Essay: Asian Country Economy Vietnam

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Asian Country Economy

Vietnam's Economy during the Global Financial Crisis

Vietnam's economy has been one of the fasting growing economies in Asia during the past decade. (EIU, 2010, p. 2).Although it has a relatively low national GDP, it is widely regarded as the next Asian Tiger economy because it has a hardworking labor force, a Confucian culture which values education, and a high rate of domestic savings. (Economic Intelligence Unit, 2010, p. 2).

Vietnam's newfound prosperity is not taken for granted by the Vietnamese, as Vietnam was one of the poorest countries in the world 25 years ago, due to its insulated socialist economy and a trade embargo imposed by the U.S.A. after the Vietnam war. (Economic Intelligence Unit, 2010, p. 2).However, Vietnam implemented a series of free market reforms to its socialist economy beginning in 1988 and has seen impressive economic growth since that time, as well as a wider overall integration into the global community. (Economic Intelligence Unit, 2010, p. 2). Vietnam is currently a hybrid socialist market economy, which has attracted investment and unleashed economic potential.

Vietnam, like the current Asian Tiger economies, is export-oriented and somewhat dependent on consumption in more developed economies such as the U.S. (Nguyen, 2009, p.2) Thus, it has been affected to some extent by the global financial crisis and the accompanying drop in consumption. (Nguyen, 2009, p.5). However, Vietnam has been able to weather the global financial crisis fairly well because it is not yet fully integrated into the global economy.

Exports

Vietnam is an increasingly export-oriented economy so many observers expected a huge slowdown because of the drop in consumption in countries such as the U.S. And the E.U. (Nguyen, 2009, p.5). However, because Vietnam's manufacturing sector specialized primarily in low-value textiles such as shirts and towels, items which are bare necessities for the American consumer, it was still able to export even when people cut back on spending. (Nguyen, 2009, p.7).

The other huge export sector in Vietnam, raw materials such as rubber, seafood, and rice, and cashews underwent a somewhat larger drop because of the decline in consumption worldwide and the accompanying manufacturing to support that consumption in other countries. (the Economist, 2009, Mar. 5). Vietnam was able to mitigate some of the drop-off by seeking out new markets for its goods, most notably the domestic market. Thus, Vietnam diverted the export goods to its own market, surviving by consuming its own goods.

Tourism, another huge sector of Vietnam's economy, underwent its own struggles during the global recession. Tourism spending, unlike foodstuffs or even textiles, is considered discretionary by most consumers and it is one of the first luxuries to go when people have to cut back on their spending. Vietnam's tourism industry was rapidly developing into a competitive travel destination in the boom years preceding the crisis. (Economist Intelligence Unit, 2010, p. 12). The global financial crisis, which affected industrialised countries particularly heavily, halted the industry's rapid development into a premier travel destination.

Despite the slowdown, Vietnam's tourism industry did not completely implode because it received an increased amount of budget-minded travellers. (Vietnam Business News, 2010, April 12). Typically, Vietnam has been popular with young budget-minded travellers from Europe, the United States, and Japan, popularly known as backpackers. However, the new emphasis on value for money has attracted tourists who are choosing to downgrade from traditional travel destinations such as the Greece, Thailand, and Indonesia. (Vietnam Business News, 2010, April 12). In addition, tourists from other parts of Asia, especially newly industrialized countries such as Malaysia, Thailand, and South Korea, are vacationing in Vietnam because of its affordability and close proximity. (Vietnam Business News, 2010, April 12).

Foreign Direct Investment

Vietnam's rapid economic development, second in Asia behind China, alerted many investors of its economic potential and attracted considerable Foreign Direct Investment during the boom years from industrialized countries such as Japan, South Korea, and the U.S. (Economist Intelligence Unit, 2010, p. 8). Foreign corporations, such as Japanese and South Korean electronics manufacturers, valued Vietnam for its cheap, hard-working labor force and its increasingly appetite for high-end consumer goods. Many of these corporations choose to source materials and manufacture either whole products or certain parts in Vietnam, investing in fabrication and assembly plants throughout the country. (Economist Intelligence Unit, 2010, p. 8).

The crisis diminished demand for the high-end consumer goods that much of Vietnam's Foreign Direct Investment depended on. American consumers in particular, cut back their spending on high-end electronics such as LCD TVs and smartphones. (the Asia File, 2009, Feb. 16). Thus, production at the manufacturing plants declined to some extent. However, some corporations, especially South Korean corporations, remained aggressive and maintained its manufacturing operations in Vietnam, even expanding their manufacturing operations in some cases. (the Economist, 2009, Sep 24).

Besides the manufacturing sector, foreign investors have also been fond of Vietnam's tourist industry for some time. With its extensive coastline, great cuisine, and friendly people, Vietnam holds enormous untapped potential for tourism and many investors have undertaken resort projects in the country. (Economist Intelligence Unit, 2010, p. 12). Some of these projects were delayed or scrapped for lack of adequate financing because of the crisis. (the Economist, 2009, Mar. 5). However, Vietnam's potential remains and it is only a matter of time before investment returns in force.

Imports

Because of its manufacturing sector's focus on low value products, Vietnam typically has to import higher value added goods such as heavy machinery, steel, and electronics from industrialized countries. (Economist Intelligence Unit, 2010, p. 7). This is one of the primary causes behind Vietnam's historic trade deficit. (Economist Intelligence Unit, 2010, p. 1). However, Vietnam has been taking steps to move from the low end of the value chain, textiles and footwear, up the value chain to light industry and electronics. (Economist Intelligence Unit, 2010, p. 7). The global financial crisis caused many shifts which affected the trade deficit.

In its attempt to move to higher value-added goods, Vietnam's manufacturing sector has had to import significant amounts of heavy machinery from industrialized countries such as the U.S., Japan, or Germany. (Economist Intelligence Unit, 2010, p. 7). However, the Global Financial Crisis has caused many businesses in those countries to go wind up, causing the assets, including heavy machinery, to be liquidated at reduced prices. (Nguyen, 2009, p. 14). Many Vietnamese businesses were able to take advantage of this development and buy heavy machinery at reduced prices.

Even though the Government sets the value of the national currency as opposed to "floating" the currency on the free market, Vietnam's currency is not particularly stable. . (Economist Intelligence Unit, 2010, p. 2). The Government only allows foreign currency exchange at official government-run foreign exchange bureaus throughout the country. . (Economist Intelligence Unit, 2010, p. 2). However, many Vietnamese people believe that the dong is weaker than the official rates indicate. (Vietnam Business News, 2010, Apr. 2).

Vietnamese people prefer to use U.S. Dollars for larger transactions, especially those involving foreign goods. (Vietnam Business News, 2010, Apr. 2). Thus, U.S. Dollars are in high demand and some even trade Vietnamese currency illegally on the black market. (VietnamNet,2010, Jan. 14). During the crisis, official exchange rates were from 16,000 VND -- 18,000 VND/1 USD while black market rates were from 18,000 VND -- 21,000 VND. (VietnamNet,2010, Jan. 14).

Whereas Vietnamese people prefer USD for larger transactions, they prefer to use gold for the very largest transactions and for savings. Thus, Vietnam carries a particularly high amount of gold at any given time and is always one of the highest importers of gold in the world. During the global financial crisis and the loss in confidence in many currencies, many people bought gold to hedge their bets in case the currency they held lost further value. Thus the price of gold rose to record highs, prompting some gold-holders in Vietnam to sell their gold at attractive rates. (Bloomberg, 2009, Nov. 11). Overall, this development helped to reduce Vietnam's trade deficit during the years of the crisis.

Domestic Spending

As Vietnam is undergoing rapid modernisation and westernisation, the country is developing a strong propensity for consumer spending typical of more industrialized societies. Because many Vietnamese adults prefer to live with their parents, many Vietnamese families will house three generations under one roof. (Nguyen, 2009, p. 5). Because household expenses such as rent, utilities, and food are shared between a great number of people, Vietnamese people have more potential for discretionary spending than the National GDP would indicate. (Nguyen, 2009, p. 5).

Discretionary spending has been applied largely to electronics, clothing, entertainment, and dining. (Nguyen, 2009, p. 5). In the increasingly cosmopolitan city of Ho Chi Minh City (Saigon), the country's economic engine, new entertainment and dining options are eagerly embraced by the newly prosperous, especially the youth. (Nguyen, 2009, p. 5).

During the crisis, Vietnam's new spending habits helped to prop up its own manufacturing sector amid diminished consumption in its target export markets. Textiles originally meant to be sold under foreign… [END OF PREVIEW]

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