With the devaluation of the Chinese yuan on Tuesday sparking fears of a global currency war, Vietnamese exporters also face immediate concerns as their goods are now more expensive in China, their major exporting market.
The People's Bank of China devalued the yuan by 1.9 percent against the U.S. dollar, sending the currency to a four-year low, in a move to boost exports following a run of poor economic data, according to Reuters.
A cheaper yuan will help Chinese exports by making them less expensive on overseas markets, especially Vietnam, where Chinese goods of all kinds are widely available at already low prices.
Vietnamese manufacturers and exporters are scratching their heads over fears that they will have to cut prices, while Chinese imports will become far cheaper.
For Vietnamese cashew exporters, the devalued yuan is a double whammy, as the depreciation came after China increased the value-added tax for the product, one of Vietnam’s staples, from five percent to 13 percent, according to the Vietnam Cashew Association (Vinacas).
“I was still wondering why they hiked the VAT when I learned of the yuan devaluation,” Vinacas chairman Nguyen Duc Thanh told Tuoi Tre (Youth), after returning from a cashew exporter meeting in China.
With the cheaper yuan, Chinese importers have to pay more for signed contracts with payments in U.S. dollars.
“For instance, while Chinese firms paid 48,880 yuan for an $8,000 contract to import one metric ton of Vietnamese cashews, the amount of money is now 49,840 yuan,” Thanh elaborated.
“The importers thus have to either hike their selling prices or demand the exporters lower their quotes to offset the extra cost.”
While Vietnamese cashew exporters used to be able to increase the prices of shipments to China at this time of the year, with the Mid-Autumn Festival nearing, Thanh is pessimistic about them not having the chance again this year.
Insiders from the seafood and agro-produce exporting sectors also say the biggest concern is that Chinese importers will buy from other suppliers at lower prices, as Vietnamese goods will become more expensive.
Many countries, including Singapore, Thailand, Japan, South Korea and the Philippines, weakened their own currencies immediately after China announced its devaluation of the yuan on Tuesday.
These countries are both major markets and rivals of Vietnamese exporters of rice and seafood, according to industry insiders.
More than 90 percent of Vietnamese seafood exporters choose to complete payments in U.S. dollars, and the devaluation of other currencies against the greenback would only exacerbate the situation, according to the Vietnam Association for Seafood Exporters and Producers (VASEP).
“Vietnamese catfish will be under pressure to cut prices to enter China in the future,” VASEP general secretary Truong Dinh Hoe said.
“In the meantime, Vietnamese shrimp will also be more expensive than shipments from Thailand, Indonesia and India, and the importers will of course choose suppliers with the cheaper prices.”
Other economic experts are concerned that Vietnam’s trade deficit with China will widen as Chinese imports become cheaper.
“The yuan devaluation affects both the import and export activities of Vietnam with China, worsening the trade imbalance,” Associate Professor Tran Hoang Ngan, a prestigious economist, said.
Vietnam posted a trade deficit of $28.8 billion with China in 2014, according to the General Statistics Office.
The trade gap in the first seven months of this year was $20 billion.