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Vietnam and the Greater Mekong Subregion

Updated On: May 08, 2007

Vietnam’s rapid economic development is set to continue, with growth rate exceeding 8% for the past two years.

Its poverty rate has decreased from 60% in 1990 to about 15% currently. The Vietnamese government is aiming to reach middle-income country status by 2010.

Vietnam is likely to see greater investments from Japan. Japan is Vietnam’s top foreign direct investor. It has 766 projects, accounting for US$7.7 billion in registered capital. In 2006, Japanese investors registered 149 new projects valued at over US$1 billion. According to a survey by the Japan External Trade Organisation (JETRO), Japanese companies are likely to be transferring their mid-to-low end products from China to Vietnam. 

Vietnam is also attractive to the Japanese companies as a market and Japanese products are doing well. Japanese electronics currently holds about 50% of the Vietnamese market compared to Korea’s share at 35% and China at 5%. However, the Vietnamese government would have to improve further its infrastructure, reduce the excessive bureaucracy and improve the quality of workers as well as tackle corruption.

Vietnam is also likely to benefit from the closer cooperation within the Greater Mekong Subregion (GMS) if the members agree to the 4 point strategy by the Director of the Research Division at the International Institute for Trade and Development, Ake-Aroon Auansakul. He called on the GMS states to first develop the infrastructure not only in the physical aspects but also in intangible infrastructure such as human resource quality and language proficiency. Second, the GMS states should work on trade facilitation to speed up trading processes and reduce transaction costs. Third, the GMS members have to improve trade policy, rule and regulation. Last, the GMS states could consider emphasising on production and adopt import substitution policies.

Nonetheless, Vietnam is set to benefit from China’s export of electricity to Vietnam as a project under the GMS. Due to Vietnam’s rapid economic development, its electricity demand is forecast to grow 15-17% per annual till 2010. However, its annual electricity generation is only 11 gigawatts annually. China will export 2.5 kilowatt-hours of electricity to Vietnam in 2007. It is also building a new 220-kilovolt line linking Yunnan province to Ha Giang in Vietnam. This new line will supply power to Vietnam for ten years and transmit an average of 1 billion kilowatt-hours of electricity per year. 

Vietnam is also set to have a 1,450 km road link to Myanmar by 2008. The road was expected to attract investment along the East-West Economic Corridor. At least, one-third of the US$1.7 billion cost was paid for by the Japanese economic aid. However, many Japanese corporations have not shown their enthusiasm for the project. They point to the unpredictable road conditions, poor infrastructure and long customs clearance.  (7 May 2007)

Sources:

Japanese Presence Set to Grow (Saigon Times Weekly, 5 May 2007)

Policy Strategy to Increase GMS Intraregional Trade (Bangkok Post, 4 May 2007)

Contract Farming on Thai Agenda (Bangkok Post, 4 May 2007)

China to Ease Vietnam Power Shortage (China Daily, 3 May 2007)

Vietnam-Myanmar Road Raises Hopes, Skepticism [sic] (The Japan Times, 3 May 2007)

Vietnam’s Economy Soars as Capital Inflow Surges (Jakarta Post, 3 May 2007)