VietNamNet Bridge - The increased demand for loans as well as the dong appreciation has increased the deposit interest rate.
In September and December 2015, the State Bank of Vietnam (SBV) twice announced the adjustment of the dollar ceiling deposit interest rate, after which the dollar deposit interest rate dropped to zero percent.
The move aimed to encourage people to convert dollar into dong, thus cooling the tense forex market.
However, observers said despite the zero interest rate, people were still keeping dollars instead of dong, because the dollar has appreciated in the world market following the US FED’s decision on raising the prime interest rate.
Therefore, individuals who now keep dollars do not intend to sell dollar for dong.
They will gradually withdraw dollar deposits from banks when the deposits become mature.
Though they cannot profit from dollars, they still hope they can make money when the dollar price increases.
A banker who asked to be anonymous said the dollar liquidity was now under pressure.
In September and December 2015, the State Bank of Vietnam (SBV) twice announced the adjustment of the dollar ceiling deposit interest rate, after which the dollar deposit interest rate dropped to zero percent.
As businesses need dollars to make payments for imports, which increase sharply in the last months of year, the demand for deposits in dollars at banks has decreased.
In previous years, dollars from other markets, where the interest rate was low, flowed into Vietnam, where the interest rate was higher.
The banker predicted that the dollar capital is flowing out of Vietnam because the dollar interest rate in the world market has increased again following the US FED’s decision.
All these factors have affected dollar liquidity and commercial banks’ forex position.
In order to settle the problem, banks have to use dong to buy dollars to improve their forex position and keep the liquidity stable.
This means that they need more dong and therefore have to raise the dong deposit interest rates to attract more dong deposits.
Dong or dollar?
With the dong deposit interest rates at 5-6 percent per annum currently and the inflation rate expected to be higher in 2016, investors believe that it would be more profitable to keep dollars because the dollar price increase is foreseeable.
International press reported that the portfolio investment flow into emerging markets has changed its direction.
Foreign investors have withdrawn their capital from ETF and sold shares in large quantity recently.
Therefore, analysts said, there might be a wave of investors withdrawing dong from banks and converting into dollars to pour into short term investment deals. If so, banks’ liquidity would be put under pressure.
VietNamNet Bridge – Mergers and acquisitions (M&As) in the domestic real estate sector are being favoured thanks to the recovery in the market, together with several new policies.
Experts said 2014 and 2015 was the breakthrough period for M&As in the market. — Illustrative Image/ Photo tapchitaichinh
Experts said 2014 and 2015 was the breakthrough period for M&As in the market. In the context of the frozen property market, the progress of several estate projects with favourable locations was stagnant as investors were facing financial difficulties.
Several real estate investors with strong financial abilities, both inside and outside the country, have taken advantage of the land fund to increase the supply to the market.
These projects could rake in big profits in the future while saving initial investment costs.
Novaland has been one of the notable investors which started the wave of M&As in the property sector. In the past three years, Novaland has acquired up to 25 real estate projects. Most of them are medium and high-end apartment projects with selling prices between VND24 million and VND27 million per sq.m.
The company has quickly brought some acquired projects into the market such as Lexington Residence, Icon 56, Galaxy 9, and River Gate, in addition to The Tresor and Lucky Palace.
The acquisition of several favourable locations has helped the company promote its sales.
FLC Group, Vingroup, Him Lam, and Dat Xanh, in addition to Hung Thinh Corp, have also been popular names in the sector with big M&A deals since 2014.
For example, FLC Group's strategy was to focus on both, acquisitions of ongoing projects and investing in new ones.
Over the past three years, FLC has poured hundreds of billions in buying projects of Alaska Garden City (Dai Mo, South Tu Liem District), Ion Complex Tower (36 Pham Hung Street) and The Lavender (Ha Dong District), and 265 Cau Giay.
Vingroup also invested around VND10 trillion for its M&A activities in 2014. It acquired several projects at prime locations such as Giang Vo Exhibition Centre, Starcity Centre, 233, 233B and 235 Areas of Nguyen Trai Street. In addition, Vingroup also bought shares at many businesses which have big land funds in Da Nang and HCM City.
The M&A in the property sector has also seen the participation of foreign investors. Creed Group poured VND4,446,000 million into buying shares and investing in hoing projects of An Gia Investment. Warburg Pinc invested VND2,223,000 million into Vincom Retail of Vingroup, bringing its total investment to VND6,669,000 million to develop the biggest commercial centres in Viet Nam under the Vincom brand name.
However, Nguyen Van Duc, deputy general director of Dat Lanh Real Estate Company said the number of projects which are needed for M&As is big. In HCM City alone, there are 700 stagnant real estate projects.
The pressure to handle stagnant projects was big, thus opening opportunities for investors to acquire them at cheap prices, Duc said, and added that the M&A would be the main strategy of several estate firms in the upcoming time.
Sharing ideas, Stephen Wyatt, general director of JLL Viet Nam, said this year would witness a boom in M&A activities in the property market.
He said that foreign investors would increase their investment in the sector as Viet Nam had been considered one of the most attractive markets in the region. Some foreign investment funds wanted to increase their presence in Viet Nam through JLL by acquiring or co-operating on domestic projects.
VietNamNet Bridge - Private businesses, according to economists, have been hampered by state-owned enterprises (SOEs), foreign invested enterprises (FIEs) and state management agencies. The capital cannot reach the private economic sector because it has been taken away by the state budget.
Dr Nguyen Dinh Cung, head of the Central Institute of Economic Management (CIEM), said at a recent workshop on reviewing the economic performance in 2015 that while macroeconomic indexes look better, the driving force for growth has not changed much and the potential has nearly been used up.
“This is quite a vicious circle. In order to improve the competitiveness of Vietnamese goods, it is necessary to devalue the dong. However, if Vietnam devalues the local currency, it will bear heavier debts, while the state budget will get weaker,” he commented.
Cung said Vietnam reaped big fruits in 2015 with the GDP growth rate reaching 6.68 percent, exceeding the targeted rate, and a low inflation rate at 0.6 percent.
A lot of problems still exist: the budget deficit may exceed 5 percent of GDP threshold, the GDP growth rate was lower than that in 1990-2010 and the exports decreased.
However, a lot of problems still exist: the budget deficit may exceed 5 percent of GDP threshold, the GDP growth rate was lower than that in 1990-2010 and the exports decreased.
Cung pointed out that the government cannot figure out the debt payment plan with a stable source of revenue, but just ‘robs Peter to pay Paul’.
In 2016, the state has to pay a debt of VND110 trillion dong, including VND55 trillion in the first quarter of the year, and it plans to issue VND76 trillion worth of bonds.
“It is clear that with the money raised from government bond issuance, we will not have much money for investment after paying debts,” commented Nguyen Anh Duong, deputy head of CIEM’s Macroeconomic Division.
“The government borrows money mostly to pay debts,” he said. “The low-cost capital should have been lent to the private economic sector to help them expand production and business. However, the capital has been borrowed by the government for long term.”
Pham Chi Lan, a renowned economist, also commented the bond government issuance blocks credit flow to the private sector.
“It is understandable why many private businesses have shrunk and they will die one day: they have been hampered by three big powers,” Lan said.
Lan went on to say that newly set up businesses still cannot pay tax to the state budget and generate growth.
Therefore, the state budget revenue still relies on operating businesses. It is estimated that businesses have to reserve 40.8 percent of their profit to pay to the state.
The experts emphasized that state agencies complain that the state budget is small but in fact, the Ministry of Finance always fulfills its task of collecting tax for the state.
VietNamNet Bridge - To gain market dominance, domestic airlines have to compete on fares but they also have to face extreme problem of profit margins.
Vietnam Airlines spent nearly VND22,000 billion (nearly $1 billion) to renew the fleet in 2015, but its margins on sales reached only 0.45%.
Mr. Nguyen Ngoc Vinh, a Hanoi man has been a teacher in Dak Lak province since 2010.
Every year, Vinh often visited his home in May instead of the Lunar New Year as others to both take advantage of the long summer vacation of teachers and to save travel expenses.
Previously, this teacher often chose cars as the main means of transport, with travel time of approximately 2.5 days, and travel cost of about VND1.8 million (nearly $90).
However, in the past three years the teacher has visited home by air, with travel time of only three hours and the similar travel expenses.
Such stories are very popular today along with the rapid development of the aviation industry in recent years.
After reaching the landmark of 62.2 million passengers in 2015, the aviation industry is expected to maintain a growth rate of 20% for at least another year.
All groups of air routes are expected to grow, in which the domestic routes are forecast to attract a lot of money to low-cost carriers.
Experts said that thanks to the establishment of low-cost carriers with cheap tickets, even low-earning people and students can afford to travel by air.
Air transportation is getting more popular and attractive to passengers for its advantage of time savings while the travel expenses are not much higher than other forms of transport services.
However, air transport did not become more popular until 2011, when the first low-cost airline was formed. Previously, for the majority of Vietnamese people, travel by air was a luxury because the airfare for a domestic trip was very high, at least several million VND.
In terms of market share, Vietnam Airlines, the national air carrier, still dominates the domestic market, accounting for approximately 47%.
This figure is high compared to other carriers, but it has significantly reduced compared to previous years. In 2014, Vietnam Airlines held 56% of the market share, 61% in 2013 and 68% in 2012.
While the market share of Vietnam Airlines is gradually reducing, the remaining air carriers have better business results.
Vietjet Air currently holds 36.3% of the local market share, an increase of 9% over 2014, equal to the reduction of Vietnam Airlines.
Sometime this carrier reached the equivalent market shares with Vietnam Airlines (40-40), while Jetstar has 14.9%, an increase of almost 2% compared to 2014.
Still difficult to form bipolar status
Having to share part of the market to low-cost carriers, Vietnam Airlines has to set modest goals on the number of passengers in coming years.
In the next three years, Vietnam Airlines aims to grow by 16.1% per year, particularly maintaining the local market share at 40.8% in 2016 (not including the market shares of Jetstar Pacific and VASCO, in which Vietnam Airlines has capital).
Meanwhile, Vietjet Air aims to grow 50% in 2016, or reach over 42% of the local market.
However, Vietnam Airlines is trying to expand its fleet.
In 2015, the carrier invested $1 billion to renew its fleet, with nine super aircraft, including four Airbus A350 and five Boeing 787-9 planes.
Particularly, Vietjet Air increased its fleet to 29 planes, including the narrow-body, fuel saving aircraft A321 CEO Sharklet. Jetstar Pacific's fleet currently operates with eight aircraft, unchanged compared with 2014.
According to the Centre for Asia - Pacific Aviation (CAPA), the number of seats filled on Vietnam Airlines and Vietjet Air in January 2016 may be up to half a million seats per week, two times higher than January 2015.
An official of a local airline said that air carriers would be forced to reduce fares and accept the tradeoff of profit for market share if they want to maintain the current growth rate.
In fact, the fares of Vietnam Airlines currently are not that different compared with other airlines.
For local routes, the fares have almost leveled among the airlines.
The difference lies only in the main routes, when Vietnam Airlines has advantages in the segment of business, VIPs customers, and at the peak season and holidays.
Though Vietnam Airlines is a local airlines with the best profit its profit margin (including the activities of VASCO) in 2015 was modest.
Its revenues in 2015 reached VND57,100 billion, with a profit of VND260 billion, equivalent to the profit margin of 0.45%.
This means that for every one million VND of revenue, the firm earns only VND4,500 of profit.
US$1 = VND22,500
VietNamNet Bridge - Foreign investors’ high interest in the consumer goods sector which has been growing very rapidly in recent years is believed to help boost merger & acquisitions (M&A), according to VnExpress.
Nguoi Dong Hanh quoted an analyst as commenting that 2015 was in the middle stage of the second M&A wave in 2014-2018.
The figure is expected to be even higher in 2016, when free trade agreements (FTAs) take effect and the government removes barriers to investments, according to Baker & McKenzie and Duane Morris.
Baker & McKenzie’s Fred Burke said on Bloomberg that it was getting easier to do M&A in Vietnam and under such conditions, the M&A market would become busier.
The number of reported M&A deals in 2015 was 40 percent higher than in 2014 with total value of $4.3 billion, and higher than 2012 when the value reached a record high of $4.2 billion
Analysts commented that foreign companies are attracted by the predicted GDP growth rate of 6.7 percent in 2016, a 9-year high, and by the country's large market with high population, with 60 percent aged under 35.
A lot of big M&A deals have been announced recently. Boon Rawd Brewery, the Thai oldest brewery poured $1.1 billion into Vietnam’s Masan Group. Meanwhile, ANA Holdings from Japan has agreed to spend $109 million to acquire a stake in Vietnam’s Airlines.
Meanwhile, CafeF quoted its sources as saying that M&A activities in 2016 would mostly be in the consumer goods sector.
In fact, the M&A in the sector has been busy over the last two years. Anticipating the ASEAN Economic Community (AEC) in late 2015, foreign investors, especially ones from ASEAN, have been flocking to Vietnam to purchase Vietnamese businesses.
Thai investors are the biggest buyers in the plastics industry. Experts noted that the common aspect in many deals where Thai investors got involved was that they tended to buy Vietnamese plastics manufacturers.
“Thai partners raised some questions about the current profits and the expected profits in the next 10 years and then offered to buy at ‘very satisfactory prices’,” said Tran Viet Anh, deputy chair of the HCM City Rubber & Plastics Association.
Vietnam has also seen a lot of M&A deals in the retail sector as well. Ha Noi Moi reported that Central Group bought 49 percent of Nguyen Kim’s shares, a home appliance distributor, while AEON acquired 30 percent of Fivimart and 49 percent of Citimart. Meanwhile, Vingroup has bought 80 percent of Giang Vo Exhibition Center and 100 percent of Vinatexmart.
VietNamNet Bridge - Analysts warned months ago that venture capital pumped into technology startups would decrease as a result of the global recession. However, they have been proven wrong.
The number of technology startups which successfully called for capital from venture funds increased to 67 in 2015, a twofold increase compared with the year before, according to Topica Founder Institute.
A report of the institute shows that the number of startups receiving venture capital in Vietnam increased sharply in the last five years. In 2011, only 10 startups received capital, while the figure rose to 24 in 2012, then 25 in 2013 and 28 in 2014.
Meanwhile, analysts noted that the real number of startups that received venture capital could be even higher, because many investment deals have not been publicized.
The report also pointed out that the fields that most attracted investors were e-commerce, media, fintech (finance on technology basis) and edtech (education on technology basis).
In 2011, only 10 startups received capital, while the figure rose to 24 in 2012, then 25 in 2013 and 28 in 2014.
Nearly 50 percent of the seed investment capital poured into Vietnamese startups were from foreign investors.
Of the 67 deals reported last year, 25.8 percent were disbursement for startups in their initial operation periods (seed), 37.1 percent in series A, 16.1 percent received angel capital and 6.5 percent in series C.
The investment deals included ones worth $10 million and others like Foody, which received capital from Tiger Global Investment.
Cod Coc, a search engine described as the Google of Vietnam, received $14 million from Hubert Burda, while Huy Vietnam received $15 million from Templeton.
Pham Minh Tuan, the founder and CEO of Topica Edtech, noted that contrary to the prediction that venture capital into technology startups would decrease amid the economic recession, capital, in fact, has been increasing in recent years.
However, Tuan said fewer than 30 technology startups have succeeded in Vietnam. These include names which have become well known such as VNG, Peacesoft and Vat Gia. Meanwhile, 90 percent of others have died for many reasons.
Tuan said the Vietnamese startup community now has great opportunities to attract capital from venture funds. FPT, the largest Vietnamese information technology group, has set up FPT Ventures, a $3 million seed fund.
Meanwhile, foreign venture funds, especially ones from the US, Japan and Singapore, are also willing to pour capital to fund Vietnamese startups.
Vietnam ranks seventh among 44 countries with highest entrepreneurial spirit in a survey conducted by Technische Universitat Munchen (TUM), Gesellschaft fuer Konsumforschung (GfK) and Amway.
At least 71 percent of respondents in Vietnam have a positive attitude towards business start-ups. Meanwhile, 89 percent of polled people said they wanted to start their own business.
The plant will sell electricity to national utility Electricity of Viet Nam under a power purchase agreement. — Photo baodautu.vn
WASHINGTON, DC (VNS) — The Multilateral Investment Guarantee Agency, the political risk insurance and credit enhancement arm of the World Bank Group, announced its support to the Hoai Xuan Hydro Power Project in northeastern Viet Nam.
MIGA issued a $239.7 million guarantee to a consortium of lenders led by Goldman Sachs and Bank of Tokyo Mitsubishi to support financing for the design, construction, operation, and maintenance of the 102MW plant in Thanh Hoa Province.
The plant will sell electricity to national utility Electricity of Viet Nam under a power purchase agreement.
Demand for electricity in Viet Nam is expected to double between 2014 and 2020 due in large part to sustained economic growth that has transformed the country from one of the poorest in the world to lower middle-income status within a quarter of a century.
More than 70 per cent of investment in the country's new generation capacity is expected to come from the private sector.
MIGA's support to the power plant is expected to have broad demonstration effects in Viet Nam's hydropower sector, both with respect to future private-sector investments and international environmental and social best practices for such projects.
MIGA's executive vice president and CEO Keiko Honda said, "Viet Nam is diversifying its energy mix to increase energy supply and security, just as it is diversifying its financing sources to create a more secure base for infrastructure development in the future.
"MIGA is glad to play a role." — VNS
Photo taken of villas at Ha Noi's Duong Noi Urban Area. Outstanding loans in the country's real estate sector totaled $16 billion last year. — VNS Photo Doan Tung
HA NOI (VNS) — The central bank will control property loans to limit risks this year, an official told a meeting in HCM City late last week.
State Bank of Viet Nam deputy governor Nguyen Phuoc Thanh said that although credits grew positively with the majority of loans poured into production and business activities last year, many banks pumped too much capital into the real estate market.
Xay Dung, a Ministry of Construction newspaper, reported that property loans grew by 18 per cent year-on-year last year, as commercial banks accelerated financing both property developers and homebuyers.
According to the central bank's credit department, outstanding loans in the real estate sector total about VND360 trillion (US$16 billion), a rise of 80 per cent from the figure recorded three years ago.
"What's worrying, many banks have ‘put all their eggs into one basket' – the realty sector. It is necessary to tightly monitor risks, or else bad debts in this area may soon rise again," Thanh said.
The deputy governor noted that bad debts remained an issue for the banking sector. He added that some banks were facing troubles with enterprises that asked for loan restructuring and lower interest rates to avoid bankruptcy.
The Viet Nam Institute for Economic and Policy Research under the University of Economics and Business said that rallies in the property market were positive signs for the the economy. But caution is needed to prevent "property bubbles" from occuring.
Minister of Construction Trinh Dinh Dung said recently that, at the moment, the property market did not have the conditions to form a bubble. "However, it cannot be ignored," he stressed.
In a resolution issued earlier this month on socio-economic in 2016, the Government asked the central bank to strictly control loans allocated in high-risk areas, including real estate.
This would be part of the central bank's policies to help the country control inflation, maintain macro-economic stability and accelerate economic growth.
Dung said the construction ministry would aim at enhancing the quality of property products in 2016, as the competitiveness of the construction sector remained low.
This was one among its efforts to boost the construction production value by 10 per cent against 2015. — VNS
VietNamNet Bridge - The most popular retail brands in Vietnam are falling into the hands of Thai investors.
Most recently, two Thai groups - Berli Jucker Corporation and the Central Group have declared their wish to acquire the Big C system.
In early 2016, Thai tycoons are pushing the speed of acquisition of the wholesale and retail system of Vietnam.
Most recently, two Thai groups - Berli Jucker Corporation (BJC), owned by the second-richest billionaire of Thailand - Charoen Sirivadhanabhakdi – and the Central Group have declared their wish to acquire the Big C system. Earlier, Casino Group (France) mentioned the sale of the Big C supermarket chain in Vietnam, which Casino does not consider as its key market.
BJC has just announced that it will pay nearly $880 million to acquire 19 wholesale stores and the portfolio of real estate of Metro Cash & Carry Vietnam. If the latest deal is successful, BJC will be holding the two largest retailer systems with many years of business history in Vietnam. This group has also invested in the supermarket chain Family Mart (now renamed B's Mart).
Central Group - the largest retail groups in Thailand – has said that it wants to buy the operations of Casino in both Thailand and Vietnam.
Casino currently owns 58.6% of Big C Supercenter Thailand – thefirm with the total capitalization of $5.5 billion. Last week, Casino said itwanted to sell the shares in Thailand, after saying to sell its stake inVietnam in January.
The Central Group was founded by Tiang Chirathivat in 1927.In 1957, Samrit Chirathivat - his son - inherited the career and inauguratedthe first shopping center in Thailand - the Central Department Store in WangBurapha, Bangkok.
Currently, Tiang Chirathivat’s grandson - Tos Chirathivat –is the Central Group CEO. The greatest asset of this family is Central Retail -one of the largest retail groups in Thailand, which owns the shopping centerslike Central, Robinson, Zen, and La Rinascente (Italy).
Earlier, Power Buy, a subsidiary of the Central Group of Thai billionaire Chirathivat, bought 49% stake of NKT- the owner of Nguyen Kim electronic store chain. The Central Group is also the owner of the Robins supermarket chain in Vietnam, which distributed Thai goods in Hanoi and HCM City.
From the perspective of the brand, Le Quoc Vinh - Chairman of Le Group - said that Thai groups have made a pretty good move. By this way, they can reduce funding to build a new brand from the beginning, and save time, money and effort. To develop a new retail brand, in a market with many big brands, the competition will be very fierce. Getting a new business license in the retail sector is also complex and difficult for foreign investors.
The brands that Thai groups bought and want to own are huge and have a long history. For example, Metro has been in Vietnam since 2002 and Big C since 1998. These brands have distribution systems that stretch across the country, which have become very familiar to Vietnamese consumers.
"Thai investors choose the shortest way to success; they are investing large sums of money from the beginning. Not only Thais but many international investors do it that way," Vinh said.
President of the Hanoi Supermarkets Association - Vu Vinh Phu - worries about the reduction of the rate of Vietnamese goods in supermarkets with many retail and wholesale distribution channels owned by Thai investors.
"Certainly the rate of 80% of Vietnamese goods in the supermarkets will fall. Whey buying Metro the Thai billionaire announced it would sell 60% of Thai products in the supermarkets. Without the move of Thai investors, many supermarkets in Hanoi have imported Thai goods. In business, who holds the distribution channels will win," Phu said.
Previously when Big C and Metro were held by French and Germany investors, local businesses were not very worried about the flood of goods from France and Germany because of the geographical distance, the different position of their goods compared to Vietnamese products, and the difference of the economic structure.
But when these distribution channels belong to Thai investors, Phu said that it was a risk for Vietnamese businesses because Thai products have good quality, competitive price and have gained the confidence of Vietnamese consumers. The near geographic distance and the open policies on tariffs of the ASEAN Economic Community (AEC) will enable the flood of Thai products in Vietnam in the coming years.
According to the General Department of Customs, Vietnam is importing from Thailand all kinds of goods from expensive cars to salt and spices. Import turnover from Thailand in Jan-Nov of 2015 reached $7.5 billion while exports from Vietnam to Thailand was about $2.9 billion.
Thailand has become the leading exporter to Vietnam for products such as automobiles and vegetable-agricultural products. In Jan-Nov 2015, Vietnam imported 23,516 cars of all kinds from Thailand.
According to economist Le Dang Doanh, Thais know how to take advantage of tax exemptions in AEC. Thai goods firstly help consumers access quality products at affordable prices. At the same time, the also create pressure on Vietnamese enterprises to reform and improve their competitiveness.
However, he said that this was also a real challenge for Vietnam's economy. Without comprehensive reform, Vietnamese enterprises will fall into trouble.
Vu Vinh Phu said to combat the encroachment of Thai goods, local firms must make comprehensive reforms to make quality products, improve productivity, and reduce costs.
"We cannot ask Vietnamese people to use Vietnamese goods if the products are not good and the price is unreasonable," he added.
Recently, Nikkei (Japan) news agency said that Thai products are gradually supplanting Chinese goods in Vietnam. The number of shops specializing in Thai products in Hanoi and Ho Chi Minh City is growing at a more competitive level. Realizing the situation, many retailers operating in Vietnam such as Aeon, Big C and Lotte Mart have raised the rate of Thai products.
For Thai businesses, business opportunities in Vietnam will increase rapidly in the future when the AEC tariff barriers are gradually removed.
Thailand concerns about Vietnam attracting more FDI
Thai businesses have expressed concern that foreign investors will shift their investment from Thailand to Vietnam, Singapore and Malaysia to take full advantages of Trans-Pacific Partnership (TPP) to approach the US, said Vallop Vitanakorn, vice chairman of the Federation of Thai Industries (FTI).
FTI urged the Thai Government and businesses to seek new export markets and produce high-tech products to better compete with foreign rivals, Vallop stated.
According to the Vietnam Foreign Investment Agency (FIA), the Republic of Korean Government last year encouraged its businesses to invest in Vietnam and considered it a strategic investment location. Major Korean businesses, such as Samsung, Canon, GS, POSCO, Hyundai, KEPCO, and SK have been operating in Vietnam.
LG Electronics has decided to move most of its productive activities from Thailand to Vietnam to make use of cheap labour and transport services and seize opportunities brought about by TPP.
Since last year many Thai groups have sought ways to usurp Vietnamese businesses. For instance, Central Group owned by Thai millionaire Chirathivat purchased 49% stake of NKT New Solution and Technology Development Investment JSC.
ThaiBev group wants to buy 40% stake of Sabeco. Berli Jucker Group (BJC) successfully negotiated to buy Metro Cash & Carry Vietnam at a cost of US$875 million a few days ago.
The Petroleum Authority of Thailand (PTT) had expended US$22 billion on Nhon Hoi Oil Refinery Complex.
Besides, Thai millionaires tend to invest in other fields like dairy, electronics, garments and construction in Vietnam./VOV
TUOI TRE NEWS
UPDATED : 01/10/2016 15:45 GMT + 7
Dream of any Vietnamese middle-class family and you will quickly get a humorous wish list - “one wife, two children, a three-story (town)house, and a four-wheeled car.” A set of progressive figures, they are considered to bring luck to Vietnamese people if they become a reality in the same sequence.In reality, many households have already had the first three elements and are rushing to realize the last one, as they are set to pay significantly more money after a new taxation regime on imported automobiles, or completely-built units (CBUs), began to take effect on January 1, 2016.
CBUs are automobiles which are thoroughly manufactured, and then are assembled into complete vehicles, outside Vietnam.
The new consumption tax rate, once levied on all CBUs, is expected to add 15-30 percent to retail prices, which have already long been amongst the highest in the world due to the inclusion of multiple existing taxes and surcharges.
A reader of newswire VnExpress last month found that a VND450 million (US$20,000) Toyota Camry LE assembled in the U.S., once imported into Vietnam, will be charged a 70-percent import tax, 45-percent special consumption tax, 10-percent value-added tax, and 10-pecent registration tax, taking the retail price to almost VND1.8 billion ($79,200), nearly four times the original price.
Given such high retail prices, the new tax will bring prices to a new level after the way the base rate for taxation is calculated is changed.
New taxation mechanism for 2016
The new taxation regime was introduced by the Ministry of Finance in June, two months after the chief of Toyota Vietnam, chairman of the Vietnam Automobile Manufacturers' Association, which is mostly composed of foreign-owned car assemblers, announced that it may cease, and even stop making cars in Vietnam, once imported cars become cheaper than locally assembled vehicles in 2018 when the regional free trade agreement takes full effect.
According to the Common Effective Preferential Tariff agreement, the import tax rate currently imposed on 24-seat-and-fewer passenger cars, 40 percent of whose parts are manufactured by ASEAN countries, will be cut from the current rate of 50 percent to zero by then.
The ten-member Association of Southeast Asian Nations, or ASEAN for short, is comprised of Vietnam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, and Myanmar.
The tax for locally assembled vehicles, or completely knocked-down units (CKDs), is based on the price at which an automobile is sold to the dealer, including business profit, charges for transportation from the place of production to the agent, and other expenses including advertising.
This way of calculating taxes made the price of a CKD at least five percent costlier than a CBU, Kazuhiro Yamana, general director of Vinastar automobile joint venture (VSM), told Tuoi Tre (Youth) newspaper in an interview in May last year.
Meanwhile, the tax on CBUs was worked out on the basis of the CIF price, which covers manufacturing, insurance and freight costs.
With the new taxation regime, the base rate for CBUs will be the same as that for CKDs, which means the difference in base rates for taxation between the two types has been eliminated.
According to the national statistical body, the General Statistics Office (GSO), in December alone, about 14,000 CBUs costing $382 million were imported into Vietnam, bringing the year 2015’s figures to 125,000 CBUs with import turnover of about $2.97 billion, up 76.6 percent in volume and 87.7 percent in value against 2014.
The new figures broke the year 2014’s record, which stood at around 72,000 CBUs worth $1.6 billion, a 103.8 percent increase in volume and 117.3 percent increase in value compared to 2013, according to a report the GSO released early 2015.
Respective figures in the volume and value of CBUs in 2013 and 2012 were 35,000 units worth $708 million, and 27,400 units worth $615 million.
Foreign beneficiaries, inside and outside Vietnam
As of November 30, Thailand dethroned South Korea to become the largest automobile exporter to Vietnam with 23,516 CBUs, surging 84 percent against the same period last of 2014, according to the General Department of Vietnam Customs.
Thailand made up 21 percent of total cars imported into Vietnam in the January-November period, followed by South Korea, China, and India.
Thailand, currently among the top 10 automobile exporters and the 12th biggest automotive producer worldwide, early last year set a target to produce two million automobiles, 1.2 million of which would be exported.
A finding of Phap Luat TP.HCM (Ho Chi Minh City Law) newspaper revealed that in November alone, Thailand exported 3,193 CBUs worth over $60.5 million to Vietnam, the biggest category of which was pickup trucks.
Thailand is recognized as a powerhouse in pickup trucks with advanced manufacturing and assembly technologies, on a par with those applied in Japan and South Korea, Truong Kim Phong, director of sales and marketing of Ford Vietnam, told Phap Luat TP.HCM.
In addition, Thai pickup trucks are eligible for tax incentives when imported into Vietnam, including a five percent import tariff on a CBU, a representative of Vietnamese importer Truong Hai Auto Corporation (Thaco) told the Ho Chi Minh City-based newspaper.
Vichai Jirathiyut, president of the Thailand Automotive Institute, told a press conference in Ho Chi Minh City in April last year that the Thais were focusing on manufacturing pickup trucks weighing less than one metric ton and eco-friendly vehicles, as Thailand has the highest vehicle emissions standards regionally.
Thailand’s automobile production topped 2.8 million units in 2014 with 18 foreign-owned manufacturers including Honda, Isuzu, Mitsubishi, BMW, GM, and Tata, he said.
The aging 67-million-strong Thai market buys around 880,000 units per year, but as the Thai automotive market is plummeting, the 90-million-plus market of Vietnam with a younger age group will have higher demand for personal vehicles in the future, Vichai said at the conference.
But it is not just the Thai automobile industry, which many foreign carmakers are standing behind, that is benefiting from the car-buying rush of Vietnamese people, but the Vietnamese car industry, which is also led by foreign-owned firms, is also making a killing.
Official numbers released by the Vietnam Automobile Manufacturers' Association on December 9 showed that the domestic auto market continues to accelerate rapidly when VAMA members sold nearly 215,520 units within 11 months, up 57 percent year on year, and the first time in history the sales of VAMA have reached a milestone of 200,000 vehicles a year.
With Vietnam’s gross domestic product expanding 6.68 percent in 2015, the biggest in the last five years, and projected to rise 6.7 percent next year, which will push more Vietnamese families into the middle-income class, foreign carmakers, based in Vietnam and elsewhere, including Thailand, may be sighing in relief as the search for another attractive market bears fruit.