The recent novel coronavirus outbreak (COVID-19) has exposed many of the inherent weaknesses of the global economy, with one of them being Vietnam’s heavy dependence on the Chinese market.

Many businesses are facing a huge shortage of materials for production

Traditionally, China is a leading trading partner for many countries worldwide with a total turnover of US$1,758 billion in late 2006. Indeed, when it comes to GDP the northern neighbour has reached US$ 13.1 trillion, second only to the United States.

According to estimates released by the Nikkei Asian Review and the Japan Center for Economic Research, if China's manufacturing output drops by US$10 billion then it will cause global output to fall by US$6.7 billion.

Media outlet the Guardian of the UK have also released statistics indicated that among 800 Apple suppliers, 290 of them are based in China, with 9% of global TV production coming from the Asian giant. Meanwhile, 50% of Wuhan's manufacturing sector relates to the automotive industry whilst a further 25% is linked to other regional technology sources. 

Numerous manufacturers and groups based around the world have greatly suffered due to their heavy reliance on China suppliers, especially during periods when production was stopped.

The recent outbreaks of the COVID-19 have shown that the global economic model is heavily dependent on Chinese manufacturing machinery, with any disruption of production serving to greatly affect the world's supply chain.

Therefore, when the Chinese economy suffers heavy losses, as it has done due to the impact of the COVID-19 epidemic, it affects all other nations, with Vietnam not being an exception to this.

A report released by the Trade and Industry Ministry regarding the impact of the COVID-19 epidemic on a number of the nation’s manufacturing industries indicates that domestic manufacturing firms are at risk of facing a huge shortage of materials during the first quarter of the year.

The report states that domestic manufacturing and processing industries are now heavily dependent on the supply of raw materials and input components imported from China and other epidemic-hit nations. The most affected industries include electronics, garments and textiles, footwear, along with automobile manufacturing and assembly.

Last year the country imported US$11.52 billion worth of garments and textiles, along with footwear from its northern neighbour, making up 47.74% of its overall import turnover of these products.

Similarly, China remains the nation’s largest supplier of chemicals and chemical products, in addition to plastic materials and plastic products with a value of US$7.22 billion.

The Department of Industry states that last year the Vietnamese electricity and electronics industry imported approximately US$40 billion of electronic components, including US$13.8 billion worth of Chinese imports, accounting for 34%.

"At this time, electronic enterprises only have enough spare parts for production until the middle or end of March 2020," a representative of the Industry Department said.

Similarly, most textile and footwear enterprises import up to 60% of components from  China, including fabrics, buttons, threads, and needles, whilst reserve materials are just enough for production to keep going until mid-March 2020 or early April 2020.

A May 10 Company representative stated that up to 70% of the nation’s accessories, in addition to textile and apparel raw materials, are imported from China. Therefore, many local enterprises are likely to suspend production, indicating that plenty of the country’s main export and production industries are greatly dependent on input materials from China.

Seeking to reduce dependence 

One can see from these statistics that many of the country’s key economic sectors are at  high risk of suffering from insufficient raw materials which could lead to the closure of businesses or put a halt to production activities. According to economic experts, an over-reliance on Chinese raw materials creates a risk for domestic businesses, especially when the source of supply is interrupted as has happened during the COVID-19 outbreak.

They believe that disease is acting as a kind of testing agent to discover how healthy the local economy is, therefore making it easier to identify any strengths, weaknesses, challenges, and opportunities of Vietnamese businesses.

In a bid to move away from this dependence a number of domestic enterprises, including those from the garment and textile sector, are considering importing materials from other locations such as the Republic of Korea, India, Bangladesh, and Brazil to avoid dependence on large volumes of imports from China. During his recent trip to India, Vietnamese Deputy Minister of Industry and Trade Cao Quoc Hung proposed that New Delhi could increase its volume of trade in terms of fruit, farmed fish, and litchi products with Vietnam.

Many experts believe that along with encouraging domestic enterprises to be proactive in finding alternative sources of raw materials to increase production and meet domestic demand, the country needs to devise long-term strategies and solutions in a bid to develop the domestic industrial sector whilst simultaneously avoiding any dependence on foreign sources. 

In light of this, Minister of Industry and Trade Tran Tuan Anh said that the Ministry has adjusted national trade promotion plans as a means of seeking new raw material importing markets to replace raw materials imported from China.

He also underlined the need to build a self-reliant and less dependent economy that is more adaptable to drastic changes, and incentivise the production and consumption of domestic goods, therefore helping to boost the development of Vietnamese businesses in the time to come.