The tension in the East Vietnam Sea over an illegal Chinese-run oil rig will affect Vietnam’s economic growth this year, a report said on Thursday.
Vietnam’s growth is forecast to slow down to 4.15-4.88 percent this year, partly because investors will reduce investment over concerns about the illegal oil rig in the Vietnamese waters, economists and analysts said in the 2014 Vietnam Annual Economic Report.
Last year the Vietnamese economy grew 5.42 percent.
Conducted annually by the Vietnam Center for Economic and Policy Research (VEPR), the report is mainly intended to provide scientific evidence for the Southeast Asian country’s macroeconomic policy-making based on reviewing and analyzing its major achievements, difficulties, opportunities, and challenges.
“We must have short-, medium- and long-term solutions to deal with the situation,” VEPR director Nguyen Duc Thanh said as he delivered the report in Hanoi.
Vietnam’s economy heavily relies on China, but Thanh said the country is totally able to reduce the reliance.
Vietnam currently imports a large amount of equipment, machinery and material from China thanks to low prices.
“But it’s time Vietnamese businesses diversified their suppliers of material and equipment, even though it would require greater costs,” Thanh told reporters.
“We should establish long-term cooperation with strategic partners such as South Korea, India, Australia and other Southeast Asian countries to gradually reduce the dependence on China,” he said.
In the event of the East Vietnam Sea tension, Vietnam may consider solutions like adjusting the foreign exchange rates to increase the competitiveness of Vietnamese products, according to the VEPR report.
“We should also simplify the administrative systems and focus on the restructuring and reform plans,” Thanh said.
“The need for reform and becoming less dependent on China has become bigger and clearer at this time of high tension.”
The 2014 Vietnam Annual Economic Report also points out the constraints that are still slowing the country’s economic development, despite some signs of improving in 2013 and the first quarter of this year.
Budget deficit and high input costs are some of the main constraints on the Vietnamese economy, the report said.
Corruption remains a serious problem in Vietnam, which VEPR asserts to be a major limit to economic growth.
Citing the 2014 Provincial Competitiveness Index, the report shows that 65.8 percent of the surveyed foreign businesses said Vietnam has more corruption than any of their other investing countries.
Infrastructure, especially power, is also a considerable hindrance to Vietnam’s economic growth, according to the report.
Vietnam has launched many restructuring programs and reforms with high resolution, but their initial results did not live up to expectations, according to analysts.
The Vietnam Annual Economic Report is one of the main research projects of the University of Economics and Business under the Vietnam National University – Hanoi, and has been annually published since 2009.
Beijing has placed oil rig Haiyang Shiyou 981 in Vietnamese waters since May 1 in spite of protests from Vietnam.
It has even dispatched a large number of vessels, including warships, and aircraft to ram, intimidate, and fire water cannons at Vietnamese boats tasked with asking the Chinese side to leave the sea area.