China and Vietnam to strengthen supply chain

Saigon Investment
(SGI) - China is greatly interested in strengthening strategic development ties with Vietnam, improve connectivity between the two countries and build a sustainable supply chain. 

Illustrative photo.

Illustrative photo.

During talks held on 31 October, Mr. Xi Jinping, President of the People's Republic of China, told Mr. Nguyen Phu Trọng, General Secretary of the Communist Party of Vietnam, that Beijing wished to build a strong and sustainable supply chain jointly with Vietnam.

Advantages for Vietnam

Advanced economies in the world are feeling the constraints of fast development in the fields of science and technology, climate change and global warming, increasing tensions in trade between the US, China, Russia, and the European Union. All this has also led to serious disruptions in the global supply chain and is impacting the global economy. According to the World Economic Forum, the absence of an effective global supply chain has led to trade losses of up to 30% across the entire globe.

Vietnam is an open and fast-growing economy and has bilateral economic relations with more than 230 countries and territories, and multilateral relations with 16 Free Trade Agreements (FTAs) with 60 economies. In 2021, the total export and import turnover of goods nationwide reached USD 670 bln, nearly twice the Gross Domestic Product (GDP). According to the latest Global Economic Forecast Report by the Institute of Chartered Accountants of England and Wales (ICAEW) as well as Oxford Economics, published in June 2022, Vietnam is forecast as a country with high growth prospects in the region by over 6.5% in 2022.

Vietnam is a key area of ASEAN, which is located in an important geopolitical location in the supply chain of the Indian Ocean and Pacific region. The formation of the economic Indo-Pacific Economic Framework for Prosperity (IPEF) Initiative launched by US President Joe Biden on 23 May 2022 will provide a total of fourteen participating nations the opportunity for fair trade, strong supply chain, clean energy and anti-corruption measures.

The Kra Canal project in Thailand will provide a new maritime route that will connect the Gulf of Thailand and the Andaman Sea, and the Indian Ocean and the Pacific Ocean. It will offer advantages such as greater cost savings, safety, and higher security, along with a shortening of distance and time compared to the route through the Strait of Malacca.

In the present global scenario Vietnam has a a great opportunity to actively build the country's economic development strategy and transform the global supply chain. Therefore, it is necessary to identify where Vietnam is in the product supply chain among multinational corporations, starting from raw material production units to supplying the products to consumers.

Development of logistics

Along with the development of digital technology, logistics plays an increasingly central role in the supply chain, and determines the quality of international trade. Regardless of distance, every customer wants products to be delivered quickly and on time.

Currently, the Organization for Economic Cooperation and Development (OECD) estimates the potential benefits of ASEAN nations to cover reduced cost of transporting goods between countries in the region. This will increase competitiveness and increase trade by USD 4.5 bln per year. Because ASEAN is built on trade relations, which is the main engine of the region, logistics will help in development of all trade.

However, Vietnam as well as other countries in the region face many shortcomings in logistics development and improvement, such as legalities, investment capital, and failing to grasp shifts in trends of global supply chain, especially with hi-tech products, energy, and consumer markets.

According to the World Bank, Vietnam was ranked 39 out of 160 surveyed countries in 2018, but ranked first in emerging markets, and highest in the group of low-middle-income countries. Therefore, in order to make good use of the opportunities in the development of world trade and the important geographical position in the region, Vietnam needs a strategy to position the country in the global supply chain with three main contents as given below.

First, economic integration in ASEAN must be the focus for international negotiations and building of a national supply chain strategy, to ensure Vietnam's important position in the region. In particular, special attention must be paid to the Kra canal construction project, as it will certainly change the landscape of the ASEAN maritime industry and international transport route, especially for commercial ships on the Indo-Pacific route. This new canal will be beneficial for Vietnam in all aspects of economic activities.

Second, actively participate in Vietnam's integration programs with major markets in the region such as RCEP, ASEAN-India, IPEF, and CPTPP, to be able to connect with market development trends, technology, and shifts in the supply chain of products and services.

Third, it is necessary to focus on the position of the East Sea in the synchronous development strategy of technical infrastructure in general and the country's transportation in particular. Accordingly, develop seaport connections and post-seaport support service systems with air, road, railway, and inland waterways to effectively exploit international gateway ports such as Hai Phong port in Lach Huyen; Cai Mep-Thi Vai port; Van Phong port in Khanh Hoa; Quy Nhon port in Binh Dinh; Cai Lan port in Quang Ninh; Saigon port; Cua Lo port in Nghe An; and Dung Quat port in Quang Ngai province.

Dr. Đoàn Duy Khương

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