FINANCE. finance & business news. Reference exchange rate stays flat on July 20

Transcription

1 finance & business news 20 July Reference exchange rate stays flat on July 20 2 SBV hiking foreign reserves 2 Governor says credit growth target at 18-20pct obtainable 2 PM asks SBV to restrict funds for tycoons 3 PM pushes SBV to achieve robust growth target 4 Banking M&A 'warms up' after remaining 'quiet' for over a year 5 Vietnam to have more wholly foreign-owned bank 6 VPBank files for listing on HoSE, becoming the largest private bank on the stock market 7 Vietnam at a glance: Back in stride 7 Economic experts point out abnormalities in economic growth in Q2/ US largest export market for VN's footwear, bags 10 Aquatic, farm produce exports to Netherlands on the rise 11 Vietnam ships footwear to nearly 100 countries 11 Enterprises urged to grasp food safety standards for export 12 VN Food Association acts against rice export deal cancellations 12 Vietnam to continue corn imports in years to come 13 Whopping rise in steel imports from India 14 Vietnam imports 51,000 vehicles in first half of Asean takes the lead against trade protectionism 15 Tax reform should focus on raising tax revenues 15 Pumping oil and coal to gain GDP target faces difficulties 17 Coal sector aims to surpass yearly target 18 Dong Nai disburses 428 million USD in FDI 18 VN could be major AI market: experts 19 Deputy PM gives instructions on hi-end complex construction 19 Luxury segment booms despite very high prices 20 Condotel market: secondary investors warned to take cautious consideration 21 Real estate an increasingly attractive market for HCM City investors 23 Vietnamese support industry sees big improvements 24 HCM City promotes science and technology development 24 Domestic retailers face challenges 25 Vietnamese fashion goods compete with affordable branded ones 25 Vietnam M&A Forum 2017 coming in August 27 Conference talks AEC opportunities for Vietnamese businesses 27 Lao central provinces promote trade, tourism in HCM City 28 Reference exchange rate stays flat on July 20 Intellasia No. 21, lane 173/63/17, Ngoc Ha Ward, Ba Dinh Dist, Hanoi All Rights Reserved Korea now Vietnam's 2nd largest trade partner 29 Vietnam eyes stronger cooperation with Chinese Guangdong 29 Vietnam, Guangdong, HK firms seek business opportunities 30 BIZ NEWS Business Briefs July 20, Market rebounds on large-cap stocks' recovery 31 Profit taking pressure remains strong 32 Bien Hoa Sugar JSC to be delisted from HOSE 32 Rong Viet Securities switches stock listing to HCM City 33 Support centre for property start-ups to open soon 33 Several companies want to develop waste-to-power projects in HCM City 34 Pork prices rise thanks to new stimulus programme 34 Farmers sceptical over pig market predictions 35 HCM City to finish multiple traffic infrastructure projects later this year 36 Hanoi to green-light three metro lines worth over $15 billion 37 Taxes on Grab, Uber are compliant to rules, says ministry 38 Hanoi to ban carpooling services 38 New economic corridor linking Vietnam to Cambodia opens 39 2nd luxury train launched on HCM City Nha Trang route 39 HK firm acquires stake in Vietnamese cinema company 39 Rubber group targets high profit by Dung Quat Refinery asks for loan guarantee 40 Vietnam's Nghi Son refinery to import its first Kuwaiti crude cargo 41 Viettel IDC to introduce private cloud designed on Fujitsu infrastructure 42 EVN reports enough power to meet dry season demand 42 EVN provides electricity for Truong Sa archipelago 43 Royal HaskoningDHV signs major wastewater contract in Ba Ria-Vung Tau 44 Jica provides $216.5mn loan for water management project 44 Mitsubishi to establish electric cars factory in VN 45 Bkav to launch new version of Bphone in August 45 FLC Do Son complex green lit 46 Novaland opens photo contest 46 VAMA publishes top 10 car models in first half 47 Energy-savings exhibition opens in HCM City 47 Latest electrical technology, equipment on display 48 20/JUL/2017 INTELLASIA VNA The State Bank of Vietnam kept the daily reference exchange rate for VND/USD on July 20 unchanged from the previous day at 22,433 VND. With the current trading band of +/- 3 percent, the ceiling rate applied for commercial banks during the day is 23,106 VND and the floor rate 21,760 VND per USD. The opening hour rates at commercial banks saw slight changes. Vietcombank maintained the rates at the same level as on July 19, at 22,695 VND (selling) and 22,765 VND (buying). Tel: Fax: Office@intellasia.com Websites:

2 Meanwhile, BIDV and Techcombank raised both rates by 5 VND. The greenback is being bought at 22,695 VND and sold at 22,765 VND at BIDV. Techcombank listed the buying rate at 22,685 VND and selling rate at 22,775 VND. SBV hiking foreign reserves 20/JUL/2017 INTELLASIA VNS The State Bank of Vietnam (SBV) unexpectedly resumed the issue of central bank bills worth VND8 trillion (US$350.9 million) this week, a move aimed at increasing the nation's foreign exchange reserves. Before this issue of bills, whose term is one week with interest rate of 1.3 per cent per year, the most recent issue the central bank made was on March 3. According to industry insiders, SBV made the move as commercial banks did not sell the US dollar to the central bank although they bought a large quantity of the greenback from individuals and institutions. The issue will contribute to increasing the interest rate in the inter-bank market, which slipped to an eight-month low last week in the wake of the central bank's recent policy rate cut. The rates for overnight, one-week and one-month loans declined by 47, 49 and 67 basis points against the previous week to 1.28, 1.57 and 2.42 per cent, respectively, according to a report from Saigon Securities Incorporation (SSI)'s research division. The rate hike in the inter-bank market will push up the cost of holding the dollar, especially in the context that the dollar/dong exchange rate tends to decline, insiders explained. Therefore, the fact that banks are forced to sell the dollar to the SBV is only a matter of time, they said. To expand the foreign reserves, in the first half of 2017, the central bank increased the buying rate for the greenback at its transaction centre thrice, posting a total increase of VND150. The latest hike of VND50 was made on June 19, raising its buying rate for the US dollar from commercial banks to VND22,725 per dollar. Analysts say the buying rate hike at SBV's centre is aimed at encouraging commercial banks to buy dollars from currency holders at higher rates. The banks will then sell dollars to SBV's centre, helping the central bank further build foreign reserves to prepare for any fluctuation that may occur if the US Federal Reserve (Fed) increases interest rates. Early this month, SBV governor Le Minh Hung said that Vietnam's foreign exchange reserves was at an all-time high of $42 billion. The reserves have increased by roughly $1 billion against the end of last year. Governor says credit growth target at 18-20pct obtainable 20/JUL/2017 INTELLASIA THE SAIGON TIMES The banking sector is likely to obtain credit growth rate at percent this year as requested by the government thanks to rate cut policies, said Governor of the State Bank of Vietnam Le Minh Hung. Speaking to a working group of the government on July 18, Hung said many lenders have lowered short-term lending rates for priority sectors by 0.5 percentage point after the central bank announced policy rate cuts. Some banks have launched credit programmes offering lending rates from percent per annum to enterprises. They are going to cut medium and long-term rates further for a number of sectors to around 8 percent and short-term rates for individual customers having a good credit history to 4-5 percent per annum. At the end of June, credit had increased 9.06 percent year-on-year. Banks focused on business and production activities, in which credit for the agricultural and rural sector advanced 9.9 percent and the industrial sector up 10.34%. Loans for risky industries were strictly controlled via supervision and warning. The banking sector may reach credit growth target at percent as per the government's plan. However, credit quality should be raised so that capital could reach the production and business firms and prioritised sectors, Hung said. For high-tech agriculture, banks have committed to lend VND120 trillion, in which nearly VND33 trillion has been disbursed. However, there have been problems in property collaterals. Regarding cross ownership at Vietcombank, the governor said that Vietcombank still holds stakes at other lenders to facilitate restructuring at those banks. However, Vietcombank will have to divest capital as regulated. The central bank has requested lenders to speed up cross ownership elimination. Intellasia 20 July / 48

3 However, their capital divestment depends on objective conditions such as the selection of buyers and market price, the governor said. The central bank has submitted to the prime minister solutions to deploy the National Assembly's bad debt settlement resolution. If the measures are approved, the agency will hold a conference to announce the measures, making sure that application of the solutions is a key task of the banking sector in the near future. In addition, the central bank will launch solutions to improve payment safety and operations of the automated teller machine (ATM) system and streamline lending procedures. Minister and Chief of the government Office Mai Tien Dung said the working group appreciated the central bank's monetary policies in the first half of 2017 and local banks' cost saving determination to lower lending rates for enterprises. Governor Hung also said that macro management measures in recent years have been effective, helping converted foreign currencies into dong. In 2016, the central bank purchased nearly $10 billion to raise foreign reserves, with a large part mobilised from citizens. People invested their dong holdings into production and business or deposited at banks. Besides, the nation did not spend foreign currencies on gold imports due to low demand in the local market, he added. obtainable.html PM asks SBV to restrict funds for tycoons 20/JUL/2017 INTELLASIA THE SAIGON TIMES Prime minister Nguyen Xuan Phuc has asked the State Bank of Vietnam to map out solutions to restrict the credit flow into tycoons so as to have more funds for smaller enterprises, especially startups. The central bank is also told to have a suitable interest policy to mobilise dollars from the public, said minister Mai Tien Dung, chair of the government Office. The minister on July 18 led an inspection team in a working session with the central bank, where he detailed key instructions from the prime minister to the State Bank of Vietnam. Minister Dung said the prime minister had stressed the importance of channeling capital into business areas where funds are badly needed so as to facilitate economic growth. The government leader wanted the State Bank to ensure that credit flow into tycoons be controlled to spare more funds for startups and manufacturing enterprises. In the first half of 2017, Vietnam had 60,000 newly-established enterprises but the number of businesses going bust also rose due to difficult access to credit and land, and inappropriate policies. The government assigned the State Bank to ask commercial banks to reduce interest rate by percentage point to make life easier for enterprises. "Outstanding credits nationwide stand at over VND5,000 trillion (over $220 billion). If the interest rate is cut by one percentage point, enterprises may save over VND50 trillion, and assumed the rate of return is one-to-five, the economy can gain about VND10 trillion," said Dung. The State Bank should pay more attention to sectors in which enterprises are facing difficulties and at the same time disburse the VND100 trillion credit package for hi-tech agriculture by instructing commercial banks to offer lower interest rates. However, to reduce interest rates, the State Bank will have to effectively deal with bad debts. The prime minister also asked the State Bank to have policies to encourage the people to deposit their US dollars at banks, as the current interest rate of 0 percent discourages them to put money at credit institutions. Currently, Vietnam is borrowing dollars from international markets at 4%, so there should be suitable policies to tap dollars at home, minister Dung said. At the meeting, the central bank was also told to attend more to cross-ownership among banks, as the situation still remains worrying despite initial results. Intellasia 20 July / 48

4 PM pushes SBV to achieve robust growth target Last but not least, the State Bank will have to improve security for banking services. "Safety is very important as we are encouraging the people to use banking services instead of cash," said Dung. According to Dung, in the first six months of 2017, the State Bank effectively implemented tasks assigned by the Party, the National Assembly and the government. The implementation of currency policies has been more efficient, contributing to stabilising exchange rates, controlling inflation and boosting credit growth, he noted. 20/JUL/2017 INTELLASIA VNS Prime minister Nguyen Xuan Phuc has urged the State Bank of Vietnam (SBV) to take more comprehensive and bold measures to boost credit growth and reduce interest rates. The message was communicated to the SBV on Tuesday in Hanoi by a working group led by government Office Chair Mai Tien Dung, to push the central bank to help achieve the 6.7 per cent economic growth targeted for this year. Besides meeting the credit growth target of 18 per cent in 2017, the PM has required the SBV to better direct loans flowing into production, business and infrastructure to support firms, Dung said. Dung said the PM pointed out that though the country had 110,000 newly established firms in 2016, and nearly 60,000 in the first half of this year, the number of firms that closed or stopped operations during these periods was high, because of difficulties in credit access, land and policies. Interest rate cuts would help firms a lot, Dung said, estimating that with outstanding loans of the entire banking system standing at around VND5 quadrillion (US$219.3 billion), a rate cut of 1 percentage point would help firms save VND50 trillion; the State budget earn another VND2 trillion from corporate income tax; and the GDP rise by 0.25 per cent. With domestic public debts of roughly VND1 quadrillion, the same rate cut would also contribute to saving VND10 trillion of the State budget, Dung added. However, he said, to cut rates, the SBV must first focus on settling non-performing loans (NPLs). "Interest rate cannot be cut unless NPLs are settled," he said and ordered the SBV to issue guidelines soon to make it easier for credit institutions to sell secure loans and assets, based on the new resolution passed recently by the National Assembly on settling NPLs. The PM has also asked the central bank to study and determine how to mobilise foreign currency from local people, and said the current zero per cent interest rate policy for US dollar deposits would obviously not attract dollar holders to make bank deposits. "Though the SBV's aim is to curb dollarisation of the local economy, it must think about other measures to mobilise this idle capital as we still have to buy international bonds at interest rate of more than 4 per cent," Dung said. He said Phuc had also instructed the SBV to better carry out regulations in Circular 36/ 2014, which are aimed at settling cross-ownership among commercial banks. Though the issue is more under control since the circular took effect in 2015, there remain crossownership among banks. For example, Vietcombank still holds 7.16 per cent of the charter capitals of Military Bank, 8.19 per cent of Eximbank, 5.07 per cent of SaigonBank and 4.3 per cent of OCB's charter capital, lower ratio compared to 9.8 per cent, 8.2 per cent, 5.26 per centand 4.6 per cent in 2014, respectively. Finally, the SBV must also strengthen security for internet banking services. "We are encouraging local people to use other kinds of payment instead of cash in their daily lives, so security is very important. Otherwise, it will affect people's trust on the banking system," Dung said. Intellasia 20 July / 48

5 Banking M&A 'warms up' after remaining 'quiet' for over a year 20/JUL/2017 INTELLASIA BAO DAU TU A number of small-scale bank M&A deals that have taken place from the beginning of this year have proven the resilient sign of the bank's M&A market. *Domestic investors hunger for real capital Since the beginning of 2017, two M&A deals have taken place in the banking sector i.e. ANZ Bank sold its retail segment to Shinhan Bank, Commonwealth Bank of Australia (CBA) sold its HCM Branch to VIB Bank. Though they were only small deals (only selling a segment or a bank branch), it also made the M&A market "warm up" after more than a year of quietness. However, it is easy to see that, over the past two years, no more M&A transactions have taken place among domestic banks. The latest deal was Southern Bank's merger into Sacombank in As per Dr Le Xuan Nghia, an economist, the main reason behind the market quietness was the shortage of domestic investors with financial potential. As stipulated in Circular 39/2016/TT-NHNN of the State Bank of Vietnam (SBV), commercial banks are not allowed to borrow money to purchase other bank shares as in the previous period. Of course, mergers among domestic banks can still happen. DongA Bank is currently negotiating and can be merged with a medium sized bank, according to the local Newswire Bao Dau Tu (or Investment Review). Dr Le Xuan Nghia commented that according to Vietnamese accounting standards, the "mechanical" merger is beneficial for banks wanting to increase capital. For example, the merger of two banks with a chartered capital of three trillion dong will become a bank with a chartered capital of six trillion dong, despite the fact that the bank has negative equity of 8-9 trillion dong. However, these kinds of deals will be increasingly less as the benefits are not much. *Investors from East Asia, Asean are still very interested While M&A activity among domestic investors has been relatively quiet, the share trading of foreign investors is showing signs of recovery. Notably, Ocean Bank and GPBank are negotiating to resell to foreign partners. However, this does not prove that the M&A wave will soon recover. "Recently, the negotiation has been quite bustling, many parties are interested in acquiring some ailing banks, but the pace of negotiation is very slow. Especially, the three banks bought at zero dong still have not been sold for several years now despite many buyers. This shows that investors are very cautious and the demand for acquiring to restructure ailing banks is not great", said Dr Le Xuan Nghia. Regarding the divestment and sale of the retail segment (ANZ) or sale of branch (CBA), some commented that this is a move showing that foreign banks have signs of "running away" from Vietnam. Concerning this issue, experts said that it is only a strategic change of some foreign banks. In fact, the number of foreign banks withdrawing from Vietnam are much less than banks that have been wanting to enter the market. Especially, investors from East Asia and Asean are very interested in the Vietnamese market, wanting to penetrate Vietnam through both ways: M&A or direct presence. Recently, UOB (Singapore) has been licensed to establish a subsidiary in the country. Several other banks in the region have also submitted application to establish a subsidiary bank to the State Bank of Vietnam. In spite of craving for the market and M&A is considered the shortest path, foreign investors are very cautious, picky, paying low price and asking high ownership rate, etc. Currently, Vietnam does not have many "small but completely healthy" banks under the criteria of foreign investors. In order to acquire ailing banks and successfully handle a large amount of bad debt, investors must have good understanding of Vietnamese market and have experience in settling bad debt in real estate sectorthis is not the advantage of foreign investors. In addition, the government has no precedent to open room for foreign investors. All these factors make it difficult for bank M&A of foreign investors to attain a breakthrough. Intellasia 20 July / 48

6 Vietnam to have more wholly foreign-owned bank Not to mention, many foreign investors are expecting Vietnam to soon open the financial and banking market after 2018 under WTO commitments to establish branches and wholly foreign-owned banks in Vietnam. "The early formation of M&A wave depends very much on the openness degree of Vietnam's banking market," said Dr Vo Tri Thanh, an economist. Facing the liquidity of the current M&A market, Dr Le Xuan Nghia said that from now until 2018, the bank's M&A market is still quiet. The bank restructuring in the next few years is still largely based on domestic resources. Possibly, after 2018, the M&A wave will be more exciting if bank bad debt is somewhat settled. 20/JUL/2017 INTELLASIA VNS The State Bank of Vietnam (SBV)'s Governor Le Minh Hung on Wednesday gave approval in principle to the Singapore's United Overseas Bank Limited (UOB) to open a 100-per cent foreign owned bank in Vietnam. The Governor also passed the UOB Vietnam's personnel list comprising names of people to be appointed as members of the board, supervisors and the general director. The UOB will still need to continue completing the dossier, according to the SBV's regulations and guidance in order to be considered and granted a business licence for establishment and operation in Vietnam. It will then have to be submitted to the Governor for consideration. The SBV has also allowed the UOB to set up an affiliate based on the takeover of the bank's HCM City branch right after being granted business licence. In mid-2015, the Ministry of Planning and Investment urged the government to instruct the SBV to issue a licence for UOB to operate a wholly foreign-owned bank in the country. The ministry said that Singapore is a major business partner, but does not yet have a fully-owned bank in Vietnam, while other countries, even with smaller investments, have already established such banks. The UOB is one of Asia's leading financial institutions with a network of 500 offices in 18 countries and territories. It already operates a branch in HCM City. So far, ANZ, Hong Leong, HSBC, ShinHan, Standard Chartered, CIMB, Public Bank Berhad and Woori Bank have opened wholly foreign-owned banks in Vietnam. According to experts, more foreign banks are expected to enter Vietnam's market which has major potential with a population of roughly 93 million. They recommended that Vietnamese banks must operate on a larger scale, with huge investments in technology and products through consolidations and mergers to create better and stronger banks that can compete with foreign banks. By 2020, in accordance with the commitment to the World Trade Organisation, Vietnam will have to completely open the doors of its banking sector. VPBank files for listing on HoSE, becoming the largest private bank on the stock market Vietnam at a glance: Back in stride 20/JUL/2017 INTELLASIA TRI THUC TRE In the afternoon of July 18th, the Hochiminh city Stock Exchange (HoSE) announced that it has received the registration documents for listing shares of the Vietnam Prosperity Commercial Joint Stock Bank (VPBank). With the current charter capital of trillion dong, VPBank registered to list 1.33 billion shares. The listing advisory company is Viet Capital Securities Company. Previously, VPBank shares were traded fairly excitingly on Over-The-Counter (OTC) market with the current market price ranging around 35,000 dong per share. At this price, VPBank's market capitalisation reaches approximately 46.7 trillion dong, only after three state-owned banks including Vietcombank, BIDV, and VietinBank, while significantly higher than MBBank, Sacombank, ACB, and Eximbank, etc. 20/JUL/2017 INTELLASIA HSBC VIETNAM 4Vietnam's economy grew 6.2 percent y-o-y in Q2 2017, picking up from 5.2 percent in Q1 Intellasia 20 July / 48

7 4PMI also edged up to 52.5 in June from 51.6 in the previous month, driven by a rise in new orders 4Meanwhile, headline inflation continues to cool due to a drop in food and transport costs; core CPI stayed at 1.3 percent y-o-y Growth quickened to 6.2 percent in Q2: Vietnam's GDP grew 6.2 percent y-o-y in the second quarter, following a slow start to the year. The jump in Q2 was higher than we had expected (5.9%) and was driven by gains in both the industrial and services sectors. Despite the upside, we have pared back our 2017 growth forecast from 6.4 percent to 6.0 percent after factoring in the low first quarter print (See Asian Economics Quarterly: See you at the beach, 29 June 2017). June PMI rises to 52.5 after falling in May: June's PMI data also showed notable improvement in the manufacturing sector after hitting a 14-month low of 51.6 in May. New orders drove the PMI's June increase, rising 2.1 points from the previous month, while inventory of finished goods declined. Higher new orders domestically and externally also supported a continued increase in output and staffing levels, which both expanded at a faster pace than in the previous month. Inflation cools for a second straight month: June headline inflation rose 2.5 percent y- o-y but slowed 0.2ppt from the previous month. Decreases in food and oil prices were the primary drivers of the slowdown. May's headline CPI also declined 0.5ppt from the previous month due to a drop in food and transport prices. We recently cut our CPI forecast for this year and next to 2.6 percent and 2.8 percent y-o-y (from 4.4 percent and 4.0%), respectively. (Also in Asian Economics Quarterly: See you at the beach). Meanwhile, core inflation remained at 1.3 percent y-o-y, the same as May's figure. Still on solid ground: Vietnam's bounce-back in Q2 reaffirms its strong economic footing, despite a sluggish start to the year. We expect the country to gain momentum in the second half as foreign investment and agricultural production pick up. However, the second quarter data further highlights the country's reliance on industrial production and exports (particularly from the foreign invested sector) to maintain high growth. Accelerating growth Fast lane At 6.2 percent y-o-y, Vietnam's Q2 growth accelerated quicker than our initial forecast due to a sharp increase in exports and industrial output, particularly in smartphones. The service sector, which accounts for the largest component of the country's GDP, was also stable. Overall, this year's higher-than-expected Q2 growth is promising for the rest of the year. We expect the economy to gain momentum on the back of stronger agricultural output and a pick-up in FDI. However, we have also pared back our full-year forecast from 6.4 percent to 6.0 percent growth in 2017, due to the country's sluggish start in Q1. Growth in Q1 hit a threeyear low of 5.2%, in large part due to a slump in electronics exports. Samsung Electronics, which accounts for about 20 percent of the country's shipments, ended production of its Galaxy Note 7 smartphone in October, significantly impacting Vietnam's growth (Bloomberg, 29 March 2017). In 2Q however, industrial production picked up as assembly of Samsung's Galaxy S8 kicked into gear. The industrial production index grew 9.0 percent y-o-y in the second quarter, buoyed by significantly higher production of communication equipment. Moreover, construction accelerated in the second quarter, growing at 12.0 percent y-oy (up from 4.8 percent in 1Q). Lastly, Vietnam's service sector remains on a strong footing on the back of a tourism boon. According to Vietnam's General Statistical Office (GSO), an estimated 6.2 million tourists visited the country in the first half of 2017, up 30.2 percent y-o-y. In June alone, 950,000 tourists visited Vietnam, 33.6 percent higher than the same period last year, driving growth in the accommodation and food services industries. We expect tourism to remain steady for the remainder of the year, especially as the government extends its visa-waivers to selected countries to June 2018, barring any natural disasters. Intellasia 20 July / 48

8 Mining drag The growth in industrial production and services, however, was somewhat offset by a continued slump in the mining sector. Vietnam's mining and quarrying industry has contracted for the past six straight quarters, including a 7.6 percent decline in Q This "mining drag" has been part of the reason why Vietnam has been unable to consistently reach its previously higher levels of growth, despite healthy expansion in other sectors. The exact reason for the sharp contraction in the mining sector is hard to pin-point, but it could be due to a combination of several factors, including: a recent drop in coal prices, higher natural resources tax (implemented in July 2016), and higher production costs due to the depletion of easily accessible coal layers (Business Insider, 30 March 2017). Meanwhile, the extraction industry is mostly controlled by state-owned enterprises Vietnam National Coal and Mineral Industries Group and PetroVietnam, thereby negatively affecting government revenues. Promising PMI Bounce-back In a reversal of the previous month's decline, Vietnam's June PMI climbed to 52.5, reaffirming our view that May's slowdown did not pose a significantly pressing concern. As previously noted, other high frequency data like trade and retail sales remained strong in May, despite lower PMI figures. (See Frederic Neumann, Vietnam at a glance, 13 June 2017). June's PMI saw a rebound of several key indicators that caused concerns in May, such as: new orders (including exports), output, and employment. New orders, in particular, expanded for the 19th month in a row. The higher new order numbers domestically and externally also supported a continued increase in output and staffing levels, which both expanded at a faster pace than in the previous month. Moreover, a slower expansion of inventories (stocks of finished goods) is a positive sign for future production, even if the export cycle cools off. Exports in June also performed quite well, growing 20.9 percent y-o-y, driven by exports of phones and spare parts and electronic components. Meanwhile, exports of agricultural products (e.g. rice) and oil, which both saw negative growth for the most part of 2017, were positive throughout Q2, further boosting GDP growth. However, it is also worth noting that the foreign invested sector continues to drive export growth, while exports from the domestic sector (including SOEs) have recently grown more slowly on a y-o-y 3mma basis. As in the past, growth in the foreign invested sector has also remained consistently above the domestic sector. While not a new phenomenon, these trends highlight the potential for the country, as it moves forward with privatising SOEs (equitisation), in order to boost domestic manufacturing productivity and to improve its trade position. With some upside risks Inflation continued to cool on y-o-y terms for the fifth straight time in June and slowed 0.2ppt from the previous month. Core inflation, on the other hand, remained at 1.3 percent y-o-y in June, the same as May's figure. Overall, however, average headline inflation in the first half of the year still reached 4.1 percent compared to just 3.6 percent in 2H The Vietnamese government targets an inflation rate of below 4 percent for We recently cut our CPI forecast for this year and next to 2.6 percent and 2.8 percent y- o-y (from 4.4 percent and 4.0%), respectively, in light of inflation's slowing trajectory during the beginning of the year. However, there remain upside risks in the latter half, as healthcare costs continue to rise in light of ongoing subsidy reforms. Moreover, the country's finance ministry forecasts lingering upward pressure on prices, owing to potential salary hikes beginning July and possible unfavourable weather conditions in the latter part of the year (Vietnam News, 3 July 2017). Prices of three out of the 11 items in the CPI basket fell in June, while seven witnessed just marginal increases from May. Telecommunications prices fell just marginally, Intellasia 20 July / 48

9 while food and foodstuffs fell 0.6ppt m-o-m. Transport prices also fell 0.7ppt owing to low oil prices. Overall, food prices have fallen 5.5 percent y-o-y, dragging headline CPI down. Health and personal care prices, however, have substantially increased since 2016 and have remained steady on the rise, as the government removes healthcare subsidies for people not enrolled in the national health insurance programme. Further healthcare hikes are still pending and are likely to be levied in a phased manner in August, October, and December. Still strong Vietnam's hefty bounce-back in Q2 reaffirms its strong economic footing, despite a sluggish start to the year. We expect growth to gain momentum in the second half as foreign investment and agricultural production pick up. The country continues to receive steady foreign direct investment, which enables it build international reserve buffers and hopefully diversify toward higher value-added manufacturing. The second quarter data, however, further highlights the country's reliance on industrial production and exports (particularly from the foreign invested sector) to maintain high growth. Overall, we believe Vietnam's growth prospects remain promising, despite recent hiccups, and could be sustained with a positive external environment and continuing economic reforms. Economic experts point out abnormalities in economic growth in Q2/ /JUL/2017 INTELLASIA TRI THUC TRE Market Intello's research team has said comparing the growth rate of Q2/2017 with that of Q1/2017, we will see the quarter-on-quarter growth is 1.02 percentage points. As per Market Intello, Vietnam's GDP is generally low in Q1 and then accelerates gradually in the following quarters. However, the figure of more than one percentage point is showing extraordinary levels of growth. Since 2001, this has only happened once. That was in 2009 when the growth in Q1 was only 3.14 percent due to the global economic-financial crisis and then in Q2, the economic recovered, reaching 4.41%. "If we exclude the special case in 2009, in the past, from 2001 to 2016, the quarter-onquarter growth of more than one percentage point only happened six times and all fell in Q3", said the expert group of Market Intello. The group also said that the GDP in the first six months of this year was positive thanks to the service sector (up 6.85 percent over the same period of 2016). Compared with the past, this growth tends to return to the period of when Vietnam reached the highest growth rate in almost two decades. This is also the basis for higher growth expectations in the second half of Because, statistics from 2000 up to now show that the service sector has relatively stable growth compared to other regions. However, the research team also emphasizes that in order to achieve higher growth rate, the industry-construction and agriculture sectors need to gain growth momentum. * Will the total social investment over GDP be raised to a record high level? In spite of acknowledging that achieving a 6.7 percent growth rate in 2017 is difficult, the government is still determined to achieve this goal with a series of measures taken. Directive No. 24 requiring the ministries, industries to carry out tasks and solutions to promote growth by prime minister Nguyen Xuan Phuc is a typical example. The most notable thing among the solutions is to raise the proportion of total social investment to GDP to a record level of 34-35%. If this plan is implemented, this will be the highest proportion since In order to achieve such a high level of social investment, the government focuses on measures to accelerate the disbursement of public investment, lower interest rates, deal with bad debts to promote credit, and enhance foreign investment attraction. The State Bank of Vietnam has had a series of moves to stimulate credit growth, such as persuading the government and the National Assembly to pass the Resolution on bad debt settlement; lowering the base rate by 0.25 percentage points, the ceiling of short-term lending in some priority industries by 0.5 percentage points. Intellasia 20 July / 48

10 However, Market Intello's experts suppose that the likelihood to promote private sector's investment expansion may still be impeded if the government fails to persuade businesses and investors that the stimulus packages of credit growth will not lead to high inflation or macro instability in the future. "As the experience about "hot economic growth of the economy" in the period shows, once the "tiger" of inflation has escaped from the cage, it is very difficult to lock it up without making the economy to pay off", the team said. For the group of solutions on enhancement of mineral exploitation, especially crude oil, experts of Market Intello expressed concern that the oil price in the downward trend will be a big challenge. These people said that in the context of weak domestic demand, Vietnam should probably expand its export market, considering it as an exit to sustain growth. However, statistics show that, only the FDI sector is taking advantage of this market, the current six month growth rate of the FDI sector is 21%, while the overall growth of the country only reaches 18.9%. In short, the government's measures to promote growth is just short-term, basically looking at monetary policy. However, whether the 2017 target can be achieved as well as maintained in the long run is an open question. "This is highly dependent on whether Vietnam can improve its current potential economic growth or not as this is the key driver of Vietnam's high and sustainable economic growth in the future", said Market Intello's experts. US largest export market for VN's footwear, bags 20/JUL/2017 INTELLASIA VNS The United States (US) has been the largest export market for Vietnamese footwear, bags and suitcases in the first five months of 2017, the general Department of Customs said. At $1.99 billion, the export value of local footwear products to the US saw a year-onyear increase of 13.9 per cent, and accounts for 35.2 per cent of Vietnam's total footwear export value, the Vietnam News Agency reported today. The European Union (EU) ranks second at $1.76 billion, which is a surge of 9.7 per cent over the same period in 2016, and accounts for per cent of the total footwear export revenue. Other leading export markets of local footwear products include China at $418.4 million, up 31.1 per cent; Japan at $284.4 million, up 4.4 per cent; and South Korea at $158.3 million, up 15.5 per cent. In the first five months of this year, the US was also the largest export market for Vietnamese handbags, suitcases and briefcases, bringing in $555 million, which is 6 per cent higher than the same period in The EU is its second largest export market at $365 million, up 8.2 per cent. The other three large export markets for these items include Japan at $146.5 million, up 1.7 per cent; China at $57.6 million, down 6.8 per cent; and South Korea at $52.8 million, down 0.4 per cent. Statistics from the general Department of Customs show that in the first half of 2017, the total export value for footwear products saw a year-on-year increase of 11 per cent, to $8.7 billion. Currently, Vietnam exports footwear products to 100 countries, of which 72 bring an export value of $1 million per market, said the Vietnam Leather and Footwear Association (Lefaso). Trade experts said that this year, the world economy is expected to be better than it was in 2016, and China will continue reducing investment incentives in the textile and footwear sectors to focus on high-tech industries. So, orders for processing shoes and bags will continue to move from China to Vietnam. The total export value of the leather and footwear industry is expected to touch $17.8 billion in 2017, an increase of 10 per cent against 2016, experts said. To achieve this target, footwear producers must take advantage of the free trade agreements (FTAs) and explore export markets in countries that have signed FTAs with Vietnam, the association said. Enterprises must also invest in innovative production models and join the chain of Intellasia 20 July / 48

11 Aquatic, farm produce exports to Netherlands on the rise footwear production in the country, the region and the world. They must revamp technology, modernise equipment and expand production to increase productivity and quality of export products, it said. 20/JUL/2017 INTELLASIA VNA Vietnam's aquatic product exports to the Netherlands enjoyed a substantial jump of 15.4 percent to 101 million USD in the first half of the year, paving the way for the shipment growth in the European market. The export of aquatic products to the western nation experienced a fall in 2015 and The recovery in the market will spur seafood consumption in the EU market after a steep decline due to issues related to exchange rates, economics and politics. The Netherlands has been a stable import market of Vietnamese aquatic products as the country purchases not only for domestic consumption but also re-export to nations in the EU bloc, according to Truong Dinh Hoe, general Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP). Food safety and hygiene, and a free trade agreement between Vietnam and the EU which will take effect at the end of 2017 or the beginning of 2018 have prompted the EU countries to increase imports of Vietnamese aquatic products, particularly shrimps, VASEP said. Vietnam's cashew nut exports to the Netherlands also enjoyed a considerable hike in the first half of the year. The country sold million USD worth of cashew nuts in the market, up 37.6 percent from the same period last year. The Netherlands became the second largest importer of Vietnamese cashew nuts, behind the US (543.3 million USD). In his recent official visit to the Netherlands, prime minister Nguyen Xuan Phuc lauded the country's support for the sustainable development of the Vietnamese food industry. On the occasion, Vietnam invited the Netherlands to attend the Vietnam International Food Industry Exhibition 2018 (Vietnam Foodexpo 2018) as an honourable guest. Hoe said that the event will bring the images of Vietnamese foods, including aquatic products, closer to consumers in the Netherlands as well as other EU countries, especially those with high demand vnp Vietnam ships footwear to nearly 100 countries 20/JUL/2017 INTELLASIA VNA Vietnam has shipped footwear products to nearly 100 countries worldwide, with 72 of them buying at least 1 million USD of the products, reported the Vietnam Leather and Footwear Association (LEFASO). Statistics from the general Department of Customs showed that the US remained Vietnam's largest footwear importer as of late May with 1.99 billion USD, up 13.9 percent year-on-year and accounting for 35.2 percent of Vietnam's total footwear export value. The European Union (EU) ranked second with 1.76 billion USD, up 9.7 percent annually and making up percent of the total. It was followed by China (418.4 million USD), Japan (284.4 million USD), the Republic of Korea (RoK) (158.3 million USD). Those five markets accounted for 83.3 percent of Vietnam's earnings from footwear export. The US also took the lead in buying Vietnam's handbags, suitcases and briefcases, spending in excess of 555 million USD, up 6 percent and making up 41.1 percent of Vietnam's shipments of those products. Behind the US was the EU (365 million USD), Japan (146.5 million USD), China (57.6 million USD), the RoK (52.8 million USD). The five top markets accounted for 87.2 percent of the total export value of handbags, suitcases and briefcases of Vietnam. Nearly 80 percent of Vietnam's leather product and footwear export value comes from factories located in the south, the southeast and the southwest regions. HCM City and Intellasia 20 July / 48

12 the southern provinces of Binh Duong and Dong Nai are currently the largest footwear and handbag producers. In the north, most leather and footwear factories are concentrated in Thanh Hoa, Hai Phong, Hai Duong, Hanoi, Ninh Binh and Thai Binh. In the central region, only Da Nang city and Quang Nam province have some large-scale production facilities. In the first half of the year, the leather and footwear sector earned 8.7 billion USD from exports, marking a 11 percent increase, including 7 billion USD from footwear and 1.65 billion USD from handbags and suitcases, up 12 percent and 4 percent, respectively. It is forecast that the total earning this year will hit 17.8 billion USD, up 10 percent annually. The LEFASO suggested that firms join manufacturing chains at home, in the region and the world while adopting advanced technologies and exploiting advantages offered by free trade agreements in which Vietnam is a member vnp Enterprises urged to grasp food safety standards for export VN Food Association acts against rice export deal cancellations 20/JUL/2017 INTELLASIA VNA Given the recent refusal of Vietnamese shipments of agro-forestry-aquatic products from choosy markets, domestic firms have to know about importers' standards in terms of food hygiene and safety. The recommendation was made at a recent workshop held by the Ministry of Industry and Trade. Exports of Vietnamese commodities have faced barriers in the form of requirements for quality and techniques. Given that, domestic firms have been urged to equip themselves with marketing knowledge and to improve their products' quality. The European Union has imported a large amount of farm produce, particularly aquatic products from many countries. This market has also refused unqualified shipments, sometimes even at border gates. Goods of Vietnamese enterprises also face principal barriers not only penetrating into the EU, but also other choosy markets such as the US, the Republic of Korea and Australia, experts warned. 20/JUL/2017 INTELLASIA SGT The Vietnam Food Association (VFA) said it would introduce a new form of contract to prevent cancellation of rice export contracts, which has been rampant in recent months. VFA vice Chair Pham Van Bay remarked both sellers (local companies) and buyers (foreign partners) had cancelled a large number of rice export contracts, but buyers so far had outnumbered sellers in contract cancellation. Therefore, VFA will soon introduce a sample contract for rice export. "Applying the contract offered by VFA will give sellers the upper hand and the legal basis for going to economic courts if the other party unilaterally broke the contract," said Bay. In addition to the sudden increase in rice prices, another reason for contract cancellation is that the two parties do not open a letter of credit. Most of the contracts that have been cancelled are commercial contracts, which are signed between two companies, different from government-to-government contracts, said Bay. "Of the total annual rice exports of Vietnam, the volume exported under governmentto-government deals makes up just a small portion, while the majority is rice exported under commercial contracts. Therefore, it is necessary to introduce a sample contract so that businesses can avoid rampant contract cancellations just as what has happened recently," he said. Nguyen Tho Tri, deputy general director of Vietnam Southern Food Corporation (Vinafood2), said rice export contract cancellation often took place at private companies, which were not assigned to purchase rice for temporary storage or were assigned Intellasia 20 July / 48

13 to do so but unable to access bank loans due to poor business performance and losses. However, most of the cases of contract cancellation are a result of contract signing when prices stayed low, with a heavy delivery schedule, creating a great demand in just a short time, pushing up domestic prices. Now, if companies continue to buy rice to fulfill their contracts, they will suffer losses. In the first seven months, multiple rice export contracts were cancelled, according to VFA. The volume of rice that would have been exported under such contracts is nearly one million tonnes, a source told the Daily, whereas as of end-july, over four million tonnes of rice had been exported, bringing in $1.8 billion. In July alone, local firms cancelled contracts for export of 180,000 tonnes of rice. Businesses lukewarm to rice stockpiling programme The prime minister has asked food companies to buy one million tonnes of summerautumn rice for temporary storage. In a recent decision, the prime minister extended the time for rice purchase for stockpiling to Thursday, or half a month longer than the original schedule. The inspection team and VFA have reported that purchase of summer-autumn rice for temporary storage would not finish by the original deadline of July 31. The rice stockpiling programme has yet to produce any effect as businesses do not have enough rice in stock for delivery to their partners. Tri ascribed the slow pace of rice purchase to the lukewarm attitude of businesses. In addition, the programme is affected by the fierce competition with Thai rice, which is subsidised by the government. Experts said temporary rice storage would only be effective when a large quantity was kept in stock for a long enough period to prevent oversupply and sharp price falls. The fact that businesses quickly sell the rice they have bought for temporary storage impairs the effectiveness of this programme. However, Mai Thi Anh Tuyet, director of the An Giang Department of Industry and Trade, deemed it impossible to require businesses to keep rice in stock for a certain number of days as they had the discretion over when rice should be sold. Vietnam to continue corn imports in years to come 20/JUL/2017 INTELLASIA THE SAIGON TIMES Vietnam's corn-growing area, currently at 1.15 million hectares, is expected to have no big changes in the next couple of years, and may even shrink to less than one million hectares after 2025, so the country will still depend on corn imports. Vietnam, which has become the world largest corn importer since 2015, still has to import 7-8 million tonnes of corn every year, according to a report by the Department of Cultivation under the Ministry of Agriculture and Rural Development In 2016, the corn-growing area was about million hectares, expanding by 100,000 hectares over However, this area will be only about 950,000 to 1.1 million hectares after 2025, the department projected. Despite the smaller area of cultivation, the department now set the target for better productivity. After 2025, the average productivity will be around tonnes per hectare, with the highest yield estimated to be 5.8 million tonnes. In 2016, the average productivity was only 4.55 tonnes per hectare and the total yield was more than 5.2 million tonnes. Vietnam imported a record high of 8.3 million tonnes of corn in 2016 for the domestic animal feed production. The amount of imported corn this year is likely to hit another high record, with 3.53 million tonnes having been imported in the first half, a 6 percent rise compared to the same period last year. Every year, Vietnam needs about 20 million tonnes of corn, including the domestically grown and the imported ones supplied by more than 50 different companies. Farmers have grown genetically modified corn for animal feed production since 2014, with 16 types of genetically modified corn having been approved for use, the ministry reported. Intellasia 20 July / 48