A senior Vietnamese official has suggested that Vietnam think of ways to lure part of the capital flowing from China after the depreciation of the yuan.

The Southeast Asian country is advised to come up with plans to attract a portion of the capital outflow from its northern neighbor, instead of scratching its head over how much the Vietnamese dong should be devalued to cope with the renminbi depreciation, Truong Van Phuoc, deputy chairman of the National Financial Supervisory Commission, told Tuoi Tre (Youth) newspaper in an interview published on August 14. 

Beijing last week devalued the yuan by 3.6 percent in total, sending shock waves across the globe and triggering many countries to depreciate their currencies against the greenback, in a bid to encourage exports in order to speed up its slowing economic growth.

Some local experts have suggested that the State Bank of Vietnam (SBV) devalue the local currency at a rate that is equivalent to China’s move to help maintain the competiveness of Vietnamese goods against Chinese products both in local and foreign markets.

But the SBV only widened the trading band for interbank dollar/dong transactions from one percent to two percent on August 12, after China’s central bank depreciated the yuan by 1.9 percent against the dollar one day earlier.

The Vietnamese economy needs to improve its resistance by reinforcing the balance of payments and keep an eye on trade deficits with China besides the increased trading band, Phuoc said.

This year's trade deficit is expected to be about US$8-10 billion, which is an acceptable rate, the deputy chairman said.

If trade deficits are well managed, Vietnam can obtain stability on the foreign exchange market because it will have a surplus on the capital account, Phuoc said.

Besides foreign investment, this year the Southeast Asian country expects an inflow of overseas remittances worth up to $12-14 billion.

Another issue is macroeconomic stability, creating confidence in the national economy for both local and foreign-invested enterprises ahead of the global integration process and the participation of Vietnam in many free trade deals, including the Trans-Pacific Partnership (TPP).

The TPP is a proposed regional free trade pact aimed at eliminating tariffs and lowering non-tariff barriers that is being negotiated by 12 countries throughout the Asia-Pacific region.

The countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam, which collectively contribute almost half of global output and over 40 percent of world trade.

Phuoc remarked that given the Chinese yuan devaluation, there will be huge foreign capital withdrawal from China, and Vietnam needs to be flexible enough to redirect a part of the divestments to it.

Vietnamese officials have created a number of policies to take advantage of such changes, such as expanding room in Vietnamese public firms and opening the local realty market for foreign investors.

In the near future, the reform of state-run enterprises needs a further boost, and the state should boldly open the door for the industries that it does not need to hold 100 percent of capital in, Phuoc said.

For other important sectors like banking and finance, though the state still retains a controlling stake, there should be a clear roadmap on how much room can be offered for foreign investments, he added.

Regarding what Vietnam should do to prevent cheap Chinese goods from flooding the local market when the yuan is devalued, Phuoc said though relatively cheaper Chinese products will put pressure on domestic production, non-tariff barriers, not exchange rate tools, should be used wisely in this case.

Like us on Facebook or follow us on Twitter to get the latest news about Vietnam!