Written by Ashley Boncimino
Two weeks after a Chinese oil rig began retreating from contested waters, the effects of the high-tension conflict still loom over the Vietnamese economy and will likely remain for some time.
Chinese tourism to Vietnam slowed to a crawl, according to the The New York Times. This sprung when a state-owned Chinese oil rig parked in a part of the South China Sea, that both countries claim as their own.
For the first six months of the year, Chinese tourists accounted for a quarter of Vietnam’s 4.3 million foreign visitors. In June, “arrivals from the Chinese mainland fell about 30 percent and those from Hong Kong fell 72 percent, compared with May,” The New York Times reported. Hotel occupancy also saw a notable decline.
The Vietnamese fishing industry may have also taken a hit during the two-month conflict due to Chinese boats battering and damaging Vietnamese fishing vessels, according to anecdotes from Vietnamese fishermen.
A local Vietnamese government official said that one fisherman suffered USD 280,000 in damages to fourteen boats after collisions with Chinese vessels while the platform was off Vietnam.
“Tensions with China in disputed waters had already been costly to Vietnam’s fishermen, but worsened after the oil rig was deployed on May 2,” Reuters reported. Both China and Vietnam have claimed its ships have been violently rammed by the other’s.
Furthermore, “fishermen complained that they were spending more on fuel to avoid risky waters while others said they had struck deals to sell their catch to buyers at lower prices in return for loans to repair their damaged boats.”
The government in Hanoi has approved a $750 million support package. Part of it can be used by fishermen seeking new boats as low-interest loans, and with state-supported insurance costs for their vessels.
An HSBC report however, believes that that the oil rig spat may not be as devastating as initially thought.
“Tourist arrivals from China will likely slow, but we expect them to normalize in the coming months,” the report stated.
Decreased tourist arrivals are expected to impact the retail sector, but foreign direct investment in the country by investors such as Japan, Korea, the U.S. and Taiwan – described as buoys for the Vietnamese economy – are likely to remain.
In fact, foreign investors may be taking advantage of the conflict to increase their net purchases of Vietnamese equity, according to an economic report by Vietnamese asset management, investment banking and real estate consulting firm VinaCapital.
According to Citibank, China is Vietnam’s fourth largest export partner, making up 10.2% of Vietnam’s total exports, while Vietman is China’s 8th largest export market, making up 2.5% of exports.
Vietnam’s economy grew at a quicker rate during the second quarter, seeing 5.25 percent growth compared to the second quarter of last year, and compared to 5.09 percent growth during the first quarter year on year. According to the General Statistics Office in Hanoi, the economy grew 5.18 percent in total during the first half of the year compared to the first half of 2013.
While quickened growth may be more of a reflection of the State Bank of Vietnam’s dong devaluation strategy, Vietnam’s half-year growth “puts it on course for a strong second quarter performance over the rest of the year, said Hong Kong-based BNP Paribas SA senior economist Philip McNicholas to Bloomberg.
USD 1.00 = VND 21,213.41 (XE.com 2014-08-03 06:37 UTC)
–Edited by Kristine Diaz