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China wage hikes boost costs but might help sales

In Uncategorized on June 9, 2010 at 12:23 pm

The cost of hiring Chinese workers who supply the world with inexpensive furniture and toys is climbing. But workers with more money to spend is good news for foreign companies that see them as customers, not just factory labor.

Areas throughout China have raised local minimum wages and some foreign employers have given out hefty pay hikes. That, combined with an expected rise in China’s currency against the dollar this year, will squeeze exporters of clothing and other low-margin goods, possibly forcing thousands to close or move to cheaper countries such as Vietnam.

“It is very difficult for us,” said Danny Lau, chairman of the Hong Kong Small and Medium Enterprises Association. He said some 2,000 to 3,000 of an estimated 50,000 Hong Kong-owned factories in southern China’s Pearl River Delta, an export hub, might close this year.

In this photo taken on Feb. 24, 2010, a recruiter talks to job seekers near a sign which reads ‘Foxconn Technology Group Recruitment Point’ in Shenzhen in south China’s Guangdong province

But putting more money in workers’ pockets will help turn them into consumers and accelerate China’s growth as a major market for imports from Boeing jetliners to Brazilian soybeans.

“This is good news. It’s going to start driving consumer spending,” said Standard Chartered economist Jinny Yan.

Beijing and other Chinese cities have raised minimum wages by up to 20 percent as part of efforts to narrow a yawning income gap that communist leaders worry is fueling political tensions. It was the first rise since the minimum wage was frozen in 2008 to help exporters hold down prices amid the global crisis.

Communist authorities who normally bar independent labor activity have allowed workers to demonstrate and sometimes carry out brief strikes for higher wages.

On Sunday, Taiwanese-owned Foxconn Technology Group announced the second in a series of raises that would increase pay by up to 65 percent at its factories in the southern city of Shenzhen. The company employs 300,000 people there making iPhones and other goods for Apple Inc., Sony Corp., Dell Inc., Nokia Corp. and Hewlett-Packard Co.

The wage hikes fit Beijing’s economic strategy, which calls for encouraging China’s own consumers to spend more in order to reduce reliance on exports and investment to drive growth.

The ruling party also is trying to shift more money down the economic ladder to defuse public anger that Chinese workers have gotten too little out of a boom that has created dozens of billionaires.

Wages as a share of China’s gross domestic product have fallen steadily since the 1980s, from 56.5 percent in 1983 to 36.7 percent in 2005, according to figures from the umbrella group for legally permitted unions, the All-China Federation of Trade Unions, reported by the government newspaper Global Times.

Even at that level, rising incomes made China the biggest auto market last year by vehicles sold and a leading market in industries from air travel to fast food. Retail sales in April were up 18.5 percent from a year earlier.

“Demand is picking up because people have more money in their pockets,” said Jing Ulrich, JP Morgan’s chairwoman for China equities. She said higher wages could boost demand for products as varied as fast food and sporting goods.

Foreign companies’ focus on China as a market was highlighted by a survey released in April by the American Chamber of Commerce in China. It found the top priority for 58 percent of its member companies was producing in China for sale to local consumers. Only 14 percent said their priority was to produce for export.

The wage hikes are likely to hit employers hardest in China’s southeast. The area has thousands of factories, many owned by Hong Kong or Taiwanese investors that compete in global markets. Many have razor-thin profit margins and little power to pass on higher costs to customers.

The region was battered in 2008 by the collapse in global consumer spending. Thousands of factories closed and the government said as many as 30 million people were thrown out of work.

Wei Senchuan, general manager of Suzhou Hong Sheng Printing Co. in the eastern city of Suzhou, which makes housings for computers bound for export, said the minimum wage rise will add 6 to 7 percent to his costs.

Asked whether he could pass that on to customers, Wei said, “impossible.”

Even after the latest increases, Chinese wages are still a fraction of those in the United States or Europe. Foxconn says pay for its employees in Shenzhen will be about 2,000 yuan ($293) a month.

“We don’t see an end to an era of cheap Chinese goods,” said Yan of Standard Chartered.

The minimum wage hikes should raise growth in domestic consumption by about 0.2 percentage points this year, according to Jun Ma, chief China economist for Deutsche Bank. He said that would come at the cost of a 0.4 percentage point rise in inflation and a 0.6 percentage point decline in exports.

The wage hikes “will serve as an important impetus to speed up the income distribution reform and economy upgrading,” Ma said in a report.

Taiwanese companies had invested an estimated $122 billion and employed 14.4 million people on the mainland as of last year, according to Hung Chia-ko, a researcher at Taiwan’s National Chengchi University.

Some are shifting operations to Southeast Asian nations such as Vietnam and other low-wage economies. But many are too dependent on China’s networks of distributors and materials suppliers, say economists and company managers. And even in such places as Vietnam, with 80 million people, the labor pool seems small by comparison.

“Vietnamese workers go on strike every day,” said Andrew Yeh, head of the Dongguan Business Association of Taiwan Investors in Dongguan, a city near Hong Kong, and the boss of a company that makes computer cables.

“And you have to be close to the market,” Yeh said. “How do you set up your base in Vietnam and export to China?”

Source: SGGP

Hue prepared for festival, but prices rising

In Uncategorized on June 4, 2010 at 10:23 am

The central province of Thua Thien-Hue has readied itself for the Hue Festival 2010, but organizers are worried that local service providers are hiking prices.

The biennial event of art and culture scheduled to take place in the former imperial capital city of Hue from June 5 to 13 has already attracted thousands of domestic and foreign visitors, organizers said, adding that Hue is becoming noisier each hour.

Performances of Hue royal palace dance will be a highlight of this year’s Hue Festival. (Filed photo: SGGP)

The festival atmosphere has also taken over the districts of Huong Thuy, Phong Dien, Huong Tra outside the city center as everyone readies for the event, themed “Cultural Heritage with Integration and Development.”

Ngo Hoa, head of the festival organizing committee, said 12 stages totaling 25,000 seats with modern lighting and audio systems had been built to host 17 major performances at the Hue Royal palace, An Dinh Palace, Tinh Tam Lake and along the Huong River.

The stage built at Ngo Mon (Noon Gate), where the event’s opening ceremonies will take place, is the largest at three stories tall.

The 1500sq.m floating stage on Tinh Tam Lake promises to be a thrill when it hosts performances of  traditional Ca tru (ceremonial songs), quan ho Bac Ning singing (Bac Ninh folk love duets) and nha nhac Hue (Hue royal court music). All three genres of music have been recognized by UNESCO as world cultural heritages.

Hoa said domestic art troupes and art troupes from 30 other countries are in Hue preparing their performances.

Price problems?

According to Nguyen Van Thang, chief inspector of Thua Thien – Hue Department of Culture, Sports and Tourism, inspectors are checking hotels and guest houses in order to minimize the escalation of the prices that always accompanies festivals in Vietnam. The department is ensuring that hotels abide by their officially listed prices, Thang said.

But he added that many hotels on Hung Vuong and Ben Nghe streets had kept rooms open in a deliberate attempt to raise prices when the festival opens.

Normally, such hotels charge VND150,000 – 180,000 (US$7.9 – 9.5) per room, but they were now charging VND250,000 – 300,000 ($13 – 16), said Thang.

Visitors who arrived in Hue on June 3 told SGGP they were disappointed they could not find available rooms.

Tran Cong Lan, a visitor from Hai Phong City, said his group of 20 people came to Hue for the festival, however, they could not find any hotels which that had enough rooms for them. They’ve decided to stay outside the city.

Festival organizers also said restaurants and food and beverage vendors had raised prices 20-30 percent for the event.

Source: SGGP

Training jetfighter crashes, but no casualties

In Uncategorized on May 30, 2010 at 5:15 pm

Training jetfighter crashes, but no casualties

QĐND – Sunday, May 30, 2010, 20:57 (GMT+7)

A MIC 21 jetfighter crashed on the morning of May 29 in the central province of Binh Dinh during a training mission, but two pilots parachuted safely.

The jetfighter, which belongs to the C40 air force unit, fell into Nhon Tan commune of An Nhon district at about 09:05 to 09:10 a.m, destroying the eaves of a local house, said the provincial Military Command. Nobody was injured in the incident.

Officers of the C40 air force unit and local authorities are investigating the cause of the incident.

Source: VOV

Source: QDND

US slams BP, but awaits latest bid to plug oil leak

In Uncategorized on May 25, 2010 at 5:20 am

Stocks slide anew, but it’s still not a correction

In Uncategorized on May 8, 2010 at 8:39 am

The stock market’s wild ride may not be over yet.The Dow Jones industrials whipsawed again Friday, a day after their largest one-day plunge. The average was down as much as 279 points in the morning, went briefly into the black around lunchtime, then ended with a loss of 139.

Not quite as terrifying as the brief 1,000-point plunge the day before, but still extraordinarily volatile. It’s normal for markets to trade erratically a day after such a disruptive move, but analysts are divided over whether stocks are in the process of finding a bottom or whether too many investors are too spooked to get back in.

“It’s a pile of uncertainty … We don’t have any more clarity than we did yesterday,” said Art Hogan, chief market analyst at Jefferies & Co. in Boston. “We’re going to have investors who are less inclined to be in this marketplace until we get some clarity.”

Traders were still anxious amid lingering questions about what caused Thursday’s sudden drop. Several possibilities were being investigated but as of late Friday no clear explanation had emerged.

Specialist Gregg Maloney works on the floor of the New York Stock Exchange, Friday, May 7, 2010, in New York

Investors looked past a surprisingly strong report on the U.S. jobs market and focused instead on the latest moves in Europe‘s spreading debt crisis. Their concerns have fed a wave of turbulence over the past two weeks, including four straight days of selling this week, and helped trigger Thursday’s drop.

Technology stocks were particularly hard hit following reports that Nokia Corp. was broadening its legal fight against rival cell phone maker Apple Inc. to include the iPad, Apple‘s new hit product. Apple shares fell 4.2 percent in heavy trading.

The concerns about Europe’s debt crisis go far beyond Greece. A further loss of confidence in European government debt could have an impact on other weak countries like Portugal, potentially requiring another difficult bailout process.

Germany’s parliament approved Berlin’s share of the rescue package after a boisterous debate, but investors still fear that Greece may not make a May 19 deadline to make a debt repayment. That could cause ripple effects throughout the global financial system and further undermine Europe’s shared currency, the euro.

“You’re not concerned about the kid with the cold, but how he spreads it to the rest of the class,” said Len Blum, a managing partner at investment bank Westwood Capital. Blum noted that Greece’s debt problem could be similar to the subprime mortgage meltdown in the U.S., which quickly spread to other parts of the financial system.

The Dow closed down 139.89, or 1.3 percent, at 10,380.43.

The Standard & Poor’s 500 index fell 17.27, or 1.5 percent, at 1,110.88, while the Nasdaq composite fell 54, or 2.3 percent, to 2,265.64.

Falling stocks outpaced gainers two-to-one on the New York Stock Exchange, where consolidated volume was very heavy at 9.5 billion shares, compared with 10.4 billion on Thursday.

Friday’s trading left the Dow down 5.7 percent for the week and erased its gains for the year. The S&P fell about 6.4 percent, while the Nasdaq was off 7.9 percent for the week. The S&P and Nasdaq also went into the red for 2010.

The Russell 2000 index of smaller companies was off 8.9 percent for the week, and the Dow Jones U.S. Total Stock Market Index fell 834.93, or 6.8 percent, to 11,444.25.

The week’s losses would put the market about well toward what analysts call a correction, usually defined as a drop of between 10 percent and 20 percent following a sustained rise. The Dow is now 7.4 percent off its recent high of 11,205.03 reached on April 26. The S&P 500 is down 8.7 percent from its recent high of 1,217.28 reached April 23.

“We were in the midst of a pullback, we needed one, we got one,” said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. Cardillo said the choppy trading after such a drastic decline likely signals the market trying to find a bottom.

Stocks have been on a nearly uninterrupted upward path since March of last year, when indexes hit 12-year lows. Analysts have been predicting a correction for months, only to see the market bounce back after brief periods of decline.

Long-term market watchers actually welcome occasional pullbacks in stocks, saying that gives investors opportunities to pick up shares at bargain prices.

“We had the earthquake, we’re now in the midst of getting the aftershocks,” said Steven Goldman, chief market strategist for Weeden & Co. in Greenwich, Conn. “When the market’s so close to new highs, it’s difficult to have rallies. But when you’re down 10 or 12 percent from recent highs, we can deal with uncertainty better.”

The Labor Department reported that employers added 290,000 jobs last month, far more than expected and the biggest jump in four years. However the jobless rate rose to 9.9 percent from 9.7 percent as more people looked for work.

The big improvement in the jobs report brought some clarity to the biggest question remaining for the U.S. economy: When employers would start hiring again. Despite positive signs in manufacturing and housing, job creation has been lagging far behind other sectors of the economy, a worrisome point for economists. Friday’s report may help change that perception.

“It’s a good-size number and it had a lot of breadth,” said John Silvia, chief economist at Wells Fargo. “There isn’t a double-dip out there. The employment situation suggests that we have a sustained economic recovery in the U.S. Companies are hiring people.”

Apple fell $10.39, or 4.2 percent, to $235.86.

Oil fell, and gold rose. The dollar was mostly lower against most currencies. The euro clawed back some ground against the dollar after several days of declines.

European markets were broadly lower.

The declines were deepest in France, where the CAC-40 index tumbled 4.6 percent. Germany’s DAX fell 3.3 percent and Britain’s FTSE 100 fell 2.6 percent. Japan’s Nikkei fell 3.1 percent.

Source: SGGP

Russia lauds nuclear pact — but reserves right to withdraw

In Uncategorized on April 6, 2010 at 8:44 am

The US-Russia nuclear arms pact to be signed this week enhances trust between the Cold War foes but Moscow may quit the pact if US missile defence plans go too far, a top Russian official said Tuesday.

US President Barack Obama(R) and Russian President Dmitry Medvedev during a meeting in Copenhagen in 2009. (AFP Photo)

The nuclear arms treaty to be signed by US President Barack Obama and his Russian counterpart, Dmitry Medvedev on Thursday “reflects a new level of trust between Moscow and Washington,” Foreign Minister Sergei Lavrov said.

Speaking to journalists in Moscow, Lavrov said the new disarmament treaty, which succeeds the 1991 US-Soviet START agreement, corresponds perfectly to the national interests of both the United States and Russia.

The previous pact, he said, contained much that was favorable to the United States and of a “discriminatory character” toward Russia — a situation which will be wholly avoided in the new treaty, Lavrov said.

He stressed that the agreement to be signed this week in Prague explicitly acknowledges a direct link between offensive nuclear weapons and missile defences.

But he also admitted that the pact placed no restrictions on either side developing and deploying new missile defences, warning however that US moves to do so could provide grounds for Russia to quit the treaty unilaterally.

“Russia will have the right to abandon the START treaty if a quantitative and qualitative buildup of the US strategic anti-missile potential begins to significantly affect the efficiency of Russia’s strategic nuclear forces,” Lavrov told reporters.

Lavrov spoke to reporters amid US media reports that Obama plans on Tuesday to unveil a radical overhaul of the US nuclear arms strategy, placing explicit new limits on the use of such weapons.

In an interview with The New York Times, a senior US administration official said the new strategy would stress non-nuclear deterrence but would also make exceptions for “outliers like Iran and North Korea.”

US commentators have described the new US-Russia nuclear pact as a key step toward an eventual total elimination of nuclear arms, a generations-old disarmament goal that has been revived by the Obama administration.

Asked to comment on how Russia felt about a nuclear-free world, Lavrov was circumspect.

“To talk seriously about practical steps towards a world without nuclear weapons, attention should be drawn to a whole range of factors that could potentially upset global strategic stability,” he said.

Chief among those factors, according to Lavrov, is the deployment of weapons in space, an area that previous US administrations have acknowledged work in and that Lavrov said Russia and China were hoping to make off-limits.

Work toward a nuclear-free world would also depend on greater scrutiny and regulation of non-nuclear weapons deployed by air, land and sea with huge destructive power.

The new US-Russia treaty limits each side to a ceiling of 1,550 deployed nuclear warheads, a reduction of around 30 percent by comparison with the 1991 START treaty.

Critics however say counting gimmicks and the current state of the US and Russian nuclear stockpiles make the new pact more a symbolic document than a real nuclear weapons-reduction tool.


Source: SGGP

US, China change tone but disputes lie ahead

In Uncategorized on March 31, 2010 at 6:50 am

Weeks after warning that ties were in disarray, China is signaling a readiness to work with the United States but fresh disputes could set back relations just as quickly, analysts say.

A US official adjusts Chinese and US flags in Washington, DC. (AFP Photo)

China on Monday praised the “positive attitude” of President Barack Obama after he voiced support for a greater relationship with the rising Asian power in receiving its new ambassador.

The calls for cooperation come despite two angry Chinese protests since the beginning of the year after Obama approved an arms package to Beijing’s rival Taiwan and met with Tibet’s exiled spiritual leader the Dalai Lama.

“This was a nice symbolic movement on which the two countries could agree to change the tenor,” said Nina Hachigian, a China expert at the Center for American Progress, a left-leaning think-tank.

“It was optically very easy to show that relations are improving,” she said. “But there are plenty of things coming up that could derail the relationship.”

Chief among them is currency. Some 130 lawmakers have called on Treasury Secretary Timothy Geithner to declare that China is manipulating its yuan’s value for trade advantage — and have threatened legislation if he does not.

The Treasury will make its decision in a report due on April 15. It comes days after Obama holds a major summit in Washington on nuclear security to which China’s leaders have not yet RSVPed.

“If it finds China to be a manipulator, China will find it very irritating and relations could turn rocky again,” Hachigian said.

Other potential disputes include human rights, climate change and Internet freedom after Google reported cyberattacks by China.

Dean Cheng, a research fellow at the conservative Heritage Foundation, cautioned that Obama’s meeting with the new ambassador, Zhang Yesui, was more a matter of atmospherics.

“Let’s be honest — no one was expecting the president of the United States to rip up the credentials of the ambassador and tell him to get out of his office,” Cheng said.

He said the real test of relations would come in laying the groundwork for the next dialogue between the United States and China, for which Geithner and Secretary of State Hillary Clinton are expected to head to Beijing in late May.

The real work between the two nations comes in “working group discussions and meetings and here we do have unfortunately relatively little movement,” Cheng said.

On one key issue, Clinton and her deputy James Steinberg said China was recognizing a threat from a nuclear Iran. Obama said Tuesday he hoped for an international consensus on new sanctions within weeks.

But Cheng noted that China has longstanding objections to sanctions against Iran, one of its oil suppliers.

“The point is we (the US and China) have very different perspectives,” he said. “It is the job of diplomats to lie for their country and to lie well to put the best face forward on what might be quite an ugly pile of nonsense.”

China’s leaders largely had a favorable image of former president George W. Bush. When Obama took office in January 2009, he set a goal of expanding cooperation between the world’s largest developed and developing nations.

But China faced a backlash in Washington after its treatment of Obama during his maiden trip last year. China made no symbolic gestures such as freeing dissidents and did not even broadcast Obama’s one public forum nationally.

Charles Freeman of the Center for Strategic and International Studies said US and Chinese leaders may have decided to tone down populist sentiment pressing for tougher responses against the other country.

“I think there’s a recognition in both capitals that you really don’t want to let this get too out of hand,” Freeman said.

“If nothing else, both countries recognize they can’t afford to get the relationship wrong,” he said.


Source: SGGP

Movers, but not shakers – meet the ‘genies of the lamp’

In Uncategorized on March 24, 2010 at 5:27 am

Southern An Giang Province’s Cho Moi District is well known among those in the know as the place to find “genies of the lamp”, because what they do seems superhuman and magical – moving structures like houses and temples as a whole.

Perhaps the most surprising thing about these structural movers is that they are not trained engineers or contractors. They have poor education levels, but have a genius for what they do.

SGGP recently met with some of the local “genies”.

Ba Be, one of the “genies of the lamp” in Cho Moi District, An Giang Province (Photo: Lao Dong)

As soon as I arrived in the district’s Long Dien A commune, it was clear that I was in the right place. There were about a dozen or more “moving houses” signboards posted on both sides of the road leading to the district’s center.

The district has more than 50 teams that specialize in the business of moving structures, and the names and addresses of the team leaders are introduced on the signboards, which made it easy to get in touch with the people that locals have dubbed “genies of the lamp”.

I met with Luong Thanh Luy, known locally as “Tu Luy,” one of the first people to be able to magically relocate construction structures, although it was not until 2006 that his exploits received any media attention. This happened after he successfully moved the Vinh Trang pagoda gate and the Long Hung temple in Tien Giang Province.

Before he was called up on to move these national relics, many construction experts have given up on it.

But he had a vignette to share with me. It dated back to 1990. That year, when Cho Moi District upgraded and expanded its main road, the house he built for one of his friends, Lai Cai, became an “illegal” structure as its position encroached the street’s right-of-way by five meters.

Cai asked Luy for help to save the house. After many days of racking his brain, Luy had an idea – move the house the way fishermen once did to launch a large boat.

After a week of preparation, Tu Luy and his team were able to move the house by five meters using jacks and round wooden trunks on which the house slid. The work was done perfectly.

He became well known for the feat and many others in similar predicaments as Lai sought his help.

All his works were made based on contracts with strict provisions, Tuy said. The houses or other construction structures had to be kept intact and in safe condition in the process of moving and re-installing. If it developed a crack that was more than a centimeter wide, customers would not have to pay him.

When I commented that even good engineers or contractors might not dare to accept such severe requirements, Tuy showed that he was also quick witted.

“Yes, for that reason, my colleagues and I can make money.”

Another “genie of the lamp” I met was Le Van Duoc, known as Tam Duoc, in Long Hoa 2 hamlet of Long Dien A commune.

Vinh Trang pagoda gate, one of the works successfully relocated by “genie of the lamp” Tu Luy in My Tho City, Tien Giang Province in 2006. (Photo: Lao Dong)  

The work of fame of this genie, whose education level is quite low, was the successful relocation of the Chua Ong-Chua Ba Pagoda in Vinh Chau District, the southern province of Soc Trang.

When he agreed to take on the work in 2003, the over-100-years-old pagoda had deteriorated seriously and was in danger of collapsing. Most locals did not believe Duoc would be successful. 

However, he and his team of 30 workers proved the skeptics and doubters wrong. To the surprise of local residents and construction engineers, they were able to relocate the pagoda safely to a site 15 meters away from its original position.

Tam Duoc has not looked back since, and his reputation has spread not only in the Mekong Delta, but also to southeastern provinces like Dong Nai and Binh Duong, and even further to the Central Highlands provinces of Lam Dong and DaK Lak.

The genies have helped relocate and preserve many construction works across the country, including historical and cultural relics, over the past ten years. Through their work, many houses, temples and other works have been saved from demolition, causing a great loss.

The rewards

Their efforts have also paid off for the genies mselves. Being paid remuneration equal to 20-30 percent of the value of the structures relocated, they have become quite well off over the last couple of decades that they have been doing their business. 

In An Giang Province, many companies specialized in “relocation of construction works” have been set up, with some having several billion dong as their chartered capital. Many local genies now have cars and/or newly-built large houses.

In some families, both fathers and their sons are genies, and in others, all the children are engaged in the business.

Source: SGGP Bookmark & Share

Ebooks gaining popularity but still face challenges in VN

In Uncategorized on March 24, 2010 at 5:22 am

In the wake of the global economic downturn and green movement, ebooks have emerged as the latest method of publishing a literary piece without the drawbacks of traditional publishing methods.

An online website to sell educational documents

Last year saw a dramatic spike in the popularity of ebooks, both locally and around the world., an online shopping website offering a large selection of books and magazines, has reported the turnover of ebooks is now much higher than hardcopies and paperbacks.

Ebooks have the advantage of being cheap while offering readers quicker access to the latest titles. They are also environmentally friendly, saving huge amounts of trees and paper.

The largest Vietnamese online book distributor,, plans to offer ebooks in the future, but says that currently, hard-copies are still more popular in the country.

Some local book aficionados, however, have established their own websites like or, where members can read books for free.

Other domestic enterprises provide digital libraries, while the Lac Viet Company has implemented its own software to make it convenient for readers and online shoppers to access books.

Experts say Ebooks have yet to become as popular in Vietnam as they are globally for two main reasons: difficulty in utilizing ebook technology and copyright issues.

Most Vietnamese readers can’t afford a professional wireless reading device like Kindle, which costs more than US$200, and thus resort to reading ebooks via their mobile phones.

Moreover, once initially purchased online, ebooks are relatively easy to copy. This has deterred local online book distributors from offering them as they don’t stand to make large profits.

Source: SGGP Bookmark & Share

Economy rebounds, but major challenges loom

In Uncategorized on March 24, 2010 at 4:47 am

Despite the global crisis, last year can be seen as a successful year for Vietnam, with its GDP growing by 5.32 percent, the highest rate in Southeast Asia. However, there remain many big challenges the country faces in 2010.

Besides the impressive GDP growth, last year saw the country’s overall CPI kept at 6.8 percent, the lowest rate since 2004, and unemployment rate stand at 3 percent, the lowest in the world.

Owning to strengthened control over budget spending, the deficit was restrained at 6.9 percent of GDP, slightly lower than the 7-percent target and far lower than the projections by international financial analysts.

Customers at an Eastern Asia Commercial Bank branch in Ho Chi Minh City. The negotiable interest rate mechanism should be applied again to replace the ceiling interest rates on loans and deposits, to help stabilize the foreign exchange market, says Le Xuan Nghia, Deputy chairman of the National Financial Supervisory Committee. (Photo: Viet Bao)

As a result of the Government’s effective social welfare policies, the number of poor households fell to 12 percent from 14 percent in 2008.

The banking system was relatively stable, with an ROE of 13-14 percent. Average bad debt rate at banks was less than 2 percent.

Last year also saw many financial companies and financial leasing companies improve themselves in term of profitability and bad debt ratios. The insurance market and stock exchange have rebounded in terms of capital, liquidity and profit.

The above performances, resulting from the Government’s opportune policies on economic stimulus and macroeconomic stabilization, and great efforts by businesses, investors and consumers, have created favorable conditions for better economic achievements in 2010.

The revival in consumer demand the world over is also a good sign for Vietnam’s exporters.

This year, free trade agreements (FTA) between Vietnam and China, Japan, and possibly Russia, will be implemented, benefiting Vietnamese importers, exporters and producers, contributing to boost growth and generating jobs.

Trade deficit, exchange rate

It is a big challenge for the country to achieve a GDP growth of 6 percent this year. In 2009, the country’s GDP grew by 5.32 percent, of which 1.2 percent contributed by a 30 percent reduction of trade deficit (from US$17 billion in 2008 to $12.2 billion in 2009).  But in 2010, the situation has been reversed: trade deficit is forecast to rise by 20 percent and will make the growth rate reduce by 1 percent.

In other words, if the country wants to reach a GDP growth of 6.5 percent this year, it must see total consumer spending and domestic investment increase by 7.5 percent. To overcome this big challenge, it is necessary to apply flexible policies to boost public investment, credit and consumer spending.

Another problem is how to improve the foreign exchange market’s liquidity and to stabilize exchange rates.
Last year, the weak liquidity of the foreign exchange market mainly arose from the fact that the Government’s interest subsidy was offered only to loans in dong, which narrowed the gap between the interest rates on dong and foreign currencies, leading to difficulties in mobilizing and lending foreign currencies.

When the Government increased the official VND-USD exchange rate by 5.5 percent, boosted the prime rate by 1 percent and stopped offering interest subsidy for short-term loans, the liquidity of the foreign exchange was improved.

However, the difference between the State’s official exchange rates and those on the open market remained relatively high.

Therefore, if the exchange rates are not regulated flexibly based on market developments and if the negotiable interest rate mechanism is not applied again to replace the ceiling interest rates on loans and deposits, the instability of the foreign exchange market is likely to remain a big problem in 2010.        

Particularly, the US Federal Reverse is likely to increase its base interest rate in April. If this is the case, the value of US dollar will strengthen against other foreign currencies and liquidity in Vietnam will be weakened, affecting not only the financial market but also the efficiency of the national economy as a whole.

By Dr. Le Xuan Nghia, deputy chairman of the National Financial Supervision Committee

Source: SGGP Bookmark & Share

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