INTERNATIONAL SCHOOL – VIETNAM NATIONAL UNIVERSITY

EXECUTIVE SUMMARY

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Table of Contents
EXECUTIVE SUMMARY......................................................................................................0

INTRODUCTION.....................................................................................................................2

1. Structure and scope of report..........................................................................................2

2. Research problem definition and framework, including the benefits of conducting

research..................................................................................................................................2

3. Trend description..............................................................................................................2

MAIN BODY PARTS...............................................................................................................3

Part 1: China’s Balance of Payment in 2021......................................................................3

1. Definition........................................................................................................................3

2. The China’s Balance of Payments................................................................................4

2.1. The export and import............................................................................................5

2.2. Comparative advantages and disadvantages.......................................................7

2.2.1. The advantages.................................................................................................7

2.2.2. The disadvantages............................................................................................8

2.3. Balance of payment surplus/deficit.......................................................................8

3. Conclusion....................................................................................................................10

Part 2: Transformation of Vietnam's export structure...................................................10

1. Introduction to Vietnam’s economics........................................................................10

2. The changes of Vietnam in export structure.............................................................11

2.1. Exporting agricultural..........................................................................................11

2.2. Exporting electrical machinery and equiment...................................................11

3. Explaining the transformation in the export structure of Vietnam........................11

3.1. Based on Comparative advantage.......................................................................11

3.2. Based on Gravity model of trade.........................................................................12

3.3. Based on Integration trade...................................................................................13

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3.3.1. Improvement of the Vietnamese economy, especially the export structure

....................................................................................................................................13

3.3.2. Positive impact on improving competitiveness and developing export

markets......................................................................................................................13

3.3.3. Create opportunities to participate in regional and global supply chains 13

3.3.4. Understand the needs of the world market..................................................14

4. Conclusion....................................................................................................................14

5. Recommendations........................................................................................................14

REFERENCES........................................................................................................................15

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INTRODUCTION

1. Structure and scope of report

International trade is becoming a global trend in commerce, thus analytical skills are
becoming increasingly crucial in the sphere of commerce. Of general, understanding the state
of the economy in one's home nation is essential for the development of any firm or
organization.

2. Research problem definition and framework, including the benefits of conducting

research
This report focuses on two issues including China’s balance of payments and Vietnam’s
export structure. For the inaugural issue, the research investigates the data and draws
conclusions about the current state of China's balance of payments. Then the report
investigates the second issue, Vietnam's export structure, from three perspectives:
comparative advantage, gravity model, and trade integration to determine the causes for the
shift in Vietnam's export structure.

3. Trend description
By reading this study, you will get knowledge on China's balance of payments, including
the current account and surplus, as well as Vietnamese export dynamics, including the
restructuring of key export products from agricultural to electrical machinery and equipment.

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MAIN BODY PARTS

Part 1: China’s Balance of Payment in 2021

1. Definition
The balance of payments is a statistical statement that summarizes the economic
transactions between Chinese citizens and non-residents over a given time period. The
majority of transactions between residents and non-residents involve commodities, services,
and primary income; financial claims on and liabilities to the rest of the world; and transfers,
which entail offsetting entries to balance-in an accounting sense-one-sided transactions.

In China, the balance of payments statistics is compiled in accordance with the

recommendations of the IMF's Balance of Payments and International Investment Position
Manual, Sixth Edition (BPM6). Nine broad categories are identified under two main headings,
namely, current account: exports and imports of goods, services, primary income, and
secondary income; capital and financial account: assets and liabilities for direct investment,
portfolio investment, financial derivatives, other investment, and international reserve assets
(and errors and omissions) – according to International Monetary Fund, 2021.

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2. The China’s Balance of Payments

Source: safe.gov.cn

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The world economy in 2021 had witnessed unprecedented obstacles due to the global
pandemic COVID-19 and the China economy was not an exception.

2.1. The export and import

In 2021, China's current account registered a surplus of RMB 2044.5 billion, and the
capital and financial accounts recorded a deficit of RMB 973.2 billion. The financial account
(excluding reserve assets) recorded a surplus of RMB 241.7 billion, and reserve assets
increased by RMB 1215.4 billion.

China's current account balance was USD 118.4 billion in the fourth quarter of 2021, with
a surplus of USD 182.8 billion in goods trade, a deficit of USD 15.2 billion in services trade,
a deficit of USD 55.5 billion in primary income, and a surplus of USD 6.2 billion in
secondary income. The capital and financial accounts both had deficits of USD 32.1 billion,
with a capital account deficit of USD 5 million and a financial account surplus of USD 10.1
billion (excluding reserve assets), and reserve assets increased by USD 42.2 billion.

In 2021, China's current account surplus was USD 317.3 billion. This result included a
USD 562.7 billion surplus in goods trade, a USD 99.9 billion deficit in services trade, a USD

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162 billion deficit in primary income, and a USD 16.5 billion surplus in secondary income.
The capital and financial accounts both showed a deficit of USD 149.9 billion, with a capital
account surplus of USD 92 million, a financial account surplus of USD 38.2 billion
(excluding reserve assets), and growth in Chinese foreign exchange reserves of over $188
billion.

China’s imports in 2021

China’s exports in 2021

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2.2. Comparative advantages and disadvantages

2.2.1. The advantages
As a major developing country, China has made great achievements in adopting a
development strategy of comparative advantage in carrying out foreign trade.

Since China's reform and opening up, we have taken advantage of labor resources,
developed processing trade, and undertaken the world order, production and exports a large
number of labor-intensive products, to meet market demand abroad at the same time, greatly
increased international income and also boosted the rapid development of the economy. In
this respect, human resource advantage has played an essential supporting role in China's
national economy development over the past 30 years of reform and opening-up, particularly
in the transformation and realization of China's comparative advantage in foreign trade. Due
to factors such as preference, technical progress, industrial strategy, and so on, countries and
regions continuously increase or weaken their initial comparative advantage, and even reverse
it. As a result, the dynamics of comparative advantage are a significant topic to quantify the
influence of government actions, as well as an indirect reflection of changes in regional
variables and technical levels.

China's economy has fully integrated into the globalization process since the late 1970s,
when the reform and opening-up plan was implemented. The Chinese government has
actively developed bilateral and multilateral trade relations, integrated multilateral trade
organizations, implemented the "going global" strategy, and deepened the "Belt and Road
Initiative." These steps have strengthened China's international trade development
environment, trained a huge number of various business owners to look at the global market,
and efficiently optimized the structure of export goods and improved international
competitiveness. Despite the international financial crisis in 2008, trade friction with major
countries, high local production costs, shifting exchange rates, and the virus COVID-19,
China's export commerce has made exceptional progress. China has surpassed the United
States as the world's largest commodity exporter and international trade country, and its
import and export trade has become a major driver of global economic growth. The
optimization of export structure is a positive effect of China's export comparative advantage
dynamics.

In short, China adjusts the structure of its trade industry's international competitiveness to
promote China's foreign trade development strategy shift from comparative advantage to

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competitive advantage, as well as further adjusting and perfecting the relevant foreign trade
system and policy design to adapt to the international competitiveness of domestic trade
goods defense requirements.

2.2.2. The disadvantages

a) Complex logistics

While an item made in China and shipped to the US may have a lower landing cost than a
domestic product, it will nonetheless require more intricate logistics. A product can take up to
30 days to reach the final customer via water. You might want to build your own distribution
facility, but that would raise your prices.

Furthermore, if an item sells out, your next shipment could be 30 days away. As a result,
customers may be disappointed. You can always send things from China by air, but you must
first determine the cost.

b) Quality control issues

The label "Made in China" used to have a negative connotation. Many people have seen
low-quality counterfeits that appear to be the real thing yet fall apart when utilized. High-
quality producers can now be found in China.

Instead of assuming that the first product run will be identical to the prototype, the goal is
to maintain high quality standards throughout the manufacturing process. Additionally, some
product categories may be more vulnerable to quality issues than others. Working with a
Chinese agent to supervise quality control is a good idea.

2.3. Balance of payment surplus/deficit

China’s goods exports last year rose to 3.37 trillion US dollars, a 30 % increase from 2020.
Imports also climbed by 30 % to 2.68 trillion dollars. The trade surplus reached a record 690
billion dollars, a 28 % increase from 2020. During the first two years of the covid pandemic
(2020 and 2021), China’s goods exports rose by 35 % in dollar terms and imports by 30 %.
Some of the growth in the value of imports and exports during the pandemic reflects higher
prices; export volume growth was lower than growth in dollar-measured value. In November
2021, China’s export volumes were up by 18 % and import volumes by 8 % from December
2019. China has increased its share of global trade with growth in export volumes outstripping
global trade growth (up 6 %).

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Balance-of-payments figures show that last year’s current account surplus was just under 2
% of GDP. The current account surplus has been boosted by a decrease in the services trade
deficit. The pre-pandemic services trade deficit, i.e. the difference between imports and
exports of services, typically ran around 2 % of GDP. It shrank last year to just 0.5 %.
Services imports have plummeted during the pandemic as the spending of Chinese tourists
abroad has collapsed. Tourism accounted for half of pre-pandemic services imports.

The Regional Comprehensive Economic Partnership (RCEP) free-trade agreement entered

into force at the beginning of this year. The RCEP comprises China, Japan, South Korea,
Australia, New Zealand and the countries in the ASEAN economic community. Even if China
already previously had bilateral trade agreements with several RCEP countries, this is its first
trade agreement with Japan. Under the agreement, 86 % of China imports from Japan will be
tariff-free (currently 8 %). Correspondingly, Japan will raise its share of tariff-free Chinese
imports from 60 % to 88 %. Even with its share shrinking over the past decade, Japan remains
among China’s most important trading partners (6 % of China’s foreign trade). A goal of the
RCEP is to open the services sector to foreign competition. The partner countries commitment
to open at least 65 % of their service sectors to fellow members could have significant
impacts on education, finance and cultural services in China.

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3. Conclusion
Solid growth, low inflation, low unemployment, adequate fiscal and monetary reserves,
financial stability, and openness to foreign trade and investment have long been hallmarks of
China's economy. This outstanding performance has been backed up by good macroeconomic
policies, which have resulted in a significant rise in living standards over the last two decades.
The COVID-19 pandemic struck China's economy hard in 2021, when containment measures
and travel restrictions were enforced to deal with the sanitary crisis both at home and abroad,
along with a drop in external demand and supply chain disruptions, wreaking havoc on the
economy. In the near future, the Chinaan economy faces obstacles such as a probable
slowdown in recovery.
Part 2: Transformation of Vietnam's export structure
1. Introduction to Vietnam’s economics
In recent years, Vietnam's economy has thrived. Due to economic changes implemented
since the introduction of Doi Moi in 1986 and favorable global trends, Vietnam has rapidly
progressed from one of the world's poorest countries to a low-middle-income country in just
one generation. COVID-19 pandemic hit the economy hard, but Vietnam has taken decisive

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steps to limit both the health and economic fallout. Thanks to a solid foundation, Vietnam's
economy has shown remarkable resilience in times of crisis, most recently the COVID-19
pandemic. GDP growth slows to 2.58% in 2021 due to the arrival of the Delta variant but is
expected to recover to 5.5% in 2022.

Figure: Vietnamese economic growth

In mid-2021, a wave of COVID-19 sickness with the Delta mutation swept Southeast Asia,
wreaking havoc on Vietnam's economy. The authorities have stepped in to combat the
growing pandemic wave, implementing severe epidemic prevention measures in numerous
areas.

2. The changes of Vietnam in export structure

2.1. Exporting agricultural
Following trade liberalization and agricultural reforms in Vietnam, the agriculture sector's
export volume and value increased considerably. Since the 1990s, several large-scale
intensive monoculture systems have emerged throughout the country, including rice
monoculture in the Mekong Delta and extensive coffee and pepper production in the Central
Highlands.

Climate change has harmed rice production in the Mekong Delta, the world's most
important rice-growing region. The volume of rice produced in the Mekong Delta is expected
to decrease due to drought and saltwater intrusion. Although Vietnam's total export turnover

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in 2020 is expected to be $544 billion, the country has to diversify its exports to adapt to the
current scenario and maximize its potential.

2.2. Exporting electrical machinery and equiment

Electrical machinery, equipment, tools, and spare parts are Vietnam's essential export
items. According to the General Department of Customs statistics, in the period 2016-2020,
Vietnam's export turnover of machinery, equipment, tools, and spare parts increased sharply,
with an average growth rate of 28.1%/ year.

Electrical machinery, equipment, tools, and replacement parts made for 5.7 percent of the
country's overall export revenue from 2016 to 2020. Moreover, despite being limited by the
Covid-19 epidemic, machinery, equipment, and tool export turnover climbed by 48.6% in
2020 compared to 2019. Furthermore, this statistic increased by 10.8% in the first half of
2021, overtaking textiles and apparel to become Vietnam's third-largest export product with
17.10 billion USD, up 64.1 percent from the same time in 2020.

3. Explaining the transformation in the export structure of Vietnam

3.1. Based on Comparative advantage

During the previous 35 years, Vietnam's economy has risen at an incredible rate, and it has
been increasingly linked into regional and global markets. These industries have a high export
turnover for Vietnam, but they are not industries where Vietnam has a comparative advantage.
As a result, one of Vietnam's main export exports is machinery and electromechanical
equipment.

Although our country's electronics industry has grown slowly over time, it now plays an
increasingly vital role in industrial output and export. The Covid-19 pandemic hit Vietnam
hard in 2020, yet the country's export turnover of machinery, equipment, tools, and spare parts
climbed by 48.6% compared to 2019. Vietnam also ranks fifth in the world in terms of
comparative advantage in the electronics industry.

Vietnam too boasts a youthful population. Almost 60% of the population is working age
(17-60 years old), there is a large labor force, it is located in a desirable geographical location,
and it is located in a region with established industry that can attract investment money,
transfer technology, develop management experience, and train human resources from other
countries.

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FDI firms are currently leading and developing the electrical goods supply chains in
Vietnam. FDI businesses exported 23.7 billion USD in machinery, equipment, and spare parts
in 2020, up 56.4 percent from 2019 and accounting for 87.3 percent of the total industry.

3.2. Based on Gravity model of trade

The gravity model, which is based on three explanatory factors, the size of the two
economies and the distance between them. In its basic form, the gravity model assumes that
only size and distance are important for trade in the following way:

Tij = A x Yi x Yj /Dij

Where:

 Tij is the value of trade between country i and country j

 A is the constant
 Yi is the GDP of the country i
 Yj is the GDP of the country j
 Dij is the distance between country i and country j

Based on this model, we can observe how many variables influence Vietnam's exports and
why the country's export structure has shifted away from agricultural items and toward
electronic equipment.

Vietnam's GDP shows that the country's manufacturing capability has been steadily
growing in recent years. As a result of the establishment of various new sectors, Vietnam's
industrial capacity and technological base have risen greatly, and the economic process will
support economic restructuring, contributing to the diversification of the economy's export
products and boosting competitiveness.

ASEAN is a vast market with a population of about 700 million people and a growing
middle class. Because of the near geographical proximity, import and export activities
between Vietnam and ASEAN are quite convenient. As a result, there is a lot of space for
expansion in the export of numerous Vietnamese items to the ASEAN area. With the
participation of several bilateral and multilateral free trade accords, Vietnam has become an
industrial hub of Vietnam.

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3.3. Based on Integration trade

Vietnam has signed 15 free trade agreements as of November 2021. (FTAs). The
successful negotiation and signature of numerous free trade agreements with Vietnam's major
trading partners promises to open up numerous chances for economic growth while also
providing new driving factors for the country's exports.

3.3.1. Improvement of the Vietnamese economy, especially the export structure

Long-term, trade integration helps Vietnam strengthen its export structure, particularly in
terms of trade technology. Export structure has evolved in a favorable, modern, technical
direction, bringing it closer to global trends and demand for electrical gear and equipment.
Furthermore, trade integration enables Vietnam to directly draw foreign investment capital
into the high-tech sector, progressively transforming Vietnam from a backward to a modern
economy.

3.3.2. Positive impact on improving competitiveness and developing export markets

Export turnover will increase as a result of the competitive advantage that new-generation
FTAs deliver. Because of the difference in import tax, negotiating trade agreements will make
Vietnam's exports easier, more convenient, and more competitive than goods of the same sort
from competing countries

3.3.3. Create opportunities to participate in regional and global supply chains

With the benefits provided by previous FTAs, Vietnam has attracted a considerable
number of foreign investors. Increasing FDI from abroad will indirectly help domestic firms
learn new production technologies and enhance product quality.

3.3.4. Understand the needs of the world market

We are in the 4.0 era of technology. Machines and technology are now associated with all
human activities, hence demand for these products is expanding. As a result, Vietnam's export
structure moved from agricultural to industrial and electronic equipment. The increasing
demand for machinery and electronic equipment may be seen in the trade agreements our
country has inked with various countries and regions. This is the driving force behind
Vietnam's export restructuring.

4. Conclusion

In recent years, Vietnam's main export structure has switched from agricultural items to
industrial and technological equipment. After looking at the comparative advantage, gravity

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model, and trade integration, we can determine Vietnam's export incentive and see that
changing the main export product is a good idea. Vietnam should put its strengths to good use
and expand its economy.

5. Recommendations

Firstly, prioritize the restructuring of export items. Concentrate on industries like

electronics and processing that have competitive advantages, such as accessible resources,
low labor costs, and high labor content.

Secondly, take full advantage of FTAs. FTAs, if properly implemented, can help Vietnam
lessen its reliance on a single market and ensure the economy's long-term viability.

Thirdly, continue to strengthen the government's and functional agencies' roles in directing
and supporting the process of reforming exports. Increase investment and science and
technology application in exports.

Last but not least, increase export capacity. Vietnamese businesses must assure the long-
term viability of their products and establish an export plan that is tailored to the needs and
trends of each international market.

Total word count:

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REFERENCES
1. International Monetary Fund (2021). “Special Data Dissemination Standard”. Available
at:
https://dsbb.imf.org/sdds/dqaf-base/country/CHN/category/BOP00
2. https://www.safe.gov.cn/en/2022/0325/1943.html#

1. Statista. (2021). Agriculture in Vietnam - statistics & facts. [online] Available at:
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[Accessed 07 January 2022].
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xuất khẩu chủ lực của Việt Nam. [online] Available at:
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3. General Statistics Office of Vietnam. (2021). Exports of goods of Vietnam – Strong
recovery and breakout in 2021. [online] Available at: https://www.gso.gov.vn/en/data-
andstatistics/2021/04/exports-of-goods-of-viet-nam-strong-recovery-and-breakout-
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C1i7nbA [Accessed 07 January 2022].
4. General Statistics Office of Vietnam. (2020). Xuất, nhập khẩu Việt Nam-ASEAN:
Phát triển mạnh mẽ. [online] Available at: https://www.gso.gov.vn/du-lieu-va-so-lieu-
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January 2022].
5. Do, H. (2021). Kim ngạch xuất khẩu nhiều ngành hàng nông sản vượt ngưỡng tỷ đô.
[online] General Statistics Office of Vietnam. Available at:
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[online] General Statistics Office of Vietnam. Available at:
https://www.gso.gov.vn/du-lieuva-so-lieu-thong-ke/2021/09/xuat-khau-nong-san-
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8. https://www.atlantis-press.com/proceedings/icsser-18/25904745

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9. http://www.stats.gov.cn/english/PressRelease/202112/t20211215_1825291.html
10. https://www.bofit.fi/en/monitoring/weekly/2022/vw202208_1/
INDIVIDUAL CONTRIBUTION

No. Name Student ID Contribution Rate

1 Vu Thi Huyen Trang 19071538 100%

2 Vu Thanh Hien 19071152 100%

3 Nguyen Thi Hong 19071161 100%

4 Nguyen Tran Khanh 20070514 100%

Linh

5 Nguyen Thi Thu Huyen 20070201 100%

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