News Collection 2016 Vol 040

SEIKO IDEAS CORPORATION

Vietnam Business Review

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Vol 40, October 12th 2016

BUSINESS REVIEW VIETNAM

Foodex Vietnam 2016 to be in this November

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INSIDE THIS ISSUE

HIGHLIGHTS

Hanoi to host Vietfood, Beverage - ProPack next month

HCMC and its ambition to build a Silicon Valley

Automobile and auto parts industries need overhaul

VIETNAM – JAPAN COOPERATION

Japan - Vietnam to join forces on river redevelopment

Vietnam calls for Japanese investment in prioritised sectors

Panasonic opens solution, innovation centre in Vietnam

ECONOMY

Growth target leans on FDI in last quarter

Seafood products face more EU safety warnings

FINANCIALS

Vietnam's stocks are no longer cheap

Big caps move to HOSE from Hanoi in bid to boost share prices and liquidity

INVESTMENT

Vietnamese investors nurture ‘super urban area’ dream

Solar sector waits on FiT power-up

ENTERPRISES

Vietnam businessman Pham Nhat Vu buys Vermelha Station in Top End

Morgan Stanley picked as adviser for Vinamilk stake sale

Samsung turns farmers into bigger earners than bankers

MARKET & PRICES

Local companies flee urban areas to escape competition

Extra taxes keeps Vietnamese buyers from cheaper cars?

LEGAL UPDATES

Amendments to 05 Circulars pertaining to tax

Unclear laws contribute to environmental crisis



1

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ECONOMY

Growth target leans on FDI in

last quarter

VIR - While the country’s growth

target of 6.7% for 2016 may be out

of reach, its economic outlook

remains positive thanks to strong FDI.

PM Nguyen Xuan Phuc last week

requested greater efforts from

ministries, localities, and enterprises

to reach a modest economic

growth of 6.3-6.5% this year, which is

smaller than last year’s 6.68%.

The economy rose quarter-on-

quarter since early this year, from

5.48% in the first quarter to 5.78% in

the second quarter, and to 6.4% in

the third quarter.

The Ministry of Planning and

Investment (MPI) last week

submitted a scenario for 2016

growth to the government for

discussion, based on different

growth expectations in Q4.

MPI Minister Nguyen Chi Dung told

the government that in the

remaining three months there is still

some room to boost the economy-

including foreign direct investment

(FDI), disbursement of state budget

investment capital, and

government bonds, as well as

improvement of the local demand

and consumption.

The World Bank last week forecast

that Vietnam’s economy is

expected to grow only 6% next

year, and also 6.3% in 2018.

In its update on Vietnam’s

economy released in late

September, the Asian Development

Bank (ADB) also predicted that the

economy may grow only 6% this

year, and rise to 6.3% next year.

However, both banks are optimistic

about the country’s outlook thanks

to strong FDI.

FDI commitments in the first nine

months of 2016 rose to $16.43b and

the disbursed sum hit $11.02b, up

12.4% year-on-year.

It is expected that the figures for

the whole year will be about $24b

& $15b, respectively, which are

higher than last year’s respective

figures of $22.76 & $14.5b.

Much of this investment is directed

to manufacturing to generate a

steep rise in production, and

exports of mobile phones,

electronics, and other products.

FDI contributes about 18% of

Vietnam’s GDP, nearly a quarter of

total investment, two thirds of total

exports and millions of direct and

indirect jobs, according to the

World Bank.

Seafood products face more

EU safety warnings

DTI - Since early this year, many

Vietnamese seafood products

have been warned by the

European Union for containing

banned substance.

According to the National Agro,

Forestry and Fisheries Quality

Assurance Department (Nafiqad),

the EU issued alerts on 11 shipments

of Vietnam's seafood products

found to have surpassed the

permitted content of metals such

as mercury and cadmium between

January and September this year.

The number of EU warnings for

Vietnamese seafood products

during the January-September

period increased by 2.2 times

against the same period of 2015,

said Nafiqad.

By late April this year, the EU issued

warnings to four Vietnamese

seafood exporters, that had

shipments to several European

countries for failing to pass food

safety checks. The companies,

Mekong Delta Food Factory, South

Vina, Foodtech JSC and Khang

Thong JSC Seafood Processing

Factory, failed to pass food safety

checks to enter the EU, according

to the Rapid Alert System for Food

and Feed.

http://www.seiko-ideas.com/



2


FINANCIALS

Vietnam's stocks are no longer

cheap

VNN - The P/E (price-earnings) ratio

of the Vietnamese stock market is

14.3, while the figures are 16.5 in

Thailand, 22 in Indonesia, 15.8 in

Malaysia and 14.7 in China.

The VN Index on September 23 rose

to 674.09 points, or by 30 percent in

comparison with earlier this year

with the improved liquidity. Analysts

put emphasis on the P/E ratio of

16.49, a record high in the last five

years.

Doanh Nhan Sai Gon commented

that the strong recovery of the

national economy backed the VN

Index escalation. Some listed

companies have reported

considerable improvement in

business results.

The shares of retail companies

witnessed the sharpest increase of

81.17 percent, while healthcare

companies had 74 percent,

household-use goods 64 percent

and construction & building

materials 60 percent.

Meanwhile, considerable

decreases have been reported by

oil & gas shares (-19.7 percent),

financial services (-13.24 percent)

and banking (-9.8 percent).

With the average P/E ratio at over

14.3, the gap between Vietnam’s

P/E and other regional countries,

and between Vietnam’s and the US

(16.5) and Europe (20.7) has been

narrowed.

As such, the cheap-stock period of

the Vietnamese stock market is

over, and its status has shifted from

frontier to emerging.

Vietnam’s P/E ratio index is

influenced by the performance of

Large Caps such as VNM, MSN, FPT,

VIC, VCB and BVH. The group of

shares pushed the last VN Index

upward movement and account

for a large proportion of VN Index’s

capitalization value.

Dau Tu Chung Khoan also quoted

experts as commenting that with

the new price levels, Vietnam’s

stocks are no longer ‘too cheap’

compared with Thailand, the

Philippines and China.

While 90 listed reported loss in the

first quarter of the year, only 69 out

of 687 businesses which have

released Q2 financial reports so far

reported loss. In the first quarter,

listed companies reported modest

profit growth rate of 1 percent,

while the figure was 1.6 percent in

the first half of the year.

The statistics showed that listed

companies have made

considerable improvement in their

business performance.

Official reports showed that profits

made by the 20 most profitable

businesses were between VND500

billion (SSI) and VND6 trillion (VNM).

The losses were between VND30

billion (PVV) and VND1.1 trillion (TTF).

The strategic report by Ban Viet

Securities Company (VCSC)

showed that the upward trend in

the first half of the year was not a

‘bubble’, and that the P/E increase

is in line with the trend in the region.

The increased P/E will reduce the

attractiveness of Vietnam’s stocks

in foreign investors’ eyes. Therefore,

Vietnam needs to develop many

other tools to attract foreign capital.

Big caps move to HOSE from

Hanoi in bid to boost share

prices and liquidity

VNA - Several big companies are

planning to follow their peers in

moving their shares from Hanoi to

the HCM Stock Exchange (HOSE) in

an attempt to boost stock prices

and improve liquidity.




3


FINANCIALS

Since late September, the HOSE has

approved the listing of around 300

million shares from the Hanoi Stock

All the companies moving their

listings are large-cap companies on

the HSE.

Almost 126 million shares of Central

Hydropower JSC (CHP) made their

HOSE debut on September 29. It

used to be among the 15 largest

companies listed on the Hanoi

bourse.

Last week, Saigon Thuong Tin Real

Estate (Sacomreal) JSC (SCR) and

An Phat Plastic and Green

Environment JSC (AAA) also got the

nod to move their shares to HOSE.

Sacomreal and An Phat Plastic are

two of 30 highest valued stocks in

the Hanoi market with charter

capitals of nearly 2.2 trillion VND (99

million USD) and 520 billion VND,

respectively.

Sacomreal officials said the shift

was aimed at boosting the liquidity

of its shares.

An Phat Securities Co said the

southern bourse has higher

standards and listing there would

enhance its business reputation.

In addition, HOSE allows a minimum

trading volume of 10 units,

facilitating trading by shareholders

with holdings of less than 100 shares,

the company said.

Established in July 2000 with just two

listed companies, HOSE now has

317 companies with a market

capitalisation of 459 trillion VND

(20.6 billion USD). This accounts for

over 75 percent of the total

capitalisation value of the

Vietnamese securities market.

Liquidity in HOSE is typically three to

four times higher than in Hanoi. The

average trading value at HOSE had

reached 2.3 trillion VND by the end

of September.

Earlier in March this year, the HCM

City bourse welcomed nearly 13

million shares of the Tay Ninh Cable

Car Tour Company from the Hanoi

bourse.

Last year, it also received switches

from real estate developer FLC

Group (FLC) and F.I.T JSC (FIT).

Other companies including Vicem

Materials Transport Cement JSC

(VTV) and insurance company PVI

Holdings (PVI) are reportedly

preparing for a similar shift.

On the other hand, shifting from

HOSE to Hanoi happens very rarely.

A rare exception was that of

Mineral Ferrous Metallergy JSC (KSK)

in 2014.

Workers of Vicem Materials Transport Cement JSC at Ha Noi Port move sacks of cement.

The company is preparing to move their shares from Ha Noi to the HCM Stock Exchange.




4


INVESTMENT

Vietnamese investors nurture

‘super urban area’ dream

VNN - Many big real estate

developers have taken bold steps

to develop large urban area

projects, which in the past were

implemented only by foreign

investors.

Novaland and its partner – Bac

Nam 79 – have won the right to

develop the Da Phuoc – Da Nang

urban area after Daewon, the old

investor, withdrew the investment,

ending one decade of

hibernation.

The land reclamation project,

expected to cover an area of 180

hectares, was initially announced

as having investment capital of

$250 million. The investment capital

of the project has not been

announced by the new investor,

but it will be renamed The Sunrise

Bay.

The construction of the urban area,

comprising avhotel, shopping mall,

conference center, school, golf

course and houses, would be

completed in 2019.

This is the first project Novaland has

developed in the central region’s

real estate market, which marks a

milestone in its strategy on

developing non-HCMC markets.

Named Saigon Peninsula, located

in Phu Nhuan Ward of district 7 in

HCMC, the project would comprise

a multi-functional park,

international marina, houses and

other items. Saigon Peninsula Group

has received the nod from HCMC

authorities to become the investor

of the super project, capitalized at

$6 billion.

The investors wish to turn the project

into one with unique architectural

features and a ‘green lung’ at the

T-junction of the Sai Gon and Nha

Be Rivers.

Once it becomes operational, this

would be the largest passenger

ship port in Vietnam which serves

domestic travelers and foreign

travelers to HCMC.

The project is hoped to bring a new

look to Vietnam’s tourism and help

create 30,000 jobs.

A new urban area is taking shape in

Thu Thiem area. Sala is located on

junction of the two Thu Thiem’s

most important roads – Mai Chi Tho

and Bac Nam (North-South). The

project will be the focus of the

functional areas No 5 and No 6 in

Thu Thiem, capitalized at $2.2 billion.

Most of the investment capital

poured into the urban area,

infrastructure and other items will

be from Dai Quang Minh Company.

In April 2014, the first items of the

area – a residential quarter and the

technical system - were built.

Another project that has caught

the special attention from the

public is Vinhomes Central Park with

investment capital of $1.4 billion.

Covering an area of 43.91 hectares

on Nguyen Huu Canh Road of Binh

Thanh district, the urban area will

be developed with huge

investment capital of $1.4 billion.

Vinhomes Central Park promises to

provide 10,000 more villas,

apartments and officetels to HCMC.

Solar sector waits on FiT

power-up

VIR - As Vietnam looks to raise the

nation’s renewable energy sources,

foreign investors are sensing an

opportunity for solar energy

projects. But low feed-in-tariffs are

slowing this movement, to the

dismay of both local and

international organisations.




5


INVESTMENT

Representatives of six German firms

recently came to Vietnam to

explore the potential of the

country’s solar photovoltaic (PV)

market.

The firms include IBC Solar AG, M+W

Group GmbH, Droege Energy

GmbH, CARERA Solar/Hydro UG, ILF

Consulting Engineers GmbH, and

Syntegra Solar International AG.

They introduced their products and

services to 150 Vietnamese

companies during bilateral co-

operation meetings.

Peter Cattelaens, deputy

programme director of German-

backed GIZ Energy Support

Programme in Vietnam, said that

“German firms in the solar PV sector

can now seize a number of

attractive business opportunities in

Vietnam.”

Not only German firms, companies

from the UK, South Korea, the US,

and Canada are also eyeing solar

power projects in the Southeast

Asian country.

The UK’s Kimin Power Company is

working with the south-central

province of Quang Ngai’s

authorities on a $227.3 million, 150

megawatt (MW) solar power

project, on a 250 hectare plot in

the province’s Pho An commune.

In the south-central province of

Ninh Thuan, local company Thien

Tan Group is co-operating with the

US’ Black & Veatch Group to make

a feasibility study for implementing

a $2 billion, 1,000MW solar power

project.

Also in this province, Canadian

company CMX Renewable Energy

planned to construct a 150MW

solar power plant worth $150

million over an area of 250ha.

In another case, in the nearby

province of Binh Thuan, US-based

ACO Investment Group also

expressed an interest in building a

50MW solar power farm.

Meanwhile, Vietnam’s private-

owned firm Kinh Bac City

Development Holding Corporation

recently signed a land leasing

agreement with China’s JA Solar,

which will invest $450 million into a

40ha solar cell plant in the northern

province of Bac Giang. The capital

is expected to be raised to $1 billion

in the future.

Besides, the Central Highlands

province of Dak Lak’s authorities

are waiting for the Ministry of

Industry and Trade (MoIT) to offer

higher feed-in-tariffs (FiTs) for two

major solar projects floating on

water, the first of their type in

Vietnam.

The investors include South Korea’s

SolarPark Korea Co. Ltd., who

wishes to build a 620MW solar PV

plant in Ea Sup district. The project’s

investment capital is estimated to

be in the range of €600 million

($673.1 million) and €900 million ($1

billion).

Dak Lak authorities are also

negotiating a 120MW solar power

project with another South Korean

firm and Vietnamese private firm

Long Thanh Infrastructure

Development and Investment

Company. This $200 million project

is expected to be built in the

district’s Cu M’Lan commune.

“We want to receive the decision

from the MoIT soon, because the

investors are urging us. [Until the

MoIT’s decision,] we can’t decide

on the FiTs for them,” said Huynh

Van Tien, deputy director of the

Dak Lak Department of Planning

and Investment.

Great potential

At the recent Global Green Growth

Week 2016 organised by Global

Green Growth Institute (GGGI) on

South Korea’s Jeju island, Gavin

Smith, director of Dragon Capital’s

Clean Development Fund and vice

chair of Eurocham Vietnam, said

Vietnam is becoming a magnet for

foreign investors interested in solar

PV power projects. The fund has

invested in solar, small hydro, waste,

and clean water projects.




6


INVESTMENT

According to a GIZ draft report on

solar PV investment opportunities in

Vietnam released last month, the

potential for development of solar

energy in Vietnam is massive.

Solar resources are expansive, with

an average solar irradiation of 4-5

kilowatt hours (kWh) per square

metre per day in most regions of

southern and central Vietnam, and

a total of 1,400-3,000 sunshine hours

every year. This makes the country

comparable to developed solar

markets in the region, including

China, Thailand, and the Philippines,

as well as to mature international

solar markets, such as Spain and

Italy.

While calling upon international

investors to invest into Vietnam’s

solar PV market, Deputy Minister of

Industry and Trade Hoang Quoc

Vuong told the Global Green

Growth Week 2016 event that “The

potential of solar energy in Vietnam

can be utilised for water heaters,

generators, and other types of

applications such as drying and

cooking.”

However, the MoIT admitted that

despite such potential, over the

past few years, only 7MW of PV

capacity has been installed in

Vietnam, with around 2MW drawn

from rooftop solar arrays. In August

2015, Thien Tan Group co-operated

with Indian and Thai partners to

begin construction of the first solar

project in Vietnam, in the central

province of Quang Ngai. This $37.54

million, 24ha project has a

designed capacity of 19.2MW.

Several investors have come to

Vietnam in search of solar power

investment opportunities, but have

run into a wall.

“Currently, policies for renewable

energy projects, including solar

power ones, are too unattractive to

lure investors,” Vuong said.

Awaiting incentives

The Vietnamese government has

recognised this potential, and aims

to significantly increase its

renewable energy production,

including that from solar power.

Solar PV power generation

capacities are set to rise from the

current 7MW to 850MW in 2020,

4,000MW in 2025, and 12,000MW by

2030.

To reach these targets, the

government is currently preparing

solar PV support legislation. First

drafts released in 2015 and

developed further in the first half of

2016 include a FiT of $0.112/kWh for

large-scale grid-connected free-

field PV power plants, and a net

metering credit for excess solar

power fed into the grid set at

$0.15/kWh for rooftop systems.

In addition, there are

supplementary instruments in

preparation, such as import tax

exemptions, land incentives, and

corporate income tax reductions

incentivising the development of

the sector.

According to the UNDP, one of the

biggest hurdles for Vietnam to

attract investors into its solar PV

market is the low FiTs. The average

retail price of electricity in Vietnam

was $0.076/kWh in 2015.

“The retail price of power in

Vietnam remains artificially low by

international comparison. This is

thanks to pricing policies that lead

to indirect subsidies to the power

sector,” said the UNDP’s report on

policies for expanding solar PV

power in Vietnam.

“Meanwhile, power generators

depend on adequate financial

returns on their investments. They

need predictable and assured

revenue, which means that

perceived risks for getting a good

return on their capital investment

must be low,” said the report.

A FiT of $0.15/kWh is proposed by

the UNDP for mainland solar power

plants, which should be paid over

the 20-year lifetime of the

investment project. A lower initial FiT

may not attract any investors.




7


ENTERPRISES

Vietnam businessman Pham

Nhat Vu buys Vermelha Station

in Top End

ABC - A prominent businessman

from Vietnam has purchased a

Northern Territory cattle station.

In what is believed to be the first

major Vietnamese investment into

the north Australian beef sector,

Vermelha Station has been sold to

An Avien Pastoral Holding and

Agriculture for $18 million.

The Australian Securities and

Investments Commission lists the

major shareholder of the company

as Pham Nhat Vu, the chairman of

media company An Vien Group.

Mr Pham is the brother of Vietnam's

only billionaire and head of

conglomerate Vingroup, Pham

Nhat Vuong.

In February, the Australian

newspaper reported Vingroup had

purchased a Sydney CBD

redevelopment site for $22.5 million.

The northern cattle industry

continues to be well-supported by

both domestic and foreign

companies, as it has been for

decades, with many properties

recently changing ownership.

Vermelha is 2,039 square-kilometres

in size, located about 200

kilometres south of Katherine,

alongside the Stuart Highway.

While not commenting specifically

on the new owner, selling agent

Sue Brosnan from Tanami Rural

Property told ABC Rural the

property would continue to be run

as a pastoral enterprise, which may

look to diversify.

"They will be looking at the new

diversification provision of the

Pastoral Land Act, just to ensure

they're making best use of the

property," she said.

"I think it will be fantastic for the

pastoral industry, as I'm sure they'll

be committed to the industry as

investors here."

Ms Brosnan said there were 10,000

Brahman-cross cattle included in

the sale.

"The cows - even at this time of year

in the dry season - are in really

good condition," she said.

"It's also been well-developed in

terms of fencing, laneways, yards

and waters."

The Top End already has a large

population of very successful

Vietnamese farmers in Darwin's rural

area, however few have ventured

far beyond fruit and vegetables.

Vermelha Station, formerly owned

by Lyn and Bobbie Brazil, may be

well suited to a diversification

model, with a recent Northern

Territory Government study finding

the local soils to be very suitable to

irrigation projects.

The property has a reasonable

water licence and was the first in

the region to introduce a centre

pivot irrigator to grow hay for cattle.

Another Vietnamese company,

which was looking for land

to develop a large dragon fruit

farm, came close to buying

Vermelha earlier this year.

The CT Group inspected the

property but failed to follow

through with the purchase.

Lindsey and Veronica Elliott will

continue to manage the property

on behalf of An Avien Pastoral

Holding and Agriculture.

ABC Rural has requested an

interview with the company.

Morgan Stanley picked as

adviser for Vinamilk stake sale

Reuters - Vietnam’s State Capital

Investment Corp. has picked

Morgan Stanley Asia (Singapore)

Ltd. to be its lead consultant in the

sale of a 9 percent stake in

Vietnam Dairy Products JSC.

SCIC, as the government’s

investment arm is commonly known,




8


ENTERPRISES

also signed a contract Oct. 5 to hire

Saigon Securities JSC and

VinaCapital Corporate Finance

Vietnam Ltd. to assist in the sale of

shares in the dairy company,

according to an SCIC e-mail

statement.

Investors have long awaited SCIC’s

divestment of Vinamilk, the nation’s

largest company by market value

that is viewed as one of the most

desired public enterprises in

Vietnam by foreign investors. The

dairy company in July received

approval from the securities

commission to remove the 49

percent foreign ownership limit on

its stocks, paving the way for

investors to buy more.

Hiring these “reputable” financial

organizations will ensure the

transparency and effectiveness of

the stake sale in Vinamilk, Hanoi-

based SCIC said in the statement.

SCIC chairman Nguyen Duc Chi

said it plans to complete the stake

sale this year, according to state-

controlled VnEconomy on its

website on Sept. 24. The minimum

price for the first installment of the

sale will be determined in

November, the report said. SCIC

currently holds a 45 percent stake

in Vinamilk.

Shares of Vinamilk have climbed 32

percent this year, compared with

an 18 percent advance for the

benchmark. The stock was added

to MSCI Inc.’s frontier-markets

indexes in August. Vinamilk fell 0.6

percent at the midday break on

Friday.

Samsung turns farmers into

bigger earners than bankers

Bloomberg - A few years ago,

Nguyen Thi Dung was feeding

chickens and planting rice to make

ends meet in one of the poorest

areas in Vietnam. This year, she

expects to earn more than a

typical stockbroker in the country.

The difference? Samsung.

The South Korean electronics giant

moved into the rice paddies of Bac

Ninh province in Northern Vietnam

and began rolling out smartphones

seven years ago. The latest exports

include the company’s new Galaxy

Note 7 phones and their batteries,

which have embroiled the global

brand in a massive product recall.

Those gadgets have transformed

Dung’s sleepy village into the

country’s second-biggest exporting

center after Ho Chi Minh City.

“Our lives have improved

dramatically since Samsung came,”

says the 57-year-old ex-farmer, who

now rents rooms and sells groceries

to assembly line workers, and

expects to earn the equivalent of

$68,000 this year. “I want to buy a

car and have my children drive me

around.”

Samsung Electronics Co. and its

affiliates have built a factory town

with 45,000 young workers and

hundreds of foreign component

suppliers -- a miniature version of

the family-

run chaebolconglomerates that

dominate business back in

Korea. The investment has been a

windfall for businesses in Bac Ninh --

almost 2,000 new hotels and

restaurants opened between 2011

and 2015 according to the

provincial statistics office -- helping

raise the province’s per capita GDP

to three times the national average.

“Samsung’s investment has created

a breakthrough that spurred the

economic growth of not only Bac

Ninh but the nation,” said Nguyen

Phuong Bac, head of a Bac Ninh

socioeconomic institute. “It has

quickened the country’s

industrialization.”

The Korean company represents

the first stage in Vietnam’s plan to


http://www.bloomberg.com/view/quicktake/republic-samsung



9


ENTERPRISES

inherit a slice of the manufacturing

mantle of China, which is losing

makers of apparel, electronics and

consumer goods because of

soaring wages and costs. China’s

ability to attract factory investment

in the 1980s and 1990s from abroad

helped it build home-grown

suppliers and eventually its own

global companies. Samsung

Electronics opened its first plant in

China in 1992.

Shares of Samsung Electronics rose

4.5 percent at close in Seoul trading

today, a record high.

Airport Terminal

Now the company has bet large on

Vietnam. White buses emblazoned

with the blue Samsung logo rumble

past water-buffalo grazing across

the street from the Samsung SDI Co.

battery plant. Trucks ferry Galaxy

smartphones on the Bac Ninh-Noi

Bai Highway -- opened

simultaneously with Samsung’s

operations -- to Noi Bai International

Airport, where the company has

asked for its own cargo terminal.

This week, local news websites

reported that Samsung has applied

to the customs department for tax

exemptions to re-import flawed

Galaxy Note 7 smartphones and

export replacements to Samsung’s

headquarters in South Korea. The

company declined to comment on

the production of the phone or

details of the product recall.

More than half of 856 foreign

companies that had invested a

combined $11.9 billion in Bac Ninh

province by June were related to

Samsung. Foreign investment now

accounts for 60 percent of the

province’s economy, said Nguyen

Duc Cao, vice director of Bac Ninh

Industrial Zones Management

Board, who owns a gold-colored

Samsung S6 phone.

Samsung’s $15 billion investment in

Vietnam has made it the country’s

largest single exporter, shipping

about $33 billion of electronics last

year. The year before the South

Korean company came, Vietnam’s

total exports of mobile phones and

other telecommunications products

was $593 million.

In addition to the two Bac Ninh

plants, Samsung has opened

factories in nearby Thai Nguyen

province and in Ho Chi Minh City --

employing about 130,000 workers

nationwide.

“We will continue to strengthen our

business in Vietnam and our

expansion plan is dependent on

consumer, market trends,” the

company said in an e-mail.

Vietnam’s long-term economic

growth requires it become “a

haven of investment,” said Scott

Rozelle, a Stanford University

development economist. “There

are all these spillover effects -- you

get everybody working.”

“Samsung provides very good

working conditions,” Le Thi Hoa, a

22-year-old Samsung SDI assembly

line worker in Bac Ninh, said as she

shopped at an open-air vegetable

and fruit market near the factory.

“We get good benefits here,

including health insurance, and

free holiday trips with the company.”

Samsung has put Vietnam in the

vanguard of countries trying to

inherit China’s factory jobs,

competing with the likes of

Bangladesh, Thailand and

Indonesia. Yet none has the

confluence of cheap labor, cheap

capital, a vast domestic market,

infrastructure, education and

political will that fostered China’s

industrial boom.

If Vietnam is to follow China’s

model, it will need to develop

home-grown suppliers that can

provide more advanced

components than basic products

like packaging, said Bac at the

socioeconomic institute.




10


MARKET & PRICES

Local companies flee urban

areas to escape competition

The growth rate of the fast-moving

consumer goods (FMCG) segment

of the Vietnam economy is slowing

down, with a few areas showing

strong prospects for potential

growth.

The rate of expansion of FMCG

sales in the country’s six main

population centres jumped 3.6%

on-year for the first quarter of 2016,

according to a recently released

survey conducted by market

research firm Nielsen.

This compared to 5.7% on-year

growth for the fourth quarter of

2015.

Beverages, milk products and food

were the three biggest sellers for

the quarter accounting for 39%,

16% and 15% of total sales for the

segment, respectively.

They were trailed by tobacco

products (13%), personal care items

(8%), household products (6%) and

baby products (4%).

Market challenges

The easing of FMCG sales is

consistent with the general

deceleration of the Vietnam

economy whose GDP has slowed

to 5.52% on-year growth in the first

half of 2016, down from 6.32% for

the corresponding six-month period

a year earlier.

Consumers in the six major

metropolitan areas of Vietnam are

increasingly demanding and

expecting better choices,

according to Nguyen Anh Dung,

director of retail measurement

services at Nielsen Vietnam.

They are specifically looking for

innovative new products, which

represents an advantage for

newcomers to the market.

According to one recent product

innovation study, Vietnamese

consumers try more new products

than other Southeast Asian

consumers, with 88% of Vietnamese

buyers reporting they bought a

new item during their last shopping

trip, compared to a 69% regional

average.

However, as trade barriers are

lowered as a result of the ASEAN

Economic Community, Vietnamese

FMCG manufacturers are preparing

and drawing up strategies to face

greater regional competition.

Potential remains strong

Medium-term potential in the

market appears strong, according

to a report issued by the Ministry of

Industry and Trade early this year.

Fuelled by growing incomes and a

young consumer base, FMCG

spending is expected to climb

modestly to US$173 billion by 2020.

Consumer confidence remains

relatively strong (though slightly

down) heading into the second

half of 2016, according to an

August Nielsen survey, with the

index at 107 points, two below the

first quarter’s peak.

The vast majority of manufacturing

companies in Vietnam also have a

positive outlook for the second half,

a General Statistics Office survey

reported, with more than 90% of

respondents expecting production

to either increase (55%) or remain

stable (35.4%) in the second half of

the year.

Market prospects

The potential consumer market is

significant, and the penetration

rate for many FMCGs has yet to be

maximized, according to Mai Kieu

Lien, CEO of dairy industry leader

Vinamilk.

However, purchasing power in

Vietnam is also one of the lowest in

the Southeast Asian region, she told

the Oxford business Group recently,

so a localized strategy sensitive to




11


MARKET & PRICES

pricing has to carefully be put in

place.

A number of leading Vietnamese

FMCG producers are looking at the

country’s neighbours for growth.

Kajiwara Junichi, CEO of food

manufacturer Acecook Vietnam,

recently told reporters his company

is focusing on Laos, Myanmar and

Cambodia as good markets to

enter.

Another area of potential growth is

the rural regions of Vietnam, home

to roughly two-thirds of the

population and almost entirely

ignored by foreign companies

entering the Vietnam market.

According to a report by market

survey company Kantar WorldPanel,

household income in rural areas in

Vietnam is rising faster than in the

urban centres in terms of

percentage rate of growth.

Though, obviously this survey could

be misleading.

The rate of increase is simply

magnified because the starting

wage base is extremely low.

The wage base in absolute dollars

in the rural areas of Vietnam is small,

which accounts for the lack of

interest of foreign companies in

pursuing these markets.

However, local Vietnamese brands

are aggressively seeking market

share in the rural areas outside of

the six major metropolitan areas of

the country as they search for

refuge from the onslaught of

foreign competition.

Extra taxes keeps Vietnamese

buyers from cheaper cars?

VNS - Buying cars for cheap

remains an elusive dream for many

Vietnamese who have been saving

up to buy their first ever automobile

after expecting steep price cuts on

vehicles imported from ASEAN

member countries.

While tariffs fell following the birth of

the ASEAN Economic Community

this year, the Government added a

duty of US$1,000-$2,000 on

imported cars in early September.

Buyers and car traders were waiting

for amendments to the Law on

Special Consumption Tax in July

that reduced the tax on cars with

engines of less than 1,500cc from 45

per cent to 40 per cent.

But the tax on cars with 1,500-

2,000cc engines remains at 40-45

per cent, while the rate for 2,500cc-

3,000cc vehicles rose from 50 to 55

per cent.

Popular small cars such as the

Hyundai i10 and i20, Kia Morning,

Toyota Vios, Toyota Yaris, Ford

Fiesta, and Mazda 2 cost around

VND358-670million ($15,900-29,910).

But their prices have all risen.

Unfortunately, beginning in early

September 2016, import tariffs on

imported cars with engines below

1,500cc increased $1,000 against

July 1, 2016. For instance, an import

tariff levied on a Kia Morning with a

1,000cc engine has risen from

$4,700 to $5,600. The Kia Rio

Hatback with a 1,400cc engine is

now levied at $7,500, instead of

$6,500. The Hyundai Accent with a

1,400cc engine has been lifted to

$6,700 from $5,700. For vehicles with

engines ranging from 2,000cc, such

as the Kia Optima with a 2,400cc

engine, they are being taxed at

$15,600, instead of $13,000, and the

Kia Sportage LX with a 2,000cc

engine is levied at $13,000, instead

of $11,000.

The duty is also levied on second-

hand cars, at the rate of $5,000 on

those with engines below 1,000cc

and $10,000 on those with 1,000-

1,500cc.




12


MARKET & PRICES

The retail prices of luxury cars and

those with high cylinder capacity

have gone up dramatically due to

the new tariffs and duty.

Stimulating car sales

Quang Tuan, a Ha Noi resident, said

he was saving to buy a cheaper

small car after July 1, but with the

extra duty he has had to

temporarily shelve his plan.

Van Nam, an automobile trader in

Ha Noi's outlying Gia Lam District,

said sales of small cars has been

slowing down.

Ford, Suzuki, Mazda, and other

dealers also confirmed that there

was no sudden change in prices

after the law came into effect.

A car dealer of Chevrolet in Ha Noi

said that sale volumes over the

months were not influenced by the

special consumption tax. Because

of this General Motors Vietnam has

launched its monthly promotional

campain by asking its sale agents

to strongly cut prices.

Manh Tu, a sale representative of a

Toyota car dealership in Ha Noi,

said to stimulate purchasing power,

his car dealership has offered many

promotions by reducing prices

between VND20 to VND30 million

for small vehicles such as Vios or

Yaris.

"The price of a locally assembled

Ford Fiesta with a 1,500cc engine is

being offered at a promotional

discount ranging from VND40

million to VND44 million per unit.

While, cars with bigger engines like

the Ford Ranger from 2,200cc to

3,200cc are being offered at a

promotional discount of VND10 to

VND30 million, with an average

sales of 10 to 15 units per month per

sales agent," Hong Minh, a sales

representative of Ford Thang Long

told Viet Nam News.

An auto expert said that in May

and June, many car dealers have

stimulated purchasing power by

slashing selling prices to be

equivalent to the tax reduction of

the special consumption tax on July

1, 2016.

Reffering to the policy for special

consumption rates and car prices in

Viet Nam in the future, President of

the Vietnam Automobile

Manufacturers Association (VAMA)

Yoshihisa Maruta told a press

conference recently held to

celebrate the association's

15thanniversary of its establishment

in Ha Noi that each car in Viet Nam

has been bearing various taxes and

fees including import tax, luxury tax

rates, value-added tax and

registration fees, so it's difficult to

foretell the time when car prices

would be truly reduced.

However, he said VAMA and other

auto businesses will make their best

efforts to give clients a suitable

price.

VAMA will continue to propose to

the Government to ensure the

rights and interests of auto makers,

both locally-assembled products

and imported, as well as of buyers

nationwide.

Arrears on luxury cars

Nguyen Van Phung, a

representative of the General

Department of Taxation said that

domestic auto importers raced

against time to import cars before

June 30 to avoid higher special

consumption taxes. However, if the

imported cars were sold after July 1,

they will automatically collect

arrears.

Tax rates on luxury cars with engines

ranging between 2,500cc-3,000cc

will see a rise from 50 to 55 per cent.

For those with engine

displacements between 3,000cc-

4,000cc, the rise will be an even

sharper 60 to 90 per cent, and cars

with engines between 5,000cc –

6,000cc will see a rise from 130 to

150 per cent.




13


LEGAL UPDATES

Amendments to 05 Circulars

pertaining to tax

VLO - Circular No. 130/2016/TT-

BTC dated August 12th, 2016 of the

Ministry of Finance on guidelines for

the Government Decree

No. 100/2016/ND-CP dated 01 July

2016 on the implementation of the

Law on amendments to certain

articles of the Law on value added

tax, the Law on special excise tax

and the Law on tax administration

and to certain articles of tax-

related Circulars.

This Circular is to amend,

supplement to 5 Circulars on tax,

including:

1. Circular No. 219/2013/TT-BTC on

value added tax (VAT) (which has

been amended at Circular

No.119/2014/TT-BTC , Circular

No. 151/2014/TT-BTC and Circular

No. 26/2015/TT-BTC )


excise tax


tax administration (which has been

amended at Circular

No.119/2014/TT-BTC , Circular

No. 151/2014/TT-BTC and Circular

No. 26/2015/TT-BTC )


tax levied on non-agricultural land

use


enterprise income tax (EIT) (which

has been amended at Circular

No.96/2015/TT-BTC )

Accordingly, one of the most

important amendments in this

Circular is the removal of the

regulation on refund of VAT on

goods sold and purchased

domestically for the purpose of

being appropriate to the new

provisions of Law

No. 106/2016/QH13

In addition, according to this

Circular, with regard to investment

projects on construction of houses

for sale or lease without forming

fixed assets, input VAT on such

projects is not considered the

refund in the form of “investment

projects”

With regard to EIT, according to the

addition of point a1 Clause 6 Article

18 of Circular No. 78/2014/TT-BTC , if

during business and production

activities from 2009 – 2013

enterprises invested finances from

their fixed asset depreciation fund,

net profit for reinvestment, or

investment capital which has

registered with competent state

management authorities into the

addition of machines and

equipment on the regular basis

without increasing capacity of

production and business according

to the registered or approved

business plan, these cases are not

regarded as expansion investment.

In other words, revenue generated

from such additional investment is

still entitled to tax incentives for the

period of 2009-2013

This Circular takes effect from the

date on which Law

No. 106/2016/QH13 and Decree

No 100/2016/ND-CPdated July 1st,

2016 takes effect (July 1st, 2016).

Article 4 of this Circular takes effect

from the tax period of 2016.


http://www.vietlawonline.com/vbpl/79192/tax-policies/amendments-to-05-circulars-pertaining-to-tax.vlo

http://www.vietlawonline.com/vbpl/79192/tax-policies/amendments-to-05-circulars-pertaining-to-tax.vlo

http://www.vietlawonline.com/vbpl/78199/tax-policies/amendments-to-04-decrees-on-tax-policies-and-tax-sanctions.vlo

http://www.vietlawonline.com/vbpl/57324/value-added-tax-vat-/new-guidance-on-vat-declaration-and-refund.vlo

http://www.vietlawonline.com/vbpl/61863/tax-declaration/some-vital-amendments-to-vat-and-pit-declaration-calculation.vlo

http://www.vietlawonline.com/vbpl/63108/tax-policies/guiding-some-changes-of-the-policies-on-eit-vat-and-pit.vlo

http://www.vietlawonline.com/vbpl/66263/tax-declaration/amending-some-provisions-on-vat-tax-administration-and-invoices.vlo

http://www.vietlawonline.com/vbpl/73258/tax-of-special-consumption/the-new-guidelines-on-declaration-and-refund-of-excise-tax.vlo

http://www.vietlawonline.com/vbpl/56009/tax-declaration/new-provisions-on-tax-declaration-and-management.vlo

http://www.vietlawonline.com/vbpl/61863/tax-declaration/some-vital-amendments-to-vat-and-pit-declaration-calculation.vlo

http://www.vietlawonline.com/vbpl/63108/tax-policies/guiding-some-changes-of-the-policies-on-eit-vat-and-pit.vlo

http://www.vietlawonline.com/vbpl/66263/tax-declaration/amending-some-provisions-on-vat-tax-administration-and-invoices.vlo

http://www.vietlawonline.com/vbpl/45067/tax-of-land/guiding-non-agricultural-land-use-tax.vlo

http://www.vietlawonline.com/vbpl/60450/tax-of-corporation-income/new-guidelines-on-2014-cit.vlo

http://www.vietlawonline.com/vbpl/69497/tax-of-corporation-income/some-provisions-on-eit-are-amended-further-from-2015.vlo

http://www.vietlawonline.com/vbpl/76095/tax-policies/the-amendments-to-the-law-on-vat-the-law-on-excise-tax-and-the-law-on-tax-administration.vlo

http://www.vietlawonline.com/vbpl/60450/tax-of-corporation-income/new-guidelines-on-2014-cit.vlo

http://www.vietlawonline.com/vbpl/76095/tax-policies/the-amendments-to-the-law-on-vat-the-law-on-excise-tax-and-the-law-on-tax-administration.vlo

http://www.vietlawonline.com/vbpl/78199/tax-policies/amendments-to-04-decrees-on-tax-policies-and-tax-sanctions.vlo



14


VIETNAM - JAPAN COOPERATION

Japan - Vietnam to join forces

on river redevelopment

Nikkei - Japan and Vietnam are

joining hands in a public-private

partnership to redevelop

Vietnamese rivers. The 22 billion yen

($212 million) project, to be

launched in Ho Chi Minh City as

early as next year, could become a

model for river redevelopment in

flood-prone Southeast Asia.

The project will mainly be carried

out by a special-purpose company

to be jointly established by

Japanese and Vietnamese

businesses. The Japan International

Cooperation Agency will provide

low-interest loans, while private

Japanese companies will also

make investments or extend loans.

At the moment, trading

house Mitsubishi Corp., Mitsubishi

UFJ Financial Group and

construction

companies Shimizu. and Maeda. ar

e expected to participate.

The aim of the project is to

redevelop flood-prone areas along

a branch of the Saigon River about

10km away from Ho Chi Minh

City. An 8.1km sewage canal will

be concreted, and a land area of

61 hectares along the river will be

mainly used for housing, with some

roads and green space. The

project is to be completed by 2020.

Private Japanese companies will

then take over land areas,

depending on investment amounts,

and build condominiums. Some

24,000 condominium units will be

ready by 2022.

Financial aid from Japan will

enable the municipal government

to promote river redevelopment

without worrying about the costs of

infrastructure development, such as

the cost to transfer residents and

the costs for bank, sewage and

road development. Japanese

companies can also invest with

ease if the transfer of residents is

handled by the authorities.

Flooding is a chronic problem for

Ho Chi Minh City. Heavy rain

caused one of the worst-ever floods

in late September. Dredging of the

river is insufficient, and sweeping

measures need to be taken.

Vietnam calls for Japanese

investment in prioritised

sectors

VNA - Vietnam hopes for Japanese

investment in prioritised sectors in

the country’s industrialisation

strategy, along with infrastructure,

energy, climate change response,

and support industry, President Tran

Dai Quang has told Vice President

of the International Friendship

Exchange Council (FEC) Yoshihiko

Nakagaki.

At a reception in Hanoi on October

10 for Yoshihiko Nakagaki, who is

also Chairman of the FEC’s

Committee for Japan-Vietnam

Cultural and Economic Exchange,

the State leader proposed that

Japan speed up technology

transfer to Vietnam and help the

country in human resources

training.

He expressed his hope that

Japanese firms invest more to

Vietnam’s promising agriculture

sector, while proposing that the FEC

encourage more Japanese

localities and businesses to seek

partnership with Vietnam in the

field.

The President said that he believes

the FEC, with a large number of

members and strong influence, will

continue making effective

contributions to the expansion of

cultural & economic cooperation

between the two countries.

Vietnam highly values the role of

the private sector of Japan in

boosting economic ties between


http://asia.nikkei.com/Company/05FMFC-E



15


VIETNAM - JAPAN COOPERATION

the two countries, he stressed,

affirming that together with large

firms, Vietnam welcomes small and

medium-sized enterprises from

Japan to invest to the supporting

industry.

Vietnam will strengthen its efforts to

complete legal and policy

frameworks to create a stable and

favourable investment and business

environment for foreign investors,

including those from Japan.

The President also noted that

Vietnam is working with the

Japanese side to implement the

sixth phase of the Vietnam-Japan

joint initiative on improving

investment environment in Vietnam.

Vietnam considers the success of

foreign investors as its own, he said.

Expressing his delight at the growing

extensive strategic partnership

between the two countries over the

past years in all fields, he noted that

Japan is the leading economic

partner and the largest ODA

provider of Vietnam, as well as the

second biggest investor and fourth

largest trade partner of VN.

He held that progress in the

regional connection process,

including the establishment of the

ASEAN Community, the signing of

the Trans-Pacific Partnership (TPP),

and the negotiation for the

Regional Comprehensive Economic

Partnership (RCEP), will bring new

prospects for both sides in

economic cooperation.

On his part, Nakagaki briefed the

host on cooperation activities

between the FEC and Vietnam in

recent years. He expressed

pleasure that Japanese ODA and

investment are contributing to socio

-economic development of VN.

He underscored that the FEC will

work hard to connect potential

Japanese investors with Vietnam in

the coming time. In the future,

Vietnam will be the close partner of

Japan in Asia, he held, adding that

Japan is aware of supporting VN in

maintaining growth speed.

Panasonic opens solution,

innovation centre in Vietnam

VIR - Leading Japanese electronics

corporation Panasonic held an

opening ceremony for its display

centre titled "Panasonic Solution &

Innovation Centre Vietnam" at the

Thang Long industrial zone in Ha Noi

on October 7.

The centre has four main areas

consisting of electronics assembly

equipment for surface mount

technology, robotic welding

systems, smart factory solutions and

air conditioning systems.

Panasonic expects the centre will

be the first place in Viet Nam to

introduce technology, smart

production equipment and

comprehensive solutions, which

help optimise the factory's

performance.

The centre will also be a place

showcasing experiences of surface

mount machines, machine

components glued surface,

software management system

PanaCIM and adaptive process

control.

This innovation centre features not

only Panasonic's latest chip

mounter and welding machine, but

also equipment from other partners,

which include component towers

and inspection machines.

This cooperation highlights

Panasonic's message about its

overall solution development

strategy based on technological

interconnectedness and their

contribution to the success of

Industry 4.0 and IoT-supported

manufacturing line.

In addition, customers can

experience the actual

manufacturing process of a printed

circuit board and welding

machines by bringing their own

materials and electronic

components for trial production.




16


HIGHLIGHTS

Hanoi to host Vietfood,

Beverage - ProPack next

month

VOV - The Vietfood and Beverage-

ProPack international exhibition is

set to take place at the Ha Noi

International Exhibition Centre on

November 9 -12.

The event held by Vinexad is

expected to attract 180 enterprises

with more than 200 pavilions from

11 countries and territories,

including the Republic of Korea,

Thailand, Russia, Malaysia, Italia,

Denmark, Spain, Lithuania and

China.

Vegetables (fresh, dried, canned,

processed), seafood (cooked,

frozen), agricultural products

(coffee, tea, cashew, pepper),

food ingredients, beverage,

confectionery, and packaging and

food preservation equipment will

go on display at the event.

It is predicted that as many as

15,000 visitors, especially e-

commerce partners from

agricultural areas of some northern

provinces will participate in the

four-day event.

This is the first time for Hanoi to host

such an event after it has been

held in HCM City for 20 years.

HCMC and its ambition to

build a Silicon Valley

VNN - HCM City leaders are making

aggressive moves to turn Saigon

into the Silicon Valley of Vietnam.

In an 11-page document issued by

the city authorities in August about

the program to support small and

medium-sized enterprises’

innovation to 2020, there are five

projects on start-ups. This is

considered one of the first concrete

steps in terms of policy to realize the

ambition to turn the city into a

Silicon Valley of Vietnam.

HCM City aims to directly and

indirectly support 2,000 start-ups

project from now to 2020 through

consultancy, training, connections,

incubation activities ...

To do this, 40,000m2 of floor and

two international-standard

incubators will be created for the

startup community. In the next four

years; 50% of secondary schools in

the city will have clubs on

innovation; andv20 universities and

colleges will have courses on

startups.

The city has made many moves to

support start-ups.

The Saigon Hi-Tech Park Incubation

Centre (SHTP-IC) put into operation

an Innovation Lab on April 8 in

order to promote research,

creativity and start-ups in business

incubation projects.

The Innovation Lab is an open

space equipped with the necessary

infrastructure for the development

of products in information

technology and electrical-

electronic-telecom sectors.

It is open to both individuals and

organisations.

Deputy head of SHTP-IC

management board Duong Minh

Tam said the Innovation Lab will

help to increase competitiveness in

creativity and innovation among

individuals and organizations

working in advanced technology.

In June the city announced the

introduction of a credit support




17


HIGHLIGHTS

package for startups worth VND1

trillion ($45 million).

City Chairman Nguyen Thanh

Phong said that the funds will come

from its budget and provide

support to startups in management,

technology, and access to bank

credit.

Businesspeople under 35 years of

age will be prioritized. The city will

hold exchange meetings between

youth, undergraduate students,

and successful businesspeople and

will also organize startup clubs.

He also promised to reform

administrative procedures, revoke

illegal permits, and tackle

counterfeiting and trade fraud.

Nguyen Trong Hoai, Vice Principal

of HCM City’s University of

Economics, said that his university

will soon begin introducing training

courses titled ‘Start-up

Administration’.

In July the HCM City Young

Businesspeople Association (YBA)

said it would support 1,000 creative

start-up projects during the 2016-

2020 period. The association will

also accompany 300 start-ups and

calls for VND500 billion ($22.5

million) investments in more than

100 others.

In August, the Saigon Innovation

Hub (SIHUB) was launched by the

HCM City Energy Conservation

Centre (ECC) under the municipal

Department of Science and

Technology.

Director of the Department of

Science and Technology Nguyen

Viet Dung said SIHUB will be a

channel linking the department

and the startup community; hence

they will make use of the city’s

supporting policies, and public

resources.

SIHUB will prioritize projects in four

key industrial sectors of the city:

food processing, electronic-

information technology,

mechanical manufacturing, and

chemistry (rubber, plastic,

pharmaceuticals).

HCM City, one of the country’s

largest economic hubs, is targeting

to expand the number of

enterprises in the city to 500,000 by

2020, according to its draft plan

announced earlier this month.

Currently, the city has 270,000

registered firms, or 31.7 percent of

country’s total including 170,000 in

operation. It also has 250,000

private family businesses with high

potential to develop into

companies.

In 2015 non-State enterprises

contributed 24.5 percent of the

city’s GDP and 15.7 percent of its

budget revenue.

Automobile and auto parts

industries need overhaul

VNS - Back in the 1940s, the

Japanese government was facing

a question it found hard to answer:

should it develop the automobile

industry?

There was stark division on the issue,

with some arguing that if the

country could import vehicles from

other countries, it did not seem

essential to develop the products

oneself.

However, thanks to the

implementation of several policies

supporting the production of auto

parts and components, the country

is now among the world's giant

auto manufacturers with many well-

known brands.

The story could be a very good

lesson for Viet Nam, which is also

seeking answers to a similar

question, Nguyen Thi Xuan Thuy,

director of the Integration Policy

and Strategy Division under the

Institute of Industrial Policies and

Strategies (IIPS), said.

There are justifiable reasons to pose

this question.

In two years, the tariff on complete-

built-in (CBU) units on automobiles

imported from ASEAN nations will

be zero per cent under the ASEAN

Free Trade Agreement. So

consumers will be able to purchase




18


HIGHLIGHTS

new cars without paying as much

money as they currently do.

In particular, the local part supply

industry is still underdeveloped, not

to mention concerns over

environmental problems potentially

caused by the industry.

Thuy said "Domestic manufacturing

and assembling enterprises in the

country still have to import

automobile spare parts from various

sources such as ASEAN, Japan,

China, South Korea and Europe."

"The import raises the production

costs directly due to import tax and

indirectly through additional costs

such as transportation."

Vu Quang Tam, deputy general

director of Honda Viet Nam, once

told a Vietnam News Agency

correspondent that unlike the

production of motorbikes, for which

the localisation rate (the

percentage of locally-made

components used to assemble a

bike) reached nearly 97 per cent,

the rate of the automobile industry

was still very low.

In a recent conference on industry

development, the average

localisation rate was reported to be

much lower than the target of an

average 40 per cent set for 2020

and 60 per cent for 2025.

Tam explained that the size of the

Vietnamese automobile market is

not large enough to attract

investors to manufacture auto parts

and components.

Thuy agreed, saying "The scale of

the market is now much smaller

than other countries' in the region

(only equivalent to one-fifth of

Thailand or one-sixth of Indonesia)."

"With such a small scale, we don't

have any advantage of scale.

That's why the local production cost

of a vehicle is 20 per cent higher

than that of other ASEAN countries."

Pham Van Tai, Permanent Deputy

Director of Truong Hai Auto

Corporation (THACO) admitted

"With deeper international

integration, especially after 2018,

local auto manufacturing and

assembling firms like THACO will

face severe competition from auto

firms in ASEAN member countries."

Despite having high localisation

rate (15-20 per cent for passenger

cars, 35-45 per cent for trucks and

50-65 per cent for buses), the

company still have to find ways to

overcome the common difficulties

caused by modest market size, Hai

said.

Honda Viet Nam leader Tam

added that the part supply industry

was facing hardship, partly due to

the Government's support policies

which had not fully worked.

For instance, some part suppliers of

the company had to import steel

and iron from abroad because

most steel and iron products

produced domestically were

serving the construction industry.

Tran Thanh Van, general director of

Dry Cell and Storage Battery Joint

Stock Company (PINACO) which

supplies batteries to many leading

automotive and motorbike makers,

said 60-70 per cent of the materials

needed for production are

imported.

"Therefore, policies related to

monetary and exchange rates and




19


HIGHLIGHTS

fluctuations on the international

market affect us."

Besides this, there is unfair

competition between locally made

batteries and imported ones since

importers usually declare lower

prices to evade tax.

He said "While local battery

producers are bound by regulations

on environment and responsible for

used batteries, importers are not

bound by such regulations."

Van suggested that the

Government create a sound

competitive environment in which

all businesses have the same

responsibilities in terms of tax,

environment and other issues.

Market potential

According to Thuy, if Viet Nam is

not going to continue producing or

assembling vehicles, it will not only

have a negative effect on auto

makers, but also result in lost

opportunities to develop other

potential related sectors, such as

mechanical engineering, rubber,

plastics, electronics and magnet

wire.

In fact, the automobile market in

Viet Nam is considered very

prospective.

According to experts, the potential

of a country's automotive market is

assessed based on factors such as

the size and structure of the

population, the per capita income,

the number of vehicles per 1,000

inhabitants and the development

of infrastructure.

"It can be seen that the elements of

population, income and

infrastructure conditions are

favourable for the development of

the Vietnamese automotive market

in the next 10 years," Thuy said.

Regarding the population, Viet

Nam has over 90 million inhabitants

and the population of the middle

class is growing with per capita

income estimated to reach the

threshold of US$$3,000 in 2020.

Viet Nam's automobile market is

expected to enter the stage of

motorisation in the 2020-2025 period

when automotive consumption

rate (motorisation) will reach 50

vehicles per 1,000 inhabitants, Thuy

said.

Road traffic systems are growing

strongly with intercity connection

through a network of highways,

which will also create more

favourable conditions for traveling

by private cars, she added.

How to develop

According to Thuy, with the

presence of the world's large

manufacturers and automobile

assemblers, such as Toyota, Honda,

Ford, GM and Mecedes-Benz, it will

be unfortunate if Viet Nam cannot

take advantage of this opportunity

to build an automotive industry and

foster the growth of the auto parts

sector.

Viet Nam now has a vast network

of part suppliers for motorbike

production, which is the basic

foundation for the development of

the auto parts industry, Thuy said.

"Without the domestic automotive

industry, in the future, when the

needs of the Vietnamese people

increase, Viet Nam will have to

import a large amount of new CBU

and even used ones from abroad,

which will put pressure on trade

balance and raise environmental

issues."

Besides this, when the motorbike

industry is saturated, if the

automotive industry does not grow,

suppliers of motorbike parts will not

have a chance to continue their

operation.

Honda Viet Nam Deputy General

Director Tam said auto

consumption is an obvious trend.

However, to develop the industry, it

is necessary to develop co-

operation among ministries and

agencies to define "which market

segment should we focus on."


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News Collection 2016 Vol 040