Is Vietnam the next China?
With a population almost 15 times smaller, our initial response would be no. However there are certain noticeable similarities between the two countries. Vietnam is comparable to the China of 10 years ago.
Political measures and economic indicators
In terms of politics, the Vietnamese government implemented an economic reform in 1986 called đổi mới ‘new (mới) change (đổi)’, similar to China’s policy of opening up which began in 1978 (gaige kaifang). Vietnam joined the WTO in January 2007, just 5 years after China, who became a member in December 2001. More recently, measures were put in place by the Vietnamese government to stimulate demand and encourage construction projects, just as the Chinese government had done previously.
Now to compare the economic indicators: GDP per person and the rate of urbanisation. In 2010, income per person in Vietnam was $1,180 which corresponds to China’s level in 2000, 10 years ago. The same applies to the rate of urbanisation: in 2009 12% of Vietnamese lived in cities of more than 1 million residents; the same rate achieved by China 11 years earlier.
However, if we look at rates of consumption, comparison is no longer possible: in 2010, consumption represented 64% of Vietnamese GDP, a figure never reached in China! Vietnamese consumers are therefore in some ways ahead of their time. The regular opening of new hypermarkets (and above all hypermarkets which are always crowded!) and a mobile penetration rate of 175% are strong indicators of this.
This frenetic consumption is offset by a very high rate of inflation: 9.2% in 2010, 13.5% in 2011 and a predicted rate of 6.7% for 2012. This could, in the medium term, harm the country.
What is the potential for Vietnam?
Nevertheless, according to the Atradius study and The Economist newspaper, Vietnam is the emerging country which offers by far the greatest investment potential, followed by Mexico, Poland and Indonesia. Despite a high rate of inflation and a trade deficit, Vietnam has many of the characteristics which gave China success (highly attractive to foreign investors, a young and hardworking population etc.) which should guarantee the country several more years of growth. Vietnamese people therefore have every reason to keep on smiling!
Source: The Economist