Proposals submitted for support industry development to minimize reliance on imports

The domestic automobile industry is heavily dependent on imported parts and components

Reliance on imports

According to the Ministry of Industry and Trade, the domestic manufacturing sector’s biggest weakness lies in its heavy dependence on foreign supply chains. The sector has a low local content and still has to import a large percentage of raw materials, components and spare parts for its needs. Domestic production is mainly concentrated in downstream outsourcing, which explains the disruption of production chains, especially upon changes in import supply.

A report by the Ministry of Industry and Trade’s Industry Agency showed that in 2019, the domestic electricity and electronics industry imported electronic components and accessories worth about US$40 billion, including imports worth US$16.8 billion, US$13.8 billion and US$1.7 billion from the Republic of Korea (RoK), China and Japan, respectively.

China is the main source of such imports for 70 percent of Vietnam’s automobile manufacturers and assemblers. Passenger car manufacturing in particular has been affected, as producers import parts and components from China, the RoK, India, Japan and other Southeast Asian countries, which are all affected by the Covid-19 pandemic.

Industry Agency Director Truong Thanh Hoai said it takes three months to one year to find a source of input materials for such high-tech industries as electronics and automobiles, while imports from non-Chinese sources usually cost more, have less diverse designs and quality levels.

Support industry development is key

In an attempt to minimize domestic manufacturing dependence on foreign supply chains, the Ministry of Industry and Trade sent the prime minister a report assessing the Covid-19 pandemic’s impact on key industries, and proposed that the government consider and realize long-term solutions, including early approval of a resolution on support industry development. The resolution would serve as the foundation for major, consistent policies in support industry development.

Specifically, it is necessary to amend provisions of the Law on Excise Tax related to automobiles to increase the local content of domestically manufactured automobiles, maintain and develop the domestic automotive industry as well as automobile support industry. Law revision plans should be submitted to the National Assembly for review and approval at its nearest session.

The Ministry of Industry and Trade said it is important to mobilize central and local-level resources to increase investment in and develop industrial projects, especially those related to support industries and such important materials industries as hot rolled steel, fabric production, knitting, dyeing and finishing, and new materials in order to minimize domestic industries’ dependence on imported raw materials and components.

In addition, it is important to increase and diversify preferential and outstanding investment promotion policies in order to welcome investment projects and factories, including part and component production facilities moved to Vietnam from China and other countries. The ministry has proposed that relevant authorities consider and approve credit, human resources, innovation and tax incentive packages in accordance with the law to make supporting industries more attractive to domestic and foreign investors.