Vietnam’s economy has been growing strongly in 2018 and laying solid foundation for the country to fulfill all targets set for the 2016 – 2020 period. Hanoitimes looked back at Vietnam’s top 10 economic events in 2018:

1/ GDP growth reaches 10-year high

Vietnam’s GDP growth is on track to reach a 10-year high of 7% in 2018, while the macro-economic conditions are stabilized, and inflation rate of 3.55%, below the 4% target set by the National Assembly.

There has also been substantial changes in the economic structure, which now places a strong focus on manufacturing/processing, construction and service sectors.

It is to noteworthy that the high GDP growth rate in 2018 does not depend on credit, which is estimated at below 15%, significantly lower than a credit growth rate of 18% in 2017.

In 2018, disbursement of FDI projects in Vietnam reached a record high of US$19.1 billion, an increase of 9.1% year-on-year amid global concern over the US – China trade friction, showing the high confidence of foreign investors in Vietnam’s business and investment environments.

The rapid rise of both privately- and state-run conglomerates such as Vingroup or Viettel is the evidence of that the country’s business environment is capable of nourishing large corporations of global scale and competing with world’s top multinational companies.

2/ Benchmark VN-Index soars to record-high

On April 10, 2018, the benchmark VN-Index rose to its peak of 1,211.34 points. The impressive growth rate of Vietnam’s stock market is thanks to strong growth recorded in the fourth quarter of 2017 and the first quarter of 2018, backed by positive macro-economic factors, possibility of being upgraded to emerging market, and strong capital inflow.

However, external factors such as the escalation of the trade war between the world’s two largest economies, and volatility of the exchange rate, caused the stock market to enter the correction phase.

In late September FTSE Russell – a leading global provider of financial services, added Vietnam, which is currently classified as a frontier market, to the watch list for possible reclassification as secondary emerging, indicating a healthy development of Vietnam’s market.

At the close on December 25, the Vn-Index fell for a ninthe consecutive session as heavy selling pressure was pilling up before closing at 1.17% at 897.94 points.

3/ Cryptocurrency fraud

In early April, hundreds of people protested against Modern Tech, which raised money from token sales of Ifan and Pincoin cryptocurrency, accusing the company of the “largest Vietnam’s cryptocurrency fraud involving VND15 trillion”. This sum is equivalent to US$658 million.

The company lured investors through false promises of buying those cryptocurrencies with the minimum return of 48% per month and a payback period of four months. If an investor invites other people to participate, they will receive a commission of 8%.

Another cryptocurrency scam involved Le Minh Tam, who was CEO of Vietnamese cryptocurrency mining firm Sky Mining in August and has reportedly fled with over US$35 million of 5,000 investors.

The self-proclaimed largest crypto mining company in Vietnam promised a return of 300% in 12 months for investors who purchased mining rigs with the company, ranging from US$100 to US$5,000.

According to experts, this was actually a form of mobilizing capital with high interest rates, known as multi-level marketing.

In addition to prospects of high profit to attract investors, the lack of legal framework to manage cryptocurrencies is considered a main reasons behind recent large scale scams.

The State Bank of Vietnam (SBV) said in a statement last October that virtual currencies are not lawful means of payment, therefore, “as of January 1, 2018, the act of issuing, providing, and using illegal means of payment (including bitcoin and other virtual currencies) may be subject to prosecution in accordance with the provisions of Article 206 of the Penal Code 2015.”

4/ Controversial property tax

In April, the Ministry of Finance announced the draft law on property tax, proposing a tax rate of 0.4% on a home worth over VND700 million (US$30,800), while personal vehicles, such as planes, yachts and cars worth more than VND1.5 billion (US$65,000) will also be taxed.

The draft law has raised public concern over how to ensure the equity and efficiency of the law.

Minister of Finance Dinh Tien Dung later said that the draft law is still under consideration, adding that the poor and low-income households would not be affected by the law.

In other countries, property tax makes up a significant part for local governments’ budget, accounting for 80% in Thailand, 36% in Chile and 40% in Poland. The revenue would later be financed for public services where the tax payers live.

The law thus will enhance local government’s authority and independency, in turn, improving quality of public services and creating a transparent real estate market.

Additionally, it has proven its economic efficiency through international experience and played a major part in redistributing wealth among socioeconomic classes.

However, the property tax remains a controversial topic in Vietnam, as experts said the current draft law of the property tax would reduce disposable income of households, but may not ensure greater equality in society.

5/ Impacts of the US – China trade war

The US-China trade war fired its first shot on July 6, 2018 when the US slapped 25% duties with US$34 billion goods from China, covering 818 sorts of products in the war’s first phase. China later retaliated by imposing tit-for-tat tariffs.

As of present, the Trump administration has imposed tariffs on US$250 billion worth of imports from China while the world’s second-largest economy has retaliated by punishing a cumulative value of US$110 billion worth of US imports.

In short-term, Vietnam is poised to capture some of China’s global market share in labor-intensive manufacturing. However, the long-term future is uncertain as China may route their US-bound products through the country to evade existing tariffs

Moreover, the growing capital inflow from China to Vietnam may bring more harm than good, as Vietnam could face the risk of trade frauds and Chinese investors aiming at Vietnam as an indirect route to the US.

There is also the risk of a wave of Chinese goods flooding Vietnam’s domestic market.

As the trade war drags on, experts advised Vietnam to prepare for new development strategy, particularly when global investors are pulling money out of emerging markets, including Vietnam.

(to be continued)