A rise in South Korean investment into Vietnam resulting in an expansion in imports from the former is creating a trade deficit for the latter.

According to the latest figures from the General Statistics Office, Vietnam-South Korea trade turnover in the first five months of this year reached $30 billion, down from $39.1 billion in the same period last year. It includes $9.6 billion worth of Vietnamese exports and $20.4 billion of South Korean exports.

The total trade deficit for Vietnam in this period sat at $10.8 billion, versus such a figure in the same periods of 2022 ($17.9 billion), 2021 ($12 billion), 2020 ($9.6 billion), and 2019 ($11.3 billion).

Vietnam has been suffering from a trade deficit with South Korea in recent years, at $37.8 billion in 2022, $34.2 billion in 2021, $27.6 billion in 2020, $27.5 billion in 2019, and $29.6 billion in 2018.

However, according to the Ministry of Industry and Trade (MoIT), there is now worry about a rise in the trade deficit for Vietnam. Vietnam is an increasingly attractive destination for South Korean investors who export many types of materials for production from their home market into Vietnam, where such materials cannot be produced directly due to a weak supporting industry.

Last year, both nations’ total trade turnover reached $86.4 billion, up 10.4 per cent on-year. Vietnam’s exports to South Korea hit $24.3 billion, up 10.7 per cent and accounted for 6.5 per cent of the former’s total export turnover. Meanwhile, Vietnam’s imports from South Korea stood at $62.1 billion, up 10.3 per cent and occupied 17.3 per cent of Vietnam’s total import value.

The key item groups that were imported the most includes computers, electronics and their spare parts ($23.2 billion); mobile phones and their spare parts ($11.5 billion); machinery and equipment ($6.2 billion; assorted petrol and oil ($3.4 billion), plastic materials ($2.7 billion); assorted clothing materials ($1.8 billion); ordinary metal ($1.6 billion); and vehicle spare parts ($1.5 billion), among others. All these figures recorded an on-year increase last year.

The MoIT said that these imported items do not compete with those in Vietnam where many of similar items are not produced, and they are all used for domestic production in Vietnam, not luxury items.

The Korea Times cited data from South Korea’s Ministry of Trade, Industry and Energy, and Federation of Korean Industries (FKI) as saying that Vietnam became this nation’s third-largest trading partner in 2022, generating the largest trade surplus for South Korea. The analysis of trade and investments between the two countries from 1992 to 2021 showed that South Korea has mostly registered a surplus in trade with Vietnam.

Vietnam has established itself as an important trading partner of South Korea, accounting for 8.8 per cent of the latter’s exports and 3.9 per cent of imports, the FKI said.

Figures from the Ministry of Planning and Investment showed that accumulatively as of May 20, South Korea was the biggest foreign investor in Vietnam, with nearly 9,670 valid projects registered at $81.55 billion. In the year up to May 20, total newly registered and newly added capital and stake acquisition and capital contributions from South Korean investors in Vietnam reached $666.5 million, up 32.4 per cent on-year.

The Korea Times also cited a report by the Bank of Korea as underlining the importance of diversifying export markets for Samsung Electronics and SK Hynix.

The report said that Vietnam is emerging as a new source of demand for South Korean semiconductors, as it rises as an international production base for IT devices that could potentially replace China in the future. In particular, Vietnam is now home to major smartphone manufacturers’ production bases, and South Korean semiconductors are used as intermediary goods in Vietnam to produce finished IT goods.

The report also noted that Vietnam’s abundant low-wage workforce and high accessibility to the Chinese market are prompting global businesses, including those from South Korea, to build manufacturing facilities in the Southeast Asian country.

“Many South Korean companies are stepping up investment in Vietnam and if this trend continues, the trade scale between the two countries this year is expected to exceed $100 billion,” Hong Sun, chairman of the Korea Chamber of Business in Vietnam, told VIR.

Vietnam and South Korea have agreed on a scheme to better the quality of economic, trade, and investment cooperation, with efforts to be made through devising more favourable policies so as to increase the bilateral trade turnover to $100 billion this year and $150 billion by 2030.

To this end, the two economies have agreed on further opening doors for goods and services from both sides, while taking advantages of the Regional Comprehensive Economic Partnership, the Korea-Vietnam Free Trade Agreement, and the ASEAN-Korea FTA in which they are signatories.

Last year, Vietnam’s exports to South Korea ranked third in terms of enjoying tariff incentives under the three deals, with a total value of $12.4 billion, according to the MoIT.

Vietnam Investment Review