The Direction of Economic Cooperation between Korea and Vietnam

1. The Direction of Economic Cooperation between Korea and Vietnam July 2, 2007 Hanoi, Viet Nam Jae Wan CHEONG (jwcheong@kiep.go.kr)

2. Contents Ⅰ. An Overview of the Bilateral Relationship Ⅱ. The Potential and Challenges of the Vietnam Economy Ⅲ. The Prospects and Directions of Korea-Vietnam Economic Cooperation

3. Ⅰ. An Overview of the Bilateral Relationship

4. 1. Korea-Vietnam Trade by Year (KOTIS Data)

5. < Korea-Vietnam Trade by Commodities (2006, MTI 4 digits) >

6. 2. Korean Investments in Vietnam (Korea Exim Bank Data) < Korean investments in Vietnam by year (1990~2006) >

7. < Korean Investment in Vietnam by Sector (Cumulative Figure to 2006) > (Unit: No. of Projects, Mil.$)

8. < Korean Investments in Vietnam by Manufacturing Sector (Cumulative Figure to 2006) > (Unit: No. of Project, Mil.$)

9. 3. Vietnamese Investments in Korea (MOCIE Data)

10. 4. Governmental Cooperation (1) - Grants Aid from Korea

11. 4. Governmental Cooperation (2)-EDCF from Korea (1991-2006) Remarks: 1) Rank & percentage are from Korea’s total EDCF amount

12. 5. Preliminary Evaluation of the Relationship ◈ Trade and Investment has increased rapidly since re-establishment of diplomatic relations in 1992 ◈ Korea has maintained a continuous trade surplus against Vietnam ◈ Changes in the patterns of Investment: Small Capital / SMEs ⇒ Large Capital / Large Companies Light / Processing Industries ⇒ Heavy industries, Material, Real Estate, Construction, etc. ◈ Major recipient of Official Development Assistance

13. Ⅱ. The Potential and Challenges of the Vietnam Economy

14. 1. Characteristics of the Vietnamese Economy ◈ Newly emerging market since the adoption of the Doi-Moi policy ◈ Transitional economy (under structural change) ◈ Agriculture-oriented transitional economy ◈ Ravaged by the 30 years war ◈ Major funds for economic development: ODA, FDI, Viet Kieu (越僑) Fund ◈ Widening Income & regional disparity

15. 2. Major Performance of the Vietnamese Economy Source: Global Insight. 2007.

16. ◈ Weak competitiveness of domestic industries ◈ Slow SOE Reform Process: Large SOE & SOCBs ◈ Under-developed finance & capital markets ◈ Shortage of financial sources for stable development ◈ Lack of investment-related regulations and systems ◈ Insufficiency of adequate economic fundamentals ◈ Enhancement of market openness after accession to WTO ◈ Lack of skilled workers ◈ Socialist values & culture 3. Major Agenda of the Vietnamese Economy

17. 4. Growth Potential of the Vietnamese economy ◈ Abundant natural & human resources ◈ Improved investment environment and market opening through WTO accession & PNTR approval ◈ Pursuit of FDI & external trade-oriented development strategy ◈ Rapid progress in Industrialization and sharp increase of investments in infrastructure ◈ Advantage as a new component production base toward big markets (e.g. US, EU, ASEAN, etc) ◈ Widening domestic market: Continuous rapid growth, population of 85 million ◈ Social and political stability ◈ Advantage as alternative investment market to avoid the China-Risk ◈ Geo-economic location as a member of East Asia ◈ Stable Exchange rate of Dong against US Dollar

18. 5. Mid & Long-term Economic Forecast Source: Global Insight. 2007.

19. <Remarks> Impact of Vietnam’s Accession to WTO A. Positive impact on Macro-economy ◈ Fall in tax revenue due to lower tariffs in the early stages (Moderate tax revenue fall in the mid & long-term) ◈ Balance of payment surplus: Export & FDI increase ◈ Lower import price will ease inflation B. Export expansion (or Growth) ◈ Benefits to the textile & shoes industries by elimination of the quota system (However, fierce competition between local and foreign companies) (Benefits of market economy status will take 12 years) C. Encourage SOE reform D. New challenges ◈ Ban on the protection of specific industries and eliminate subsidies ◈ Open the service sector: finance, transportation, logistics, etc. ◈ Need for social safety net (e.g. retraining)

20. 6. Evaluation of Vietnam as an Emerging Market

21. Ⅲ. The Prospects and Directions of Korea-Vietnam Economic Cooperation

22. Directions for Economic Cooperation with Vietnam: Advancement strategies for investment ◈ Establish mid & long-term investment advancement strategies - Early investment considering progress of infrastructure and industrial fundamentals - Early entry into domestic market targeting increasing income ◈ Thorough preliminary market survey & feasibility study ◈ Market-creation investment in accordance with the market opening schedule under WTO accession ◈ Maximize the advantages of WTO accession & PNTR status approval ◈ Investments taking advantage of AFTA & the Korean-ASEAN FTA ◈ Utilize Vietnam as an alternative investment market to avoid China-Risk

23. 2. Directions for Economic Cooperation with Vietnam:Promising mid-to-long term sector ◈ Infrastructure: transportation, new towns, housing, power, energy industries, etc. ◈ Home appliances, IT communications, industrial electronic equipments, etc. ◈ Service industries: finance & capital markets, tourism, etc. ◈ Labor intensive industries: textiles, fabrics, etc. ◈ Any industry which can utilize abundant agricultural or fishery resources

24. 3. Directions for Economic Cooperation with Vietnam: Government Side ◈ Pursuit of joint growth through win-win solutions - Resources ↔ Experience & Technology - Transfer of development experience - ODA extension ◈ Expand cooperation on energy and mineral resources ◈ Efforts to narrow trade imbalances ◈ Review of Vietnam as a strategic emerging market - Big brother country on the Indochina peninsula - Maximize the leverage effects of Vietnam in order to improve relationships with N. Korea and to induce N. Korea to reform

26. Thank You !