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Asia Pacific Economic Outlook, October 2013: Vietnam

Asia Pacific Economic Outlook, October 2013: Vietnam

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Published by: Deloitte University Press on Sep 20, 2013
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Asia PacicEconomicOutlook
October 2013
ChinaIndiaSingapore Vietnam
 
Economy stabilizing
Te Chinese government says that the econ-omy is showing signs o stabilizing and that thedesired 7.5 percent rate o growth appears tobe attainable. Te recent purchasing manager’sindices (PMIs) or manuacturing suggest that themanuacturing sector is rebounding aer a periodo uncertainty. A PMI or manuacturing pub-lished by HSBC and Markit increased rom 47.7 inJuly to 50.1 in August.
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Te shi above 50.0 indi-cates modest growth o the sector aer a period o decline. Moreover, this was the biggest month-to-month gain in the PMI in three years. In addi-tion, an ocial PMI published by the governmentincreased to a 16-month high o 51.0. Tere wasyet another sign that the Chinese economy isstabilizing: It was reported that, in July, industrialcompany prots were up 11.0 percent rom a yearearlier.
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Tis was ar better than the 6.3 percentincrease in June. On the other hand, a sub-indexo the PMI or export orders was in negative terri-tory, suggesting that any improvement in China’seconomy is coming rom domestic rather thanexternal demand.As or the stabilization o growth, governmentincentives or small businesses and inrastructureinvestment appear to be working. Moreover, thecontinued expansion o credit through the sale o wealth management products by banks is uelinginvestment in xed assets, especially property. O course, the economy is suering rom weak exportdemand, credit market diculties, and a declin-ing labor orce. However, the actors that are likely to sustain growth in the uture include strongconsumer demand, increasing urbanization, andcatch-up growth in less developed regions o China. Te biggest risk to the Chinese economy 
China:
 Signs o stabilization
By Dr. Ira Kalish
 
Asia Pacifc Economic Outlook—October 2013
 
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is the excessive level o debt and the problemsservicing that debt. With respect to that issue,the China Banking Regulatory Commission isencouraging banks to securitize troubled loans inorder to remove them rom bank balance sheets.Tese securities will necessarily be priced at adiscount. Still, ultimately nancial market pric-ing will have to be liberalized in order to preventuture imbalances rom developing. Meanwhile,bank prot margins are very high as banks unloadloans through securitization.
Urbanization
Te Chinese government has set November asthe date or the Communist Party’s next plenary meeting. Tis is expected to be the meeting atwhich the leadership will approve a detailed set o reorms. Among the areas likely to be addressedare nancial market liberalization, privatization o state-owned enterprises, reorm o the householdregistration system (
hukou
), and labor marketregulations. Tis will be an opportunity or theleadership to set the agenda or the next ve years.Tis is widely anticipated especially because thegovernment has signaled that it is more concernedwith structural reorms than short-term stimulus.One o the important drivers o economicgrowth that the leadership wants to promoteis urbanization. Given that China has already engaged in massive urbanization, this may seemodd. Aer all, in the last 20 years, the urban shareo China’s population increased rom less than 30percent to more than 50 percent. Yet more will beneeded to sustain growth. Te view is that whenworkers move rom arms to actories or oces,their productivity increases strongly, thereby help-ing to drive strong economic growth. Tis is criti-cally important because, due to the lagged impacto the one-child policy, the working-age popu-lation has stopped growing. Tus boosting theurban labor orce will require more migration. Yetthe pace o migration has dwindled due to workerrustration with low wages, poor living condi-tions, and second-class status owing to the
hukou
system. Tis slower pace is one reason that thegovernment is likely to reorm the
hukou
system.While the government sees a huge potentialpositive return rom urbanization, there is grow-ing concern about the potential costs o urbaniza-tion. A new report prepared jointly by the UnitedNations and a Chinese government think tank says that, over the next two decades, it will costat least 41 trillion Chinese yuan ($6.8 trillion) toacilitate the migration o 210 million workers.
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 Te study anticipates that China’s urban popula-tion will rise rom 666 million in 2010 to 976million in 2030. It also says that the costs couldbe even higher i investments are undertaken toclose the gap between migrants and others interms o living standards. Te question arises asto how to und this investment. Already local
While the government sees a huge potential positivereturn rom urbanization, there is growing concernabout the potential costs o urbanization.
 
Asia Pacifc Economic Outlook—October 2013
 
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