FINANCE. finance & business news. Reference exchange rate stays stable

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1 finance & business news 24 August Reference exchange rate stays stable 1 Deposit rates fall further 2 Interest rates projected to fall slightly in H2 2 Workshop updates local banks on new internal audit standards 3 The controversial acquisition of zero dong banks will be incorporated into the law 3 When is debt trading market established? 4 11 Vietnamese banks have assets of over $10b 6 LienVietPostBank funds macadamia growing in Lam Dong 6 Apec seeks to foster e-commerce 6 Apec sub-committee discusses trade faciliation 7 Trade deficit in first half of August negligible 7 Q2 consumer confidence at five-year high 8 Speeding up ODA and public investments crucial to avoid economic backlash 9 Rubber exports up 58 pct in 7 months 10 RoK exports to Vietnam surge 50pct in seven months 10 Spending on fruit, veg imports rises 11 Gaping holes in MoF tax proposal 11 Sugary drinks may get unsavoury tax 13 Local agriculture departments chosen to issue organic certificates 15 Workers object to retirement age increase 15 State stakes to be divested from 406 firms 16 Inaccurate evaluations of SOEs cause great losses 17 SOEs need re-evaluation before listing: experts 17 Disappointing revenues from bauxite-alumina projects 19 HCM City provides VND11 billion in aid for 14 startups 19 Digital transformation helps improve business efficiency 20 JLL: Real estate M&As more virbrant 20 Pepper growers reap organic farming benefits 21 Vietnamese people willing to spend on tourism, technology item purchases but still lead the world in savings 23 Reference exchange rate stays stable Will there be a new Japanese travel wave to Vietnam? 23 Party leader calls for more Indonesian investment 24 Vietnam, Turkey head to two-way trade value of $4 billion 25 Bac Lieu Province hopes to attract wind energy investment 25 BIZ NEWS Business Briefs August 24, Stocks tumble to near 760 points 26 VN Index rises slightly on investor bottom fishing 27 MSCI upgrade may still far away 27 CII sells stake to quench capital thirst 29 SEAF to fund female-led SMEs in VN 29 Project to aid female entrepreneurs begins 30 Toong & International Enterprise Singapore sign partnership 30 Project launched in Thai Binh to promote sustainable rice production 31 Solutions proposed for reducing Cat Lai Port overload 32 Happyland entertainment complex half-done after long years of construction 32 Eco-resort project commences construction 33 Da Nang IT Park restarts construction 33 Siemens' net-zero quest 34 Who is leading the 'underground' battle to win soybean market share? 34 Local made beer products win three gold medals at international competitions 35 Contractor Kumho wins $1.5 million in debt trial 36 Book street almost deserted after parking lots closed 37 Korean video filmed on tourism in Hue 38 Automation Techmart 2017 opens in Hanoi 39 Agricultural fair to open at Quang Ninh 39 Furniture trade show opens in Binh Duong with record exhibitors 40 First ever robot exhibition opens in Hanoi 40 24/AUG/2017 INTELLASIA VNA The daily reference VND/USD exchange rate set by the State Bank of Vietnam on August 24 stays at 22,447 VND, unchanged from the previous day. With the current trading band of +/- 3 percent, the ceiling rate applied to commercial banks on August 24 is 23,120 VND and the floor rate 21,774 VND per USD. The opening hour rates at major commercial banks saw only slight changes from August 23. Vietcombank raised both rates by 5 VND, buying the greenback at 22,695 VND and selling at 22,765 VND per USD. BIDV maintained the same rates as on August 23, at 22,695 VND (buying) and 22,765 VND (selling). Meanwhile, the buying rate at Vietinbank went up 10 VND to 22,690 VND and the selling rate was kept unchanged at 22,760 VND (selling) per USD. Intellasia No. 21, lane 173/63/17, Ngoc Ha Ward, Ba Dinh Dist, Hanoi All Rights Reserved Tel: Fax: Office@intellasia.com Websites:

2 Deposit rates fall further 24/AUG/2017 INTELLASIA VNEXPRESS The latest deposit rates have been announced by Vietnam Export Import Commercial Joint Stock Bank (Eximbank) on August 17. Of which, customers who newly deposit one-month term only enjoy end-term interest rate at 4.6 percent instead of the 4.8 percent like before. For month terms, banks still maintains the interest rate of eight percent per year. This is also the bank's highest interest rate. Earlier, Techcombank, VPBank, etc. also applied new interest rates towards the reduction of 0.1 percent-0.2 percent interest rates in some short terms. Currently, Techcombank's highest interest rate is 6.7 percent for 15-month term and above, while the highest interest rate in VPBank is 7.5 percent per annum. However, the market has now also witnessed some banks who adjust up deposit rates in long terms. For example, Sacombank has just raised 0.05 percent interest rates for 13-month term to 7.6 percent per annum. Deputy general director of a joint stock bank said the aforementioned move is mainly to restructure the bank's deposit rate in a more reasonable way. As per Circular No.06/ 2016, since the beginning of 2017, the ratio of short-term capital for medium and longterm loans of banks decreased from 60 percent to 50 percent. To meet this regulation, banks must raise medium and long-term capital. Therefore, some banks focus on medium and long-term capital by raising interest rates to balance the capital source. Meanwhile, the lowering of short-term deposit rates is considered as a way to help banks reduce lending rates to businesses because at the beginning of July, the State Bank issued a decision on reduction of maximum short-term lending rates in dong at credit organisations by 0.5 percent per annum. "Then, a series of banks announced to reduce short-term lending rates. Therefore, the move to reduce short-term deposits is indispensable for banks having cheap capital source to lower lending rates", he said. At the government's regular meeting in June 2017, the prime minister directed the banking sector to lower interest rates by 0.5 percent-1 percent and the fact shows that banks have already completed this task. As per the latest data from the State Bank, as of June 30, 2017, credit grew 9.06 percent while the capital mobilisation swelled 7.43 percent from the end of Interest rates projected to fall slightly in H2 Workshop updates local banks on new internal audit standards 24/AUG/2017 INTELLASIA DTCK The recently released August macroeconomic report by market research firm Market Intello forecasts that dong is more likely to depreciate slightly in the second half of Specifically, the fact that the U.S Federal Reserve does not rush to raise interest rates due to decreased expectations in the US's economic growth means the US dollar remains weak against the other currencies. Besides, the State Bank of Vietnam (SBV) has actively raised the centre rate in response to Fed's scenarios. As a result, dong is forecasted to only depreciate slightly due to the pressure of import growth in domestic economic sectors in the last months of the year. The report also said that interest rates continue to fall slightly in the remaining months of The reason is that inflation has continuously declined in the first six months of the year, causing SBV to decide to reduce policy interest rates to boost credit. This is the factor helping market interest rates decrease. However, the significantly higher credit growth than deposit growth in recent time is the facilitator boosting interest rates. These two opposite forces will cause interest rates to lessen slightly in the last months of the year. As forecasted, end of the year inflation will remain at 2.1 percent; the exchange rate will range around 23,000 dong/us dollar; the average deposit rate for three-month term is kept at about 4.8 percent per annum. 24/AUG/2017 INTELLASIA VNA The Vietnam Banks Association (VNBA) and the US Institute of Internal Auditors (IIA) held a workshop in Hanoi on August 23 to update local banks on the new International Professional Practices Framework (IPPF) for application in Vietnam. VNBA Secretary general Nguyen Toan Thang said internal auditing plays a significant role in preventing risks for banks' operations. Therefore, it is necessary to regularly improve ethical and technical standard frameworks in the field, he noted. According to the IIA, up to 94.4 percent of those surveyed agreed with the modifications to the IPPF which took effect in January this year. However, its implementation Intellasia 24 August / 40

3 The controversial acquisition of zero dong banks will be incorporated into the law in Vietnam faces a lot of difficulties. Nguyen Viet Thinh, head of the internal control board from the RedSun Group, explained that knowledge about internal auditing in Vietnam is still limited while there are no appropriate legal regulations. In addition, there are no Vietnamese language versions of IPPF-related standards and certificates, and the IIA does not have any representatives in Vietnam Experts said in order to improve auditing capacity, besides the role of the State and businesses themselves, necessary skills in auditing, risk management and fraud control along with latest standards and practices should be integrated in curricula of universities and vocational training facilities. 24/AUG/2017 INTELLASIA DTCK One of the important contents of the draft Law amending and supplementing a number of articles of the Law on Credit Institutions (CIs), according to director of Legal Department under the State Bank of Vietnam (SBV) Doan Thai Son, is the solution to compulsory transfer CIs which are under special control. According to the draft law, the conditions for the compulsory transfer include (1) the CI failed to build a recovery plan or its recovery plan was not approved, or approved but could not be carried out; (2) the CI was unable to change the legal status (conducting merger or consolidation, or transfer of all shares and contributed capital to new investors); (3) the CI's actual value of charter capital and reserve funds is negative; and (4) for some CIs, other investors requested the compulsory transfer. The form of compulsory transfer is to assign other CI or investors to compulsorily receive the transfer. The unit authorised to approve the transfer plan is SBV (submitted to the government for approval). In fact, the acquisition of three zero-dong banks by SBV in the past was compulsory transfer. Although the current Law on CIs stipulated that SBV has the right to directly make compulsory purchase of shares, this move of SBV to buy three zero-dong banks remains controversial. Therefore, the revised law this time more strictly regulates this content. In addition, SBV in the recent time has requested many banks such as VietinBank and Vietcombank, etc. to support weak CIs but there are no specific guiding documents, causing banks to concern about bearing responsibility and piled up bad debts. Thus, this draft law supplements the rights of the CI which is assigned to receive the compulsory transfer. Accordingly, CI receiving compulsory transfer can own 100 percent charter capital of the transferred CI but does not have to carry out the consolidated financial statement for the transferred units, and can exclude the compulsorily transferred unit when calculating the consolidated capital adequacy ratio. Moreover, the amount of contributed capital will not be provisioned for devaluation of investments, will be excluded when calculating the limit of capital contribution and share acquisition of CI that receives the compulsory transfer. The CI receiving compulsory transfer has the right to sell and issue shares of the transferred CI to appropriate foreign investors. The draft law introduces numerous regulations on special control. Currently, due to inadequate legal framework, SBV has no legal basis to thoroughly settle the CIs that are under special control if their shareholders object or refuse to cooperate and intentionally prolong the processing time of financial responsibility. Thus, the draft law this time supplements regulations on the cases to put CIs under special control, and clearly specifies the authority to handle and terminate the special control. In addition, the draft law also clearly stipulates the authority of the government, the prime minister and SBV in dealing with and restructuring the CIs under special control. Accordingly, the government decides the policy and approves the plans of conducting bankruptcy or compulsory transfer of the CIs under special control as proposed by SBV. The prime minister decides the policy to restructure and settle the legal status of Intellasia 24 August / 40

4 When is debt trading market established? commercial banks, cooperative banks, finance companies which are under special control, and decides the special loans at preferential interest rates offered to CIs under special control at the request of SBV, except when bankruptcy plan is approved. SBV has the right to approve the restructuring plan and plan to handle legal status of the People's credit funds and microfinance institutions, etc. 24/AUG/2017 INTELLASIA DTCK According to the latest information of the State Bank of Vietnam (SBV), the on-balance sheet bad debt ratio of the entire system of credit institutions (CIs) as of May 2017 was 2.53 percent, higher than the 2.46 percent recorded in the end of The financial statements in the first six months of 2017 of banks such as Vietcombank, VietinBank, BIDV, ACB, MBB, Eximbank, VIB, VPBank, Techcombank, NCB, SHB, and Sacombank showed that their total bad debts reached about 66 trillion dong, up by 10.7 percent compared to the beginning of the year. All of these banks recorded bad debt rise in absolute number. Particularly for Vietcombank, BIDV, MB, SHB, VPBank, VIB, Techcombank, and NCB, the debt group five (irrecoverable debts) also increased by 5.8 percent to nearly 31.9 trillion dong, accounting for nearly 52 percent of the total bad debts. BIDV recorded the largest amount of bad debts with nearly 15.4 trillion dong, up by 6.6 percent compared to the beginning of the year, in which irrecoverable debts reached nearly seven trillion dong (slightly up by 1.2 percent), while doubtful debts grew by up to 74.9 percent to 1.8 trillion dong. NCB's bad debts increased by over 60 percent compared to the early year with 608 billion dong, in which irrecoverable debts rose by nearly 52 percent to 309 billion dong, accounting for 51 percent of the bank's total bad debts, while doubtful debts rose by 5.4 times to over 121 billion dong. Techcombank's report showed that the bank's bad debt ratio was 2.06 percent while it was 1.58 percent in the beginning of the year. In particular, the bank's bad debts increased from over 2.2 trillion dong to 2.7 trillion dong, equivalent to 21 percent growth, in which the irrecoverable debts also rose by over 11 percent to 1.5 trillion dong, accounting for 56.3 percent of the total bad debts. Closing the second quarter of 2017, ACB's bad debts reached over two trillion dong, up by 41.2 percent compared to the beginning of the year. The bank's bad debt ratio was 1.1 percent, higher than the 0.87 percent recorded in the early year. Sebastian Eckardt, Chief economist of the World Bank (WB) said that although some measures have been taken to settle bad debts, the asset quality remains a matter of concern. The process of dealing with bad debts so far still shows many unresolved difficulties, deputy Chair of the National Assembly Economic Committee Nguyen Duc Kien admitted. Regarding the bad debt issue, Dr Can Van Luc believed that the key solution is still the policy and mechanism. Economic expert Dr Nguyen Tri Hieu once again emphasized the need to establish a debt trading market and to securitise the debts on this market in order to accelerate the bad debt settlement. Dr Hieu gave an example, that a bank collects ten 100 billion dong debt items which are secured by assets and securitise these debts by issuing securities worth one trillion dong. The buyers, on paper, do not directly buy these debts but buy the securities issued by banks, which are secured by the debts and the secured assets of these debts. "We repeatedly talk about the need to establish the debt trading market but there is so far no legal regulation for this market, and only the Debt and Asset Trading Company (DATC), Vietnam Asset Management Company (VAMC), banks and Asset Management Companies (AMCs) of banks carry out the debt trading activities", said Dr Hieu He added that the recently issued resolution 42/2017/QH14 on piloting the bad debt settlement of CIs has started to create the basis for forming the debt trading market. Dr Hieu believed that SBV should take the lead in setting up this market and drastically Intellasia 24 August / 40

5 carry out immediate implementation. In the conditions of having budget and human resources, the market for debt trading is hopefully established within one year. However, Decree 69/2016/ND-CP on the conditions to carry out debt trading services dated July 1st 2016 which took effect on the same date, clearly stipulated at Chapter 3, Article 9 on the responsibilities of the Ministry of Finance that the agency is responsible to the government for state management of the enterprises doing debt trading business; responsible for managing, inspecting and supervising according to its competence the debt trading business activities; and responsible for guiding the implementation of Decree 69. Article 12 of Decree 69 on the responsibilities of SBV clearly stipulated that SBV shall coordinate with the Ministry of Finance to review, inspect and supervise according to its competence the debt trading business services in accordance with Decree 69 for AMC directly under commercial banks. An economist commented that it means that the Ministry of Finance is the governing body which is responsible for creating the platform, infrastructure and regulations, etc. of the establishment of the debt trading market. However, to date, there has been no fundamental moves for this establishment. In the Scheme to restructure the system of CIs associated with the bad debt settlement in the period of which has recently been approved by the prime minister, SBV mentioned in the section on orientation and solutions for dealing with bad debts that the agency will continue to coordinate with the ministries, industries, the People's committees of provinces and cities directly under the central government and relevant agencies in reviewing legal difficulties and barriers in the settlement of bad debts and secured assets of CIs and VAMC; at the same time developing the debt trading market to actively amend, supplement and submit the government, National Assembly and the Standing Committee of the National Assembly in the direction of: (1)To study and complete the legal framework on debt trading activities of enterprises; and the legal framework for the establishment, development and management of the debt trading market, including studying and removing the obstacles in the Land Law on accepting mortgages of land use rights from organisations other than CIs. (2)To study and complete the legal regulations on securities, including the establishment of legal framework for securitisation of debts, contributing to create the legal basis for the implementation of debt transactions on the stock market and transfers of bad debts to into securities for transparent trading at the right time, etc. Talking to Dau tu Chung khoan newspaper, leader of SBV's Legal Department added that "the individual transactions (carried out by individuals wishing to purchase bad debts) will be implemented in accordance to Resolution 42/2017/QH14. However, since these transactions have certain limitations, they can hardly speed up the bad debt settlement process. Meanwhile, DATC, VAMC, banks and AMCs of banks are still the only members contributing to the establishment of the debt trading market". 11 Vietnamese banks have assets of over $10b 24/AUG/2017 INTELLASIA VNS Vietnam has 11 banks with total assets of more than $10 billion each, of which three have total assets exceeding VND1 quadrillion ($44 billion) each, financial reports from the banks showed. The Bank for Investment and Development of Vietnam (BIDV) tops the list with total assets of VND1.1 quadrillion. The other two banks which also have total assets exceeding VND1 quadrillion are VietinBank and Agribank. VietinBank recently joined the VND1 quadrillion club, while Agribank had assets hitting the level late last year. Eight other banks that have total assets of more than $10 billion are Vietcombank, SCB, Sacombank, Military Bank, ACB, SHB, VP Bank and Techcombank. The financial reports also showed that the banks' business performance in the first half of this year was optimistic with SCB being the only bank reporting a profit decrease of 4.1 per cent year-on-year to VND90 billion. In H1, Vietcombank topped the list with pre-tax profit of VND5.25 trillion, followed by Vietinbank and BIDV with profit of VND4.81 trillion and VND3.71 trillion, respectively. Intellasia 24 August / 40

6 LienVietPostBank funds macadamia growing in Lam Dong 24/AUG/2017 INTELLASIA VNA Each farmer household in Lam Ha district, the Central Highlands province of Lam Dong, can borrow between million VND (2,200 3,500 USD) from LienVietPost- Bank to develop forests in tandem with expanding macadamia growing area. A deal to this effect was singed in Lien Ha commune on August 22 between local farmers and representatives of the bank, the district's Lan Tranh Forest Management Board and the Him Lam Macadamia Company. The Lan Tranh Forest Management Board and the Lien Ha commune People's Committee will support, monitor the use of the loans and debt collection, while the Him Lam Company will be responsible for the quality of macadamias and consumption. During the signing ceremony, six farmers from Tan Thanh commune signed contracts with LienVietPostBank. They will be provided with macadamia seedlings by the end of August. According to the Lam Ha district People's Committee, the locality plans to plant 1,000 hectares of forests in 2017, including 300 hectares of macadamia. According to the provincial Department of Agriculture and Rural Development, about 3,500 4,000 hectares of macadamia will be planted from in the districts of Lam Ha, Bao Lam, Duc Trong. Dam Rong and Bao Loc. By 2030, the province aims to have 12,000 15,000 hectares of macadamia, producing 8,000 tonnes of macadamia nuts per year vnp Apec seeks to foster e- commerce Apec sub-committee discusses trade faciliation 24/AUG/2017 INTELLASIA VNS Apec's vision is to lead the world in unleashing the potential of the digital and internet economy and support an accessible, open, interoperable and secure ICT environment for e-commerce to foster economic growth and prosperity, the Apec Electronic Commerce Steering Group (ECSG) said on Wednesday in HCM City. The ECSG seeks to enable economies at all stages of development to utilise information and communication technology (lct) to drive economic growth and social development through e-commerce. To this end, it promotes the development and use of e-commerce as part of the internet and digital economy by supporting the creation of legal, regulatory and policy regimes in Apec that are predictable, transparent and consistent. The internet and digital economy allow businesses, especially SMEs, access a wider consumer base through new business models. They also help establish stronger ties between government, business and consumers through transparent government services provided through digital means. This creates a truly global market place for the exchange of goods and services. The ECSG will engage with non-apec economies and multilateral organisations to expand the internet and digital economy for the benefit of all member economies irrespective of their development level. The ECSG is composed of policy officials, experts and industry representatives, who aim to develop an environment that is conducive to e-commerce promoting cross-border data flows, enhancing SME competitiveness globally, promoting and facilitating the development and uptake of e-commerce throughout Apec by the effective use of secure, resilient, and trusted ICT infrastructure, and promoting paperless trading. 24/AUG/2017 INTELLASIA VNA The second meeting of the Apec Sub-Committee on Standards and Conformance (SC- SC) began in HCM City on August 23, focusing on debating trade facilitation, alignment with international standards and active participation in international standardisation. Delegates also discussed good regulatory practices, technical infrastructure development, food and product safety, and standards and conformance education. Intellasia 24 August / 40

7 China presented a report on the project "Best practices sharing and technical capacity building for measurement and verification standards of energy savings." Malaysia reported the project on "Apec product safety incidents information sharing system," while the US talked about facilitating trade in information and communications technologies (ICT) projects through encouragement of electronic labeling. Vietnam shared views on best practices sharing of standards and conformity assessment implementation on smart cities of the Apec region. Chile updated the project on "Facilitating trade through the strengthening of food safety emergency systems of Apec economies." The results of the meeting will be submitted to the Apec Committee on Trade and Investment (CTI). The SCSC was established in 1994 to help reduce the negative effects that differing standards and conformance arrangements have on trade and investment flows in the Asia-Pacific region. In this way, the SCSC assists the CTI in achieving Apec's trade and investment liberalisation and facilitation agenda. Trade deficit in first half of August negligible 24/AUG/2017 INTELLASIA THOI BAO KINH DOANH Vietnam's total import-export turnover in the first period of August reached more than $17.25 billion, down 6.2 percent (equal to nearly $1.15 billion) compared to the second period of July. Cumulatively, the total import-export turnover of the country touched nearly $ billion, up 20.8 percent (equal to an increase of more than $43.17 billion) compared to the same period of Of which, Vietnam's export turnover in the first period of August reached nearly $8.63 billion, down 8.4 percent (equal to $789 million) compared to the second period of July. Cumulatively, the import-export turnover of the country hit nearly $ billion since the beginning of the year, up 18.8 percent (equal to more than $19.65 billion) compared to the same period of While the value of Vietnam's imported goods in the first period of August arrived at nearly $8.63 billion, down four percent (equal to $356 million) compared to the last15 days of July Cumulatively, since the beginning of the year, the country's importexport turnover stood at more than $ billion, up 22.9 percent (equal to nearly $23.52 billion) from the same period of Particularly, FDI businesses saw an import turnover of more than $11.17 billion in the first 15 days of August, down 4.9 percent, equal to $527 million from the last 15 days of July. Since the beginning of the year till August 15, 2017, this group achieved an import-export turnover of nearly $163.1 billion, making up 65.2 percent of the country's total import export turnover, up 22.7 percent, equal to nearly 30.8 percent year-onyear. Specifically, the export turnover of FDI businesses in the first period of August was nearly $6.09 billion, down 5.9 percent (equal to $381 million) compared to the last 15 days of July Cumulatively, since the beginning of this year, the export turnover of this group reached nearly $87.17 billion, representing 70.3 percent of the country's total export turnover, up 19.9 percent, or $14.45 billion from the same period of On the contrary, the value of imported goods of FDI businesses in the first period of August was nearly $5.09 billion, down 3.6 percent (equal to $191 million) compared to the last 15 days of July Cumulatively, since the beginning of the year, the import value was more than $75.93 billion, up 26.1 percent, equal to nearly $15.73 billion, accounting for 60.1 percent of the country's total import turnover. Thus, FDI businesses continued to post a trade deficit of $996 million in the first half of August, bringing the trade deficit of this group from the beginning of the year to nearly $11.24 billion. That means the domestic business sector ran a trade deficit of nearly $13.69 billion since the beginning of this year. Intellasia 24 August / 40

8 Q2 consumer confidence at five-year high 24/AUG/2017 INTELLASIA DTI NEWS Consumer confidence in Vietnam continued to see significant improvements in the second quarter that helped the country become the fifth most optimistic globally, with an index score of 117, 5 points higher than in the fourth quarter of 2016 and the highest for the last five years, according to the latest Nielsen's Consumer Confidence Index released on August 23. According to Nguyen Huong Quynh, Managing director of Nielsen Vietnam, in contrast to the volatility of the fast-moving consumer goods (FMCG) market in the first half of the year, consumer sentiment in Vietnam is heading upwards. The upsurge is due to consumers' optimistic perceptions of personal finances and immediate spending intentions. "Once again, what we are seeing here is not reflected in the performance of the FMCG market but rather the future hopes and sentiments of Vietnamese consumers," she said. Vietnamese consumers pay closer attention to what is happening, are easily influenced by word of mouth and social media, etc., and quickly take action, which makes them continually evolving consumers. Manufacturers and retailers therefore need to have a "real time" understanding of emerging consumer trends and take faster action to meet their demands. The report indicated that consumers continue to save for the future but are more willing to spend on big ticket items. Compared to last year, consumers in Vietnam were no longer the most avid saver globally. The study revealed that 63 per cent of Vietnamese put their spare cash into savings (compared to 76 per cent in the previous quarter), after Thailand (69 per cent), and Singapore and Indonesia (66 per cent). Along with channeling spare cash into savings, consumers in Vietnam continued to spend more on big ticket items. The survey showed that after covering essential living expenses, around one in three Vietnamese consumers were willing to spend on big ticket items such as holidays (38 per cent), new clothes (36 per cent), new technology products (31 per cent), home improvements (30 per cent), and out of home entertainment (29 per cent). For the first time ever, the report showed that 23 per cent of Vietnamese consumers pay health insurance premiums. "Vietnamese consumers' lifestyles are evolving fast and consumers are more willing to spend on big items to upgrade their living," said Quynh. "This reflects their strong desire for a better life." In this quarter, the Top 5 concerns of Vietnamese consumers remained the same as the last quarter of Job security again topped the list, with 48 per cent, followed by health (38 per cent), work/life balance (25 per cent), the economy (20 per cent), and parents' welfare and happiness (17 per cent). "While consumers continue to be upbeat about their future, financial security remains one of their top priorities," Quynh noted. "Both job security and economic outlook have a direct impact on consumers' degree of financial security, and hence remain key concerns. It's no surprise that in the current context, consumers are looking for healthier lives or even total wellness. Thus, this trend gives both manufacturers and retailers opportunities to innovate and develop the next generation of offerings." Speeding up ODA and public investments crucial to avoid economic backlash 24/AUG/2017 INTELLASIA VIR The slow progress of ODA fund and public investment disbursement may result in huge losses for the whole economy, thus, it is necessary to find ways to use these sources of funding efficiently and transparently to spur economic growth. Behind slow disbursement In the online talk show "ODA Fund and Public Investment Disbursement: Transparency and Efficiency" on August 8, 2017, the reasons behind the slow disbursement were enumerated and discussed at great length. Intellasia 24 August / 40

9 In particular, Tran Quoc Phuong, head of the Department for National Economic Issues (under the Ministry of Planning and InvestmentMPI), said the first reason lies in the habits of Vietnamese people. Fund disbursement at the beginning of the year is quite slow and picks up pace by the end of the year. Another reason is that site clearance is complicated, especially for huge projects stretching across enormous land areas. Implementing the necessary procedures as well as cooperation among contractors and related agencies is slowand one slow step after another adds up to hefty delays. "Fund disbursement has to rely on state regulations and requires the fulfillment of many administrative procedures, such as the submission of various documents and dossiers to receive project approval, and so on. Completing all procedures may take a very long time with numerous steps of hiring consultants, conducting a pre-feasibility study, a feasibility study, and implementing other procedures for appraisal. These processes slow down fund disbursement," Phuong said. Luu Quang Khanh, head of MPI's Foreign Economic Relations Department, agreed with Phuong, and added that regarding ODA funds, problems also originate from the different procedures in Vietnam and Japan, the shortage of reciprocal capital, and the lack of an appropriate regulation to keep the disbursement on schedule. Speeding up and promoting efficiency According to the statistics of the Ministry of Finance, as of the end of July 2017, more than VND41.7 trillion ($1.8 billion) of ODA funds have been disbursed, completing 42 per cent of the 2017 plan. However, this amount equalled 95 per cent of the disbursed amount in the corresponding period last year. Meanwhile, the disbursement of public investment in the first seven months of 2017 was nearly VND119.4 trillion ($5.3 billion), an equivalent of 38.6 per cent of the amount assigned by the government. Phuong said that fund disbursement was enhanced, but still fails to meet expectations. Thus, a wide range of solutions were drawn up, including reducing administrative procedures, transferring funds from delayed projects to those on schedule and so on. Speeding up ODA fund and public investment disbursement would not only spur the economy but also ensure the efficient usage of funds. According to recent statistics of MPI, the incremental capital output ratio (ICOR), the metric that reflects the efficient usage of investment to spur the economy, has decreased. In the first half of 2017, ICOR was 5.72, a reduction of 24 basis points compared to the same period last year. This decline implies improvements in the usage of funds. According to the Asian Development Bank (ADP)'s 2013 report, expenses for project implementation may increase by 17.6 per cent for each year of delay. This contains 6.5 per cent due to inflation and 11.1 per cent from the loss of project benefits. If the projects are behind schedule for 2-3 years, the expenses may rise by 50 per cent on average. This is a considerable concern, especially as the World Bank cut down on preferential loans for Vietnam since July 2017 and ADB also plans to stop from January Similarly, other Japanese and South Korean donors also plan to replace their current preferential loans with other vehicles at higher interest rates and shorter terms. Rubber exports up 58 pct in 7 months 24/AUG/2017 INTELLASIA VOV Vietnam exported 634,995 tonnes of rubber to get $1.1 billion in the first seven months of this year, up 12.2 percent in volume and 58.4 percent in value against the corresponding period last year, according to the general Department of Vietnam Customs. In July alone, 151,138 tonnes of rubber were shipped abroad with a value of $225.5 million, up 23.5 percent in volume and 19.8 percent in value. Exports of rubber products in the first seven months of this year reached $1.9 billion, up 3.7 percent against the same period last year. Intellasia 24 August / 40

10 China remained the largest importer of Vietnam rubber with 394,614 tonnes worth $690.7 million, followed by Malaysia with 38,663 tonnes valued at $61.3 million and India with 25,731 tonnes worth $44.72 million. The Association of Natural Rubber Producing Countries (ANRPC) said the world market now runs short of around 700,000 tonnes of natural rubber. However, it forecasts that the global shortage may reduce to 466,000 tonnes in September and 100,000 tonnes in December. Meanwhile, on the domestic market, the Vietnam Rubber Association said most rubber companies in the Central Highlands lost around 2.5 percent of output in July after prolonged rains. Two storms and tropical depression occurred in July negatively affected their rubber tapping process. Despite the shortage of supply, the price of natural rubber remained low and fell by 42.8 percent in June compared to January. The ANRPC president attributed the price decline to other factors like the currency, crude oil price and geopolitical tension, rather than supply and demand. RoK exports to Vietnam surge 50pct in seven months Spending on fruit, veg imports rises 24/AUG/2017 INTELLASIA VNA The Republic of Korea (RoK)'s exports to Vietnam enjoyed a year-on-year surge of nearly 50 percent in the first seven months of 2017, making the Southeast Asian country the third biggest importer of RoK goods. According to the RoK's customs data released on August 23, the country's export turnover to Vietnam during the January-July period reached billion USD, a 49.8 percent increase from the same time last year. The figure turned Vietnam into the third biggest importer of RoK products, just behind China and the US, which respectively bought billion USD and billion USD worth of goods from the RoK. The RoK's exports to Vietnam have been growing sharply since 2010, mainly due to local firms moving their production facilities to Vietnam. There is a significant increase in the shipments of raw materials and semi-finished products to Vietnam while imports of finished goods from Vietnam are also rising. Growing industrial demand in Vietnam as well as the implementation of a free trade agreement between the two countries are other reasons behind the surge in the RoK's exports to the country. Vietnam has been steadily climbing up the ladder of the RoK's export destinations, up from 21st in 2000 to 13th in 2007 and fourth in This year, it replaced Hong Kong to stand at third vnp 24/AUG/2017 INTELLASIA VNS Even as local farmers contend with falling prices and struggle to sell their produce, the country is spending millions of dollars buying imported agricultural products. This has raised the question of how to prevent Vietnamese agricultural products from losing out in the domestic market. The Ministry of Agriculture and Rural Development's recent statistics shows that Vietnam imported $852 million worth of vegetables and fruits in the first seven months of 2017, nearly double that of the same period last year. The import revenue is estimated to exceed $1 billion this year. The vegetables and fruits were imported from Thailand, which holds 57 per cent of the market share in the first half of 2017, followed by China (16.8 per cent). Vietnam mainly imported apples, oranges, kiwis and cherries (from New Zealand and Australia), mangoes, custard apples, and tamarind (from Thailand), green apples (from France and the United States), pomegranates (from South Korea) and vegetables from China. The nation also spends billions of dollars importing other agricultural products such Intellasia 24 August / 40

11 as maize and soy bean every year. A market research survey published on Vibiz.vn recently revealed that 53 per cent of Vietnamese citizens surveyed preferred buying rice from Thailand and Japan, which have gained huge popularity though Vietnam is among the world's top rice exporters. Dao Anh Tuan, director of a company that imports fruits in Hanoi, said many kinds of fruits that can be grown in Vietnam are now imported, such as mangoes, grapes and coconuts. As market opens up more and more, many fruits are being imported in huge quantities, which lowers their cost, Tuan added. In addition, there are many players in the fruit import market and the competition is fierce, so the price of imported fruits has dropped, and some are even cheaper than locally grown fruits, Tuan said. Imported fruits are increasingly favoured by consumers who believe that they are of better quality, Tuan said. According to Dang Kim Son, former director of Institute of Policy and Strategy for Agriculture and Rural Development, consumers choose products based on quality, safety and price. Vietnamese producers must focus on improving quality, ensure hygiene and safety standards are met, and lower prices in order to compete effectively with imported products, he said. It will also be tough for Vietnamese agricultural products to compete amid rapid international integration, if products continue to be exported in raw form and have inconsistent quality and unclear origins, Son said. The decisive factor is product quality, said expert Vo Tong Xuan, adding that products sold in the domestic market must be of the same quality as those exported. Pham S, deputy chair of Lam Dong Province's People's Committee, said the management of agricultural production must be improved to ensure product quality and food hygiene and safety. Gaping holes in MoF tax proposal 24/AUG/2017 INTELLASIA VIR Value Added Tax (VAT) is a consumption tax that affects all consumers, which means changes in VAT regulations need to be considered thoroughly due their potential impact on the entire population of Vietnam. However, the recent proposal to increase VAT by the Ministry of Finance (MoF) still contains a number of issues that can potentially cause economic loss and undermine social equity. VAT is an effective mechanism for generating revenue for the national budget. A decade ago, VAT accounted for 25 per cent of the total tax revenue, 21 per cent of the total state budget revenue and grants, and 5.6 per cent of the GDP. As of 2016, VAT made up 33 per cent of the tax revenue, 24 per cent of the total state budget and grants, and 5.8 per cent of the GDP. According to MoF, the ratio of VAT revenues in Vietnam is very high compared to OECD countries. In these countries, VAT accounts for around 20 per cent of total tax revenues on average, with Japan having the lowest VAT revenue ratio of 12 per cent and Chile the highest ratio of over 40 per cent. Foundations for tax reform A proposal for tax reform requires a comprehensive and thorough assessment, with focus on three main aspects: economic efficiency, social equity, and administrative feasibility. However, MoF's proposal is not based on such a study. First, regarding economic efficiency, increased VAT will reduce people's available income, effectively reducing demand in the economy. With this year's economic growth target of 6.7 per cent still seeming hard to reach, the appropriate measure would be a countercyclical fiscal policy, reducing taxes and increasing spending. However, MoF's proposal goes in the opposite direction, which will increase the price level, reduce profit, and place further burdens on the recovery of businesses. An effective tax policy usually needs to minimise the excess burden of taxation, or deadweight cost, which is propotional to the square value of the tax rate. As such, tax Intellasia 24 August / 40

12 reforms usually expand the tax base or reduce the tax rate, since increasing the rate will also increase economic costs and create unnecessary losses to the economy. Tax reform, as a means of increasing economic efficiency, will also increase the competitive power of the economy in the context of economic integration. Under normal conditions, developing economies are unlikely to possess the same competitive factors as developed counterparts, thus an attractive tax rate is a viable way to create a competitive advantage for a developing country. Without this tax advantage, it would be even more difficult for Vietnamese businesses to face foreign competition as they are still lacking many competitive factors. The second issue is social equity. Consumption taxes, including VAT, are indirect taxes and usually affect the low and middle-income population more than the upper layers, since people with lower income typically spend a larger proportion of their income on consumer goods. An effective tax reform would usually follow vertical equity and leaning toward direct taxes instead of indirect taxes, contrary to MoF's proposal. The burden of consumption tax is also shared between consumers and buyers depending on the price elasticity of demand for particular goods. If the proposal goes through, consumers would have to bear higher tax burdens on less elastic goods, which include necessity goods, healthcare, and education. The MoF proposal will place a heavy burden on the low and middle-income population and further diminish social equity instead of improving it, as the ministry argued. Finally, on tax administrative feasibility, the capabilities of administratve bodies have been a big problem in the implementation of VAT, with tax evasion and other forms of exploitation running rampant, creating huge losses in tax revenue. With more effective administration from MoF, the state could potentially gain a substantial increase in VAT revenues without the need to increase tax rates. Unconvincing goals MoF's proposal seeks to achieve three main goals: to guarantee national financial security and stability, to apply uniform tax rates to ensure equality between sectors and industries, and to make Vietnamese tax practices consistent with international practices. Regarding the first goal, maximising national budget revenues does not necessarily mean national financial security. National finances would only be secure and stable when national revenue sources are secure, the business sector performs effectively with good competitive capability, and people's living standards and welfare are wellprotected. Second, the tax disparity based on investment sources, such as the tax incentives for FDI businesses compared to domestic businesses, would cause much higher concerns for economic equity than the preferential taxes promoting certain industrial sectors or goods. Many OECD countries apply such preferential tax rates as well, so a uniform tax rate is not necessary. Finally, on international tax practices, MoF's comparison of the tax systems of OECD countries and Vietnam was partial and inconclusive, since MoF only looked at the marginal tax rate and did not take into account the effective tax rate. While the nominal VAT rates in OECD countries are higher than in Vietnam, these countries have different tax declaration thresholds, such as euro 90,300 ($106,215) in France, or JPY 10 million ($91,400) in Japan, which means the effective tax rates in these countries are not necessarily higher than in Vietnam. It should also be noted that OECD countries have very good business environments with very low informal costs, while businesses in Vietnam have to shoulder extravagant informal costs in additional to tax burdens. Furthermore, several OECD countries have also maintained low VAT rates, such as Japan (8 per cent), Canada (5 per cent), Switzerland (8 per cent), and Australia (10 per cent). In conclusion, it seems that the recent tax proposal by MoF is still undeveloped, with many flimsy arguments and unsatisfactory evidences, which can potentially cause serious economic and social damage if implemented without carreful reconsideration. MoF needs a more comprehensive look at the wide-ranging impacts of the tax reform Intellasia 24 August / 40

13 Sugary drinks may get unsavoury tax on Vietnam's economic efficiency, social equity, and competitive power to create a better proposal and improve its own administrative capacity at managing taxes in general and VAT in particular. 24/AUG/2017 INTELLASIA VIR The Ministry of Finance is proposing the levy of a special consumption tax of per cent on sugary drinks to combat obesity rates, though a similar proposal was rejected by the government three years ago. VIR's Van Thu offers insight into the hot debate surrounding the new proposal. As the mother of an obese 10-year-old boy from Hanoi, Nguyen Huong Lan has to do battle with retailers, friends, family, and nursery workers to police her son's intake of sugary drinks. "I have become the sugar police, the woman who nags the nursery, all because I want my son to keep fit he's already hit 50 kilogrammes, the same weight as me. I'm concerned. Even the term obesity is scary to me," Lan said. It is not a rare case, as childhood obesity is a new and emerging problem in Vietnam. And now, Vietnamese tax authorities are citing this problem as grounds for their new proposal for a special consumption tax (SCT) on sugary drinks. Stopping the sugar high Last week, the Ministry of Finance (MoF) the compiling body of the revised draft on the SCT introduced the draft amendments to tax laws for public comments: one with a tax rate of 10 per cent, and the other with a tax rate of 20 per cent. Both would take effect in If approved, the proposal would see the tax imposed on carbonated and non-carbonated soft drinks, energy drinks, sports drinks, and bottled instant coffee and tea. It is widening the list of items subject to the SCT to "direct the consumer trend", given their harmful effects. The MoF's proposal of three years ago set the SCT at 10 per cent on only carbonated drinks. "The imposition of the tax aims to regulate the consumption of sugar-based beverages according to international practice," explained Pham Dinh Thi, director of MoF's Tax Policy Department. The ministry also pointed to a World Health Organization (WHO) report that shows that the abuse of soft drinks leads to obesity. The proportion of overweight and obese adults in Vietnam now stands at 25 per cent of the population. Obesity rates among children under five years old are also increasing rapidly, and this puts them at future risk from cardiovascular disease, hypertension, stroke, atherosclerosis, and other ailments. MoF seeks to follow the practice of many countries by imposing excise taxes to limit the consumption of sugar-based drinks. In Thailand, for example, non-alcoholic carbonated soft drinks are subject to a tax rate of between 20 and 25 per cent. Laos imposes 5 to 10 per cent tax on soft drinks, and Cambodia 10 per cent. Thi quoted experts as saying this tax will hike the prices of unhealthy drinks and reduce the number of people who consume large quantities of them. Sugar-sweetened drinks are known to be a contributor to obesity, particularly in children and young people. With a forecasted annual growth rate of 6 per cent to 2020, the beverage industry in Vietnam is one of the fastest growing consumer goods segments. According to Canadean, a world-class research company focusing on international soft drink and alcoholic beverage industries, growth in Vietnam's alcoholic beverage market has averaged 6.4 per cent per year over the last decade, and 5.7 per cent over the last five years. Well-known investors such as Coca-Cola, PepsiCo, Nestle, URC, and Tan Hiep Phat have also increased their share in Vietnam or conducted merger-and-acquisition activities with local firms to bolster their market share. Battling mixed opinions Intellasia 24 August / 40