Illustrative image (Source: chinafocus.com) Hanoi (VNS/VNA) - China’s yuan (renminbi) has remained above the sensitivelevel of seven to the US currency for the last three days, hinting that tradefriction between the US and China is entering a dangerous phase. The escalatingtension between the two world powers is predicted to have negative impacts on Vietnam’strade in the short term.
The yuanon August 5 crossed the red line of seven to the US dollar, which has remainedstable for 11 years since 2008, after US President Donald Trump threatened toimpose new 10 percent tariffs on 300 billion USD of Chinese imports, effectivefrom September 1.
ThePeople’s Bank of China linked the fall of the yuan to the new US tariff threat,though in the evening of the same day it said China had no intention to use theyuan exchange rate as a weapon in the trade war.
China’scurrency continued to depreciate in the following two days, being tradedbetween 7.0235 and 7.0529 to a dollar on August 7, data of Bloomberg showed.
In Vietnam,analysts have predicted the fall of yuan may last a long time.
“TheUS-China trade issues will not likely be resolved and the tension may escalatein the future. At that time, the yuan exchange rate may be used to compensatefor damages caused by US tariff hikes,” economist Nguyen Tri Hieu told VietnamNews.
Accordingto Hieu, the US-China tension is not purely a trade issue but involvespolitical calculation by Trump, especially when he is bidding for re-electionin 2020.
With theslogan ‘America First’, Trump may not give concessions and if he went ahead withimposing tariffs on Chinese imports, China would retaliate, Hieu said.
Analystspredict China’s central bank will let the yuan gradually rise in the comingmonths.
Accordingto UBS economists, the US dollar-yuan exchange rate could move to 7.2 atend-2019 and 7.3 in 2020 in the case of escalating trade tensions. But theyalso discounted the possibility of a sharp devaluation of the yuan as thatcould deteriorate the confidence of Chinese businesses and investors whichcould trigger capital outflows.
The StateBank of Vietnam on August 6 increased its daily reference rate by 15 VND to 23,115VND per US dollar, its highest-ever rate. The reference rate on August 7 wasset higher at 23,117 VND.
TheUSD/VNS exchange rates quoted by banks have not changed much though, tradingbetween 23,155 VND and 23,285 VND.
Pressureon trade
TheVietnamese dong has only depreciated 0.3 percent against the US currencyin the year to date. The local currency value was almost unchanged in the lastthree months, while the yuan has depreciated by about 4 percent against the USdollar.
“The yuanis cheaper compared to the VND, meaning Chinese goods are becomingcheaper,” Hieu said.
Vietnamwas suffering trade deficit with China and if imports of Chinese goods into Vietnamrose, production and business activities of local enterprises would benegatively affected, he added.
Hieu saidthe Vietnamese central bank would likely continue its stable exchange ratepolicy but he suggested it “adjust exchange rates at a suitable margin or it wouldadversely impact Vietnamese goods sold to the world”, especially when majorcurrencies have also lost value.
“The VND isallowed to depreciate by 3 percent this year which means the central bank hasample room to regulate the exchange rate.”
Mac QuocAnh, vice chairman and general secretary of the Hanoi Association of Small andMedium Enterprises (Hanoisme), said about 70 percent of Vietnamese agriculturalproducts are exported to China. The decline of the yuan would hinder Vietnameseexports, especially when China was raising its barriers in terms of food safetystandards.
Vietnamhas signed many strategic trade agreements with other countries, including theComprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)and the EU-Vietnam Free Trade Agreements (EVFTA), of which many members are notdirect competitors to Vietnamese goods.
Anh saidlocal enterprises, especially small and medium ones, should find and diversifypartners, seeking support from Vietnamese trade counsellors in other countriesand trade counsellors of foreign countries in Vietnam.
“However,one of the most important things when approaching foreign markets is that localenterprises must study markets carefully and keep their product quality andprices stable,” Anh told Vietnam News.
He hasalso suggested the central bank expand the number of prioritised sectors whichcan enjoy preferential lending rates to other areas such as mechanicalengineering or pharmaceuticals to support enterprises.
Fiveprioritised sectors include agriculture and rural development; export;supporting industry; small and medium enterprises; and enterprises applyinghigh technology.-VNS/VNA
The yuanon August 5 crossed the red line of seven to the US dollar, which has remainedstable for 11 years since 2008, after US President Donald Trump threatened toimpose new 10 percent tariffs on 300 billion USD of Chinese imports, effectivefrom September 1.
ThePeople’s Bank of China linked the fall of the yuan to the new US tariff threat,though in the evening of the same day it said China had no intention to use theyuan exchange rate as a weapon in the trade war.
China’scurrency continued to depreciate in the following two days, being tradedbetween 7.0235 and 7.0529 to a dollar on August 7, data of Bloomberg showed.
In Vietnam,analysts have predicted the fall of yuan may last a long time.
“TheUS-China trade issues will not likely be resolved and the tension may escalatein the future. At that time, the yuan exchange rate may be used to compensatefor damages caused by US tariff hikes,” economist Nguyen Tri Hieu told VietnamNews.
Accordingto Hieu, the US-China tension is not purely a trade issue but involvespolitical calculation by Trump, especially when he is bidding for re-electionin 2020.
With theslogan ‘America First’, Trump may not give concessions and if he went ahead withimposing tariffs on Chinese imports, China would retaliate, Hieu said.
Analystspredict China’s central bank will let the yuan gradually rise in the comingmonths.
Accordingto UBS economists, the US dollar-yuan exchange rate could move to 7.2 atend-2019 and 7.3 in 2020 in the case of escalating trade tensions. But theyalso discounted the possibility of a sharp devaluation of the yuan as thatcould deteriorate the confidence of Chinese businesses and investors whichcould trigger capital outflows.
The StateBank of Vietnam on August 6 increased its daily reference rate by 15 VND to 23,115VND per US dollar, its highest-ever rate. The reference rate on August 7 wasset higher at 23,117 VND.
TheUSD/VNS exchange rates quoted by banks have not changed much though, tradingbetween 23,155 VND and 23,285 VND.
Pressureon trade
TheVietnamese dong has only depreciated 0.3 percent against the US currencyin the year to date. The local currency value was almost unchanged in the lastthree months, while the yuan has depreciated by about 4 percent against the USdollar.
“The yuanis cheaper compared to the VND, meaning Chinese goods are becomingcheaper,” Hieu said.
Vietnamwas suffering trade deficit with China and if imports of Chinese goods into Vietnamrose, production and business activities of local enterprises would benegatively affected, he added.
Hieu saidthe Vietnamese central bank would likely continue its stable exchange ratepolicy but he suggested it “adjust exchange rates at a suitable margin or it wouldadversely impact Vietnamese goods sold to the world”, especially when majorcurrencies have also lost value.
“The VND isallowed to depreciate by 3 percent this year which means the central bank hasample room to regulate the exchange rate.”
Mac QuocAnh, vice chairman and general secretary of the Hanoi Association of Small andMedium Enterprises (Hanoisme), said about 70 percent of Vietnamese agriculturalproducts are exported to China. The decline of the yuan would hinder Vietnameseexports, especially when China was raising its barriers in terms of food safetystandards.
Vietnamhas signed many strategic trade agreements with other countries, including theComprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)and the EU-Vietnam Free Trade Agreements (EVFTA), of which many members are notdirect competitors to Vietnamese goods.
Anh saidlocal enterprises, especially small and medium ones, should find and diversifypartners, seeking support from Vietnamese trade counsellors in other countriesand trade counsellors of foreign countries in Vietnam.
“However,one of the most important things when approaching foreign markets is that localenterprises must study markets carefully and keep their product quality andprices stable,” Anh told Vietnam News.
He hasalso suggested the central bank expand the number of prioritised sectors whichcan enjoy preferential lending rates to other areas such as mechanicalengineering or pharmaceuticals to support enterprises.
Fiveprioritised sectors include agriculture and rural development; export;supporting industry; small and medium enterprises; and enterprises applyinghigh technology.-VNS/VNA
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