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Under the Banyan Tree – Can Vietnam hit its own high targets?
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Fred welcomes Senior ASEAN Economist Yun Liu to the podcast to talk Vietnam's lofty economic goals and whether a growth target of at least 10% year-on-year is achievable.
Click here for appropriate Disclosures, including analyst certifications, and Disclaimers that must be viewed with this podcast: https://www.research.hsbc.com/R/101/kGTvZk9
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Transcript
Introduction to HSBC Global Viewpoint
00:00:01
Speaker
Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
00:00:13
Speaker
Make sure you're subscribed to stay up to date with new episodes. Thanks for listening, and now onto to today's show.
Vietnam's Role in Asian Supply Chains
00:00:33
Speaker
Hello and welcome to Under the Banyan Tree, where we put Asian markets and economics in context. I'm Fred Newman, chief Asia economist here at HSBC. And on today's podcast, we're looking at an economy that set itself a very ambitious growth target, and that is Vietnam.
00:00:49
Speaker
It is a big play on Asian supply chains with a reputation for fast reforms, but is double-digit growth really achievable? Joining me to help answer that is senior Austrian economist, Yung Liu from HSBC Global Investment Research. This is Under the Banyan Tree.
00:01:15
Speaker
So, Jan, we want to talk about Vietnam because there's a lot of headlines about Vietnam. We just did a party congress, which is sort of a key political meeting, and they reelected the party secretary, Tholam is his name. and And he has unveiled a lot of ambitions for the economy, for the country overall. Can you give us you know some of the highlights there of what Tholam's targets are?
Economic Targets and Domestic Growth
00:01:37
Speaker
Yeah, that's right, Fred. um I think the main target here for Vietnam ah to achieve is the growth target for the next five years, 2026 to 2030, which is on average at least 10% of growth. 10%. Now, that is a punchy number. right Very few economies in the world achieve those types of growth rates. Of course, famously, mainland China has been able to do that for a while, Taiwan, Korea, China. some other countries in Asia. But 10% in this environment is quite a robust growth number. um What do you think it would take? And and we can talk about the export side a little bit later. But i want to focus on the domestic side because to sustain those growth rates, you need to energize the domestic economy.
Infrastructure and Demographic Potential
00:02:17
Speaker
100 million consumers. exactly is that Is that achievable?
00:02:21
Speaker
ah It is. I mean, it has great potential. You know, it has very a large population, has young population. And um there are also a lot of ah emerging middle class. So there's a lot of potential um in bringing out the consumer power. I think the other thing for Vietnam that it wants to concentrate on is the infrastructure development, which is, you know, very similar to what China did after the global financial crisis. So I think, you know, Vietnam wants to kind of replicate that ah that infrastructure playbook as well. So it's a big investment in infrastructure there. And of course, Vietnam has the need for infrastructure. right it's It's rapidly developing, but a rapidly developing economy needs better and better infrastructure. So it feels that there is a lot of things, projects to invest in. What are some of the the key kind of signature infrastructure projects that we can expect coming through in Vietnam?
00:03:12
Speaker
Well, I mean, there is already going to be um the operation of a new airport um in Hu Chi Minh City. Passenger traffic has been increasing significantly. So there is the need to build another airport there. The the road connectivity has always been you know one of the priorities here for Vietnam.
00:03:30
Speaker
And ah most importantly, Vietnam just un viewed its ambition to build a bullet train. A bullet train. You mean a high-speed train that we see in in in mainland China, of course. course ah Japan has famously you know the Shinkansen bullet train. And you're saying Vietnam is now next. They're going to build a bullet train from where to where. Connecting ah the north <unk>s the to the south. Just imagine, I mean, a flight from ah Hanoi to Huichang Min city.
00:03:57
Speaker
It's about an hour and a half right now. but There's about 2,000 kilometers. It is. It's very long. Yeah, it's a very long country. And if you if you took the train today, I guess they have conventional trains, how long would it take? It probably takes you 36 hours.
Consumption and Market Trends
00:04:10
Speaker
36 hours. Okay, well, then then a bullet train, I think, would make a lot of sense yeah just to cut down on travel time. So a lot of focus on transportation, for example, just hard infrastructure. Imagine energy is in there, port connectivity as well. And this has kind of taken a... A bit of a playbook for mainland China, as you said, after the global financial crisis. But I want to go back to a little bit to the consumption side. 100 million consumers, it's a huge market, but it's been stalling a little bit on the consumption side. What what went on there? what What's kind of held back Vietnam in recent years? Yeah, well, I think the main constraint here was really because of the property saga that happened ah in late 2022 and then, you know, ah with a lasting impact. So there was the credit crunch. um And for a lot of these Vietnamese consumers, the biggest wealth of household is concentrated in property ah sector. So if you saw quite a a significant downturn in in the sector, then it just means that your consumption power is eroding. ah The good news is that we are seeing some ah gradual improvements some on the consumption part in 2024 and 2025. But I think it still takes a little bit of time for Vietnam to achieve you know very high consumption growth as in previous years.
Administrative Reforms for Efficiency
00:05:22
Speaker
It's interesting. So just like mainland China, the property market correction had said some impact on consumer spending. but But you seem to suggest that we might be sort of gradually getting through that that wobble and and and that we might see strengthening. Right, because it's not an ah an overnight fix.
00:05:39
Speaker
Yes. And then also there there were a lot of ah reforms with regards to the way the government operates in in Vietnam as well. And many countries, we talk a lot about reforms, but often nothing much happens. Vietnam, huge changes, no?
00:05:54
Speaker
Yeah, exactly. So Vietnam ah last year went through two major administrative reforms. One um is that Vietnam shrank the workforce of the government by 100,000 people.
00:06:06
Speaker
100,000 people, yes civil servants. That's right. And then it would also involves some merges of ah ministries and agencies as well. And so that was the other major leg of the reforms. No, the other one here is actually to um merge the provinces because Vietnam used to have more than 60 provinces. um It slashed by half, so over 30. And again, you know, it completed just in a few months time. So it what what impresses me is just the speed with which Vietnam moves, right? So it's certainly the government is on the mission here, more efficiency, more productivity, efficient spending, more investment.
00:06:43
Speaker
But ah we have to talk about the external
Export Market Success
00:06:46
Speaker
sector. Maybe there's a great time to take a quick break. but when we come back, I want to talk about Vietnam's competitiveness and how Vietnam is likely to fare in the world where we see increases in tariffs.
00:07:07
Speaker
So welcome back, Ewan. Before the break, we talked about Vietnam's growth ambitions, pushing growth GDP growth up to above 10%, which is, of course, a quite an ambitious target. um There's a lot going on on domestic side, and it's a large domestic economy, actually. But I wanted to ask you, um where Vietnam has stood out in recent years is really in terms of its export competitiveness. It's gained market share in many industries from you know electronics manufacturing, Garmin exports, you name it. But there's a lot of uncertainty there with US terrorists coming in. How has Vietnam actually dealt with that uncertainty in terms of this export sector over the past year?
00:07:49
Speaker
Yeah, I remember at the beginning of last year when ah the tariffs ah announcement were made on Liberation Day, um Vietnam faced the highest tariff ah in Asia. Now, Liberation Day was, of course, when the U.S. announced major tariffs on many, many other economies, which presumably for Vietnam was a bit of a shock. Yeah, it was. so export I think it was a shock for everyone, but I mean, especially for Vietnam, because back then Vietnam faced tariffs as high as 46%. But obviously, you know, after negotiations, now Vietnam's facing tariffs of 20%, which is, you know, the same ah as ah other EM countries ASEAN. And based on the trade data we saw last year, Vietnam actually has defied tariffs, achieving record high trade. And it's not only about, you know, Axel's booming trade ah with the U.S. It's literally about diversification. We've also... And what what explains that? So, you know, there's a lot of headlines about trade restrictions, et cetera, coming through. Why is Vietnam basically outcompeting many of its peers around the world? Why is Vietnam continuing to make those export gains?
00:08:55
Speaker
Well, I think that one thing is really because of the tariffs. Now everybody is on the same starting line again when we look at you know all the EM markets in Southeast Asia. So whoever are the existing beneficiaries, you know Malaysia, Vietnam, they continue to be the outperformance, which is So the terrorists matter less because everybody has the same terrorists more or less. But that means that it's the fundamentals that matter. And you're saying Vietnam has, what, cheap labor force, good infrastructure. Right. What distinguishes Vietnam?
00:09:26
Speaker
Well, I mean, cheap yeah cheap labor force and good infrastructure are advantages. But when we think about the structural factors like, you know, how many free trade agreements you have with other countries, how competitive your output is, and how and I think one important thing here is how successful all these other countries are in translating the cheaper um imports from China into successfully into widening market shares in Western markets. Because I heard a lot of the concerns you know from Southeast Asia or who a lot of the countries are facing fierce competition ah from you know Chinese products. But it's not as simple as that. So so you're saying Vietnam is quite successful in part because it's using Chinese components, and including that in its own production process. And that gives it a leg up globally because it has sort of an integrated supply chain with some of the very competitive Chinese suppliers. Exactly. And that helps Vietnamese producers. Yeah, it's very much complementary to the Chinese suppliers. And what are some of the industries that stand out? I think Samsung is building almost all its global cell phones in Vietnam. I think half of Samsung's smartphones are produced Vietnam. And Samsung also has ah an R&D center there. So it's not only about you know the lower end of a manufacturing assembly of of a consumer electronics. ah Vietnam also has this ambition to move up the value chain.
00:10:50
Speaker
textile footwear obviously and they actually gaining more market shares in the US market which is I think is what a lot of the other other countries trying to compete ah with Vietnam but not successfully. So great story. ah Domestically lots of focus on growth. Exports still very very successful but but what are some of the risks here particularly on the external side? What what is um you know what could derail potentially the the growth process?
00:11:17
Speaker
um Yeah, I think the biggest downside risk here is ah really on the trade front, which is the
Challenges and Opportunities in ASEAN
00:11:23
Speaker
trade environment. I mean, if we look at back at history, you know how China achieved its ah impressive double-digit growth, it was after China joined the WTA in 2001, and one and you know the trade environment back then was a lot ah more liberalized than today.
00:11:37
Speaker
Today, we're seeing increasing protectionism, and there's a lot of back and forth and still a lot of uncertainty on the tariffs front. And that certainly is a risk for all emerging markets. I think they're looking to export the way to prosperity. But it does also mean you have to focus more on the domestic side if you want achieve double-digit growth. But it sounds like Vietnam is doing that. Lastly, Ewan, how does Vietnam compare with some of its ASEAN peers? Is it sort of the standout economy when comes to growth? Is it the shining pupil among the ASEAN Southeast Asian economies? How would you put Vietnam into context? Absolutely. I would characterize Vietnam as the modest student here in South East Africa. The star pupil of Southeast Asia. Yes, it is. I mean, it's very impressive on what Vietnam has achieved for the past 10 to 20 years. And Vietnam really captured that moment, you know, with this increasing trade tensions between China and the U.S. And I think, you know, one thing about the talent, cultivation in Vietnam is increasing very fast. I mean, Vietnam has been very much catching up with other countries.
00:12:47
Speaker
On the talent, I got to ask you, how does Vietnam rank in terms of you know global rankings of high school students? I hear it does rather well. Yeah. So if we look at the PISA score. The PISA, OECD PISA kind comparison on high school students across the world. Yeah, that's right. So if we look at the PISA scores as a gauge here, number one, the highest score um in ASEAN is ah Singapore. And guess who is number two? It's Vietnam. Vietnam. There you go.
00:13:15
Speaker
Well, you're a fascinating story in Vietnam. We've got to stay close to it, certainly with these new ambitions being rolled out, double digit growth and innovation. It sounds like ah Vietnam has a shot actually in delivering that. It might be a stretch, but certainly it does have ah the potential to achieve a
Conclusion and Upcoming Episodes
00:13:33
Speaker
double-digit growth. So thank you for joining us. Thank you for having Well, we're going to have to leave it there, everybody. Thanks for joining us for another great episode of Under the Banyan Tree. To our listeners here in Asia, you'll still be able to get your weekly fix of Asian markets and economics next week, despite the Lunar New Year holiday.
00:13:50
Speaker
My regular co-host, Harold van der Linde, and I will be landing as normal on your podcast platform of choice next Thursday. All the best and take care until then.
00:14:43
Speaker
Thank you for joining us at HSBC Global Viewpoint. We hope you enjoyed the discussion. Make sure you're subscribed to stay up to date with new episodes.