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17:37 27.12.2015(updated 17:39 27.12.2015)
Economic expansion in Vietnam accelerated in Q4 to above that of mainland China as the former turned out to be increasingly competitive against the latter, which is struggling amidst painful reforms.
Kristian Rouz — Economic growth in Vietnam has accelerated to above that of the People's Republic of China as Q4 investment and manufacturing in the former outperformed previous expectations. Meanwhile, China's industrial profits shrank, posting a sixth straight month of losses. Still, Vietnam's current account deficit still poses significant challenges to economic development, while China has witnessed significant progress in its economic reforms, aimed at achieving a more sustainable, domestic consumption-driven growth.
Record-high foreign investment and manufacturing gains have propelled Vietnam to become one of Asia's fastest-growing industrialized economies. Annualized GDP gains in the fourth quarter reached 7.01%, accelerating from the previously estimated 6.87% and surpassing China's 6.9%. Still, according to the General Statistics Office, in 2015 the Vietnamese economy still lagged behind that of mainland China, having added 6.68%, which is still above the previous target of 6.2%.
The Vietnamese economy is accelerating due to a rise in the export of goods produced by the locally-based manufacturing divisions of international enterprises and strengthening domestic consumption. The recent devaluation of Vietnam's national currency, the dong, has also helped it exceed growth projections, as the nation's global exports and investment competitiveness improved.
Vietnamese exports rose 8.1% during 2015 to $162.4 bln, with 71% of all exports provided by foreign-owned/funded enterprises. Still, overall exports underperformed for the year in gross value, falling about 10% shy of the government's target as raw materials prices slumped. Imports rose by 12%, resulting in a $300 mln trade deficit for December compared to a $263 mln surplus the previous month.
Manufacturing gained an annualized 10.6%, while foreign investment climbed 17.4% year-on-year to its record highest of $14.5 bln.
Vietnam's financial sector in expanding rapidly as well, due to a pickup in domestic consumption. Retail sales rose 9.5% during 2015, while borrowing jumped by 17.2%, according to data published by the State Bank of Vietnam.
All in all, Hanoi has set a 6.7% GDP annualized growth target for 2016, based on the encouraging data.
Meanwhile, China is struggling to remodel its economy in an attempt to move away from export-driven growth. Export-oriented industrial production is contracting; industrial profits have fallen 1.4% in November from a year earlier, according to data provided by the National Bureau of Statistics (NBS) in Beijing.
During the January-November period, industrial profits dropped an annualized 1.9%, with the decline slowing though from October's 4.6% contraction. The current figures are slightly more optimistic than the market's previous expectations, supporting the painful yet moderately successful reformist efforts of the Chinese.
"The November industrial profit data matched earlier output data and they showed some signs of stabilizing, which are in line with recent data from other Asian countries," Zhou Hao of the Singapore-based Commerzbank said.
Despite the lessening profitability of manufacturing, China's investment returns have increased by $1.43 bln in November compared to a year earlier. Spectacular gains in automotive and electric furnace investment returns, 35% and 51%, respectively, helped slow the contraction of the overall industrial sector, NBS said.
China is currently undergoing a ‘supply-side reform', with the government seeking to created new domestically-based drivers for economic growth.
Read more: East Asian Takeover: Vietnam Surpasses China in Q4 Growth
