. For example, if automobile production and assembly has a localization rate of 30 percent, corporate income tax should be reduced by 30 percent.

In addition, the State should adopt regulations prioritizing the use of domestically manufactured mechanical products in public investment projects, and reduce import taxes on spare parts and materials for auto production and assembly to 0-5 percent.

Business representatives are also complaining that bidding mechanisms exclude many Vietnamese mechanical enterprises from participating. According to Nguyen Duong Hieu, General Director of Lidovit Trading and Industrial Joint Stock Company, the company can only participate as a contractor to supply screws for the Metro project in Ho Chi Minh City through a Japanese enterprise. Hieu also complained that current market development policies are not clear and there are no mandatory localization requirements in projects or enterprises.

Overcoming difficulties

To overcome the shortcomings hindering the development of Vietnam’s mechanical engineering, VAMI recommends greater investment in infrastructure and improvement of public investment.

vietnams mechanical engineering lagging

The Government also needs policies to encourage the production of some raw materials for the mechanical engineering industry, minimizing dependence on foreign countries. VAMI proposes preferential policies for project owners or investors using domestic mechanical products. Interest rate incentives should comply with the method of subsidizing interest rates for businesses. In addition, the asociation proposes an offset difference of five percent per year. The payback period for mechanical investment projects is 1.5 times longer than other projects, namely 10-12 years.

Therefore, incentives must be provided to attract FDI in the mechanical manufacturing sector, and a VAT rate regulation for mechanical production must be reconsidered instead of the current tax exemption or reduction.

Regarding the supporting industry for mechanical production, VAMI affirmed that it is necessary to have more regulations on the local content of mechanical products. Specifically, a localization rate of over 30 percent was suggested to be required for mechanical products to enjoy the incentives of supporting industries.

Nguyen Ngoc Thanh, Deputy Director of the Industry Agency under the Ministry of Industry and Trade, said the potential of the domestic and global mechanical engineering market is immense. From now to 2030, the mechanical industry needs will reach US$300 billion, however currently Vietnam just meets one third of this level. “Our opportunities to access the world market are huge. We need to create a stable market and favorable conditions for Vietnamese mechanics development,” Thanh said.

Lan Anh