A new version of the ASEAN-China free trade deal, bolstered by positive impacts from other major deals, could help improve Vietnam-China trade and investment ties.

The Ministry of Industry and Trade (MoIT) is working with relevant ministries and agencies preparing documents for continued negotiations of a third version of the ASEAN-China Free Trade Area (ACFTA) in early 2024 with a location being discussed. The most recent negotiation rounds took place last year in Thailand, China, and Indonesia.

An expert from the MoIT’s Department of Science and Technology said it is studying new provisions on AI, IT, and the Internet of Things that will be embraced in the new version.

“It would take time as these are quite complicated amid rapid changes in the global high technology landscape,” the expert said. “The new provisions proposed by Vietnam will be discussed by other ASEAN nations and China.” The MoIT will also seek feedback on the ACFTA 3.0 upgrade negotiations.

The ACFTA is the cornerstone of ASEAN-China relations. It is significant as it is ASEAN’s first free trade agreement (FTA) with an external dialogue partner, and China’s first FTA.

The ACFTA eliminates tariffs for 95 per cent of tariff lines of exports to China that originate from Vietnam. It creates market access and ensures a more predictable operating environment for services suppliers. The agreement also provides investors and investments with protection by establishing a more transparent, facilitative, and secure environment for investors.

The previous ACFTA upgrade negotiations were concluded in 2015, before taking effect in 2018. The 3.0 negotiations were launched in November 2022 and are targeted for conclusion by end-2024.

Under the latest upgrade negotiations, ASEAN member states and China will also address trends such as supply chain connectivity, digitalisation, and sustainability. Rules of origin, product-specific rules, and services are not within the scope of upgrade as these sectors were reviewed during the previous negotiations.

Vietnam’s advocacy

Under a joint statement released in December 2023, Vietnam and China “support ASEAN maintaining its central role in the Asia-Pacific constantly changing structure”, while “China supports ASEAN building the ASEAN Community with solidarity, unity, self-reliance, and development”. Both sides have agreed to boost the construction of the new ACFTA which will help “further sharpen the comprehensive strategic partnership between ASEAN and China”.

Vietnam and China also agreed to apply practical measures to expand the scale of bilateral trade in a balanced and sustainable direction, while promoting the role of the Regional Comprehensive Economic Partnership (RCEP) and the AFCTA; and expanding the export of strong products from one country to another, the statement noted.

At the 20th China-ASEAN Expo and China-ASEAN Business and Investment Summit held in September 2023 in Guangxi province, Prime Minister Pham Minh Chinh highlighted that the past 20 years witnessed great strides in China-ASEAN relations, with bilateral trade increasing from $78.2 billion in 2003 to $975.6 billion in 2022, making China and ASEAN largest trading partners and leading investment partners of each other.

PM Chinh proposed strongly promoting bilateral trade in a balanced and sustainable manner, striving to turn ASEAN into China’s first trading partner with trade value exceeding $1 trillion.

He also suggested coordinating to build linkage chains from raw material areas to production centres and product consumption systems, and continuing to open the market, combating protectionism, cooperating to improve adaptation ability to new standards, new tastes, and green products, while promoting sci-tech cooperation and innovation.

He also emphasised the need to promote strategic connection to develop both hard and soft infrastructure, and strengthen traffic infrastructure connections and multi-modal transport, especially railways and roads.

“Vietnam wants to continue working with China and other ASEAN nations about quickly completing the upgrade of the ACFTA 3.0 upgrade negotiations,” PM Chinh stated.

Leveraging trade deals

Vietnam is hoping that its trade and investment ties with China will be promoted via not only the ACFTA, but also the RCEP and the upcoming membership of China in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

“Vietnam supports China in joining the CPTPP in line with the deal’s standards and processes. Both sides stand ready to jointly implement the RCEP in an effective manner, and boost regional economic links,” said the Vietnam-China joint statement.

China submitted a formal application to join the CPTPP in 2021 in a bid to reform and open up the economy. The deal could increase China’s GDP by up to 2.27 percentage points and its exports by around 5-10 percentage points, according to a model developed by Li Chund-ing, a professor at the school of economics and management at China Agricultural University.

China’s GDP will grow by 0.25 percentage points and exports by 0.09 percentage points if China does not join the CPTPP, Chund-ing said.

Meanwhile, China and ASEAN are also members of the RCEP. China is ASEAN’s largest trading partner, enjoying an on-year trade increase of 15 per cent with ASEAN in 2022, the first year the RCEP became valid.

China is also the third-largest source of foreign direct investment inflows into ASEAN countries, after the US and the EU, with the total hitting $18.65 billion in 2022. This sum accounted for 11.4 per cent of China’s total overseas direct investment that year, and 15 per cent into Asia, according to a 2022 statistical bulletin on the subject.

According to experts, the greatest benefit from the RCEP is preferential tax rates, with zero tariff being applied on more than 90 per cent of goods traded by its members.

Two-way trade between China and Vietnam has witnessed high growth thanks to the implementation of the RCEP and the ACFTA, said the MoIT. In 2023, total two-way trade turnover between Vietnam and China hit $173.3 billion, down from $175.6 billion in 2022 - with Vietnam’s exports valued at $61.7 billion, up 6.4 per cent on-year, and Vietnam’s imports were worth $111.6 billion, down 6.9 per cent on-year.

Under the MoIT’s calculations, China was responsible for 25.3 per cent of Vietnam’s total trade in 2023, with 17.3 per cent of export turnover and 34 per cent of import value.

At present, the top exports of China to Vietnam are integrated circuits, telephones, sound recordings, electric batteries, and other knitted or crocheted fabrics.

Meanwhile, top imports of China from Vietnam include agricultural products such as durian, dragon fruit, longan, and banana; sound recordings; integrated circuits; broadcasting accessories; office machine parts; and non-retail pure cotton yarn.

According to the Vietnamese Ministry of Planning and Investment, cumulatively as of December 20, Vietnam had over 4,160 Chinese valid ventures registered at more than $27 billion – making China the sixth-largest foreign investor.

In the January-December 20 period, China ranked fourth in Vietnam’s list of foreign investors with total newly registered and newly-added capital and capital contributions and stake acquisitions of $4.47 billion – accounting for 12.2 per cent of the total.

In mid-December, Vietnam and China agreed to boost cross-border standard railway connectivity, and study an ability for the construction of the standard Lao Cai, Hanoi, Haiphong railway system, and also study the same system for the Dong Dang-Hanoi, and Mong Cai, Halong, Haiphong railways at a suitable time.

Vietnam and China have also encouraged both countries’ enterprises to strengthen cooperation in road infrastructure, bridges, railways, clean electricity, telecommunication, and logistics. They have also vowed to continue their close combination in facilitating travelling by road, air, and train into their respective territories.

Under the joint statement, the Chinese side will actively promote the market opening process for Vietnamese agricultural products such as fresh coconuts, frozen fruit products, sectioned fruits, avocados, custard apples, rose-apples, and medicinal herbs with botanical origin, buffalo meat, beef, pork, products from cattle and poultry meat.

The Chinese government encourages Chinese companies and groups, especially big ones with high technology, to expand investment to Vietnam in line with the Southeast Asian nation’s demand and sustainable development strategy.

Vietnam will actively promote the import of Chinese sturgeon, and increase exchanges between professional organisations of the two sides, and promote the healthy development of related industries of the two countries.

Vietnam Investment Review