Essay on what extent did the devaluation of Yuan in 2019, impact the quality of exports from Vietnam to China?

The economy of Vietnam is known as a socialist-oriented market economy. According to the Economic Complexity Index (ECI) the economy of Vietnam is the 21^st largest, and on the scales of complexity it is 83^rd. As per the nominal gross domestic product, it is regarded as the 44^th largest in the world and as per the purchasing power it has the 32^nd number in the world. the top exports of Vietnam includes, the equipment of broadcasting, Telephones, Integrated Circuits, Textile Footwear, and also the Leather Footwear, whereas the most important exports are of Telephones, Refined Petroleum, Electrical Parts and Light Rubberized Knitted Fabric. Vietnam has China, Cambodia and Laos at boarder by land. It has imports as well as exports relations with China. Its exports to China make $39.9 billion and imports are of around $70.6 billion. The exports from Vietnam to China include crude oil, coffee, coal and food items, whereas the goods that China exports to Vietnam includes, pharmaceuticals, machinery, petroleum, fertilizers and automobile parts. China is the largest importer of Vietnamese goods and the second largest trading partner as well.

 The trade between China and Vietnam experienced turbulence when on the 5^th of August; the daily reference rate of Yuan was set below 7 per dollar, in response to the new tariffs of 10% on $300 billion worth of Chinese imports imposed by the administration of Trump, that were to be implemented from the 1^st of September, 2019. The investors were accustomed to the steady growth of Yuan against the Dollar. After this, China was named as the manipulator of currency, by the Treasury department of the U.S on the same date. This naming opened the doors for the Trump administration to have consultations with the IMF International Monetary Fund, to take away any unfair advantages that China has gained by manipulating currency. This turbulence also impacted its trade partners and so with Vietnam. The Yuan depreciated its value about 4% against the US dollar, whereas the value of Dong suffered no change in past three months.

In the August of 2019, the Chinese Yuan remained above seven that is the sensitive level against the US dollar for three consecutive days. There was hints that the friction between the US and China are entering a dangerous phase. It was predicted already that this escalating tension will leave a negative impact on the trade relations between Vietnam and China in the short term. And all of those predictions became true when on Monday the Chinese Yuan crossed the sensitive level and landed below seven, after remaining stable for a period of eleven years since 2008. This fall was openly linked to the US, though it was declared the same evening that China do not intend to use the exchange rates as a weapon in the trade war. The Chinese currency kept depreciating for the next two days, as per the Bloomberg’s data. Meanwhile the analysts in Vietnam gave predictions that this fall may last for a long time. The daily reference rate of Vietnam was increased from 15 to 23, 115 per US dollar, on Tuesday, and that was its highest ever rate. While the US/VNS exchange rates had not changed much though. The Dong of Vietnam had not changed its value much and depreciated only by 0.3% against the dollar, while the depreciation of Yuan was around 4% against the dollar of US. It means that the Yuan has become cheaper as compared to Dong; it also means that the Chinese goods are becoming cheap.

A Head of the Trade and Research Institute, under the Ministry of Trade and Industry said that the devaluation of the Yuan will have serious impacts on the exports of Vietnam to China. This trade war was turned into a currency war, and it was impacting every single trade partner of China. All was done to minimize the tax implications on China by US that were to be implemented from the September of 2019. This devaluation was impacting the profits of Vietnam from the exports to China in a negative way, the exports were in high volume and some of them were even reaping no profit at all. The local enterprises were advised to seek out other markets for imports that were in a free trade agreement with Vietnam. Though there were no restrictions imposed on Vietnamese enterprises to conduct the transactions in Yuan in some of the border provinces, but the devaluation of Yuan was resulting in a drop of profits from the purchases of goods. It was proposed that Vietnam should take prompt actions to prevent the currency trade from affecting the currency market of the country. It was said that the devaluation in Chinese currency will benefit Chinese exports to other foreign markets including the Vietnam

One of the largest exports from Vietnam to China was of tra fish and this devaluation impacted that too. The farmers and processers of the fish were expected to face difficulties in the following months. Apart from that China has itself reduced the imports of tra fish, since the start of this year. The reason behind this is the tightened policies on the informal imports. The reason of devaluation of Yuan was solely to minimize the impact of export duties that were to be imposed from September and the benefits of the Chinese goods are not due to the lower prices, but due to economies of scales and supply chain.

In this whole scenario, there was a threat that if the imports from China to Vietnam rose, production and business activities of the local enterprises of Vietnam will suffer a negative impact. The Vietnamese bank was expected to follow a stable policy of exchange rates but it was advised to make adjustments in exchange rates at a stable margin, or it would make an adverse impact on the Vietnamese goods that are sold worldwide. It is also important to understand that devaluation of the currency is a technique, which countries often use to make changes in their economic policy, and China does in particular to counter the effects created by Dollar in the international market.

References what extent did the devaluation of Yuan in 2019, impact the quality of exports from Vietnam to China

Chan, A. (2019). Vietnam’s and China’s Diverging Industrial Relations Systems: Cases of Path Dependency. Journal of Contemporary Asia .

https://vietnamnews.vn/. (2019, August 8). China's prolonged falling yuan may harm Việt Nam's trade. https://vietnamnews.vn/ .

The Saigon Times Daily. (2019, August 7). Yuan devaluation expected to put Vietnam’s exports at risk. The Saigon Times Daily .