China’s supply chain disruptions would make it increasingly challenging for Vietnam’s import-intensive manufacturing base. 

The country has become the region's top performing economy thanks to its resilient, huge economic potential and quick return post-COVID. HSBC Global Research expects Vietnam to be among the region's top growing nations.

However, Mr. Ngo Dang Khoa, Country Head of Markets and Securities Services, HSBC Vietnam, said China’s supply chain disruptions would make it increasingly challenging for Vietnam’s import-intensive manufacturing base. In the first half of 2022, 94% of its imports came from materials, with China remaining as Vietnam’s largest import market. Approximately 30% of Vietnam’s imports came from this country, mainly electronics (30%) and machines (22%). Therefore, China’s supply chain bottlenecks will likely stiffen the headwinds against Vietnam’s export growth.

Mr. Ngo Dang Khoa added that FDI continues to drive Vietnam’s economic success story. The country is among the top two ASEAN FDI recipients relative to GDP, highlighting its increasing attractiveness. In recent years, Vietnam has turned itself into a rising star in global supply chains, gaining substantial global market share in sectors, including textiles, footwear, and consumer electronics. Vietnam has climbed up the value chain over the years, growing into a key manufacturing hub for electronics products, attracting stable FDI inflows with its sound macro fundamentals, preferential tax incentives, and an abundance of relatively cheap and productive labour.

Besides, FDI attraction is equally important as sustainability for the country. "We have seen the acute effects of fast-growing manufacturing on the environment around the world." that Vietnam has made its ambitious commitment at COP26, sustainability has gained more attention. For example, the Vietnam Association of Supporting Industries (VASI) has suggested refining the quality of FDI, which means non-renewable energy consuming or environmentally unfriendly technologies are not allowed to enter Vietnam. "Green FDI" will be a key trend that Vietnam should definitely look out for in the future", said Mr. Ngo Dang Khoa.

In fact, to attract "green FDI," Mr. Ngo Dang Khoa said Vietnam has been driving the economy towards green growth, sustainability, and lower greenhouse gas emissions through the National Green Growth Strategy 2021-2030 with a vision to 2050. The government has worked out the National Action Plan for 2021-2030 to carry out this strategy, with specific missions and targets for each sector.

The SBV has already had the Action Plan of the Banking Industry to implement the National Strategic Plan on Green Growth and the Scheme on Green Bank Development in Vietnam by 2030 to drive the growth of "green credit", "green bank", channeling the funds to environmental projects, promoting green manufacturing, services and consumption, etc. According to SBV, by the end of 2021, 67 financial institutions funded green projects in renewable energy, clean agriculture, textiles and garments, and so on. The green credit outstanding accounted for 5% of the country’s total credit outstanding in 2021, equalling a 0.46% y-o-y increase. No doubt, green finance has a large room to grow here.

Furthermore, in Mr. Ngo Dang Khoa’s view, Vietnam should tap into the international capital market to fuel its green growth, leveraging the interest of the capital market with the significant appetite of the investors for Vietnam. At present, international funds for green growth are still nascen. For example, in renewable energy, investors still hesitate due to insecure electricity commercial contracts posing risk to project-based funding as well as the restrictions in the regulatory and legal framework for refinancing existing projects. Much more needs to be done to create a hassle-free space to leverage international capital for national green growth.