The reason for the high trade deficit is that Vietnam has maintained a high demand for imported machines and equipment, even though the Government has been offering preferences on domestic products.
Several years ago, Lilama made equipment for sugar refineries and cement plants, sparking the hope that Vietnamese firms could design, produce, assemble and run machines and equipment at domestic and foreign-invested projects.
Yet there have been few changes. Vietnam still imports machines for investment projects in large quantities, even though the Government in April 2010 issued Instruction No. 494 on using domestic products in State-funded projects.
In fact, the Government once had a big program on developing mechanical engineering for 2005-2010 that cost thousands of billions of dong. Now, as Deputy Minister of Industry and Trade Do Huu Hao pointed out, “up to 60-70 percent of items are products that can be made domestically”, and “at least 30-40 percent of the value of projects invested by State-owned groups and general corporations are mechanical products that can be made at home.”
Statistics showed that, in the last eight months, the total import revenue of equipment and accessories increased by 14 percent over the same period of 2009. Equipment imports lead in terms of import revenue, brought in as fixed assets for investment projects, while industrial equipment imports account for more than 30 percent of total annual imports.
Tran Van Quang, General Director of Dong Anh Electric Equipments Company in Hanoi makes 500KVA transformers, but he explained that they still find it difficult in project bids, even though they are a member of Electricity of Vietnam (EVN).
The Vietnam Association of Mechanical Industry (VAMI) blames big imports on the problems of the currently applied bidding law. According to the association, all 10 projects on 300MW power plants are run by foreign contractors and domestic enterprises could not get involved, even though they had the ability to implement the projects.
Also, according to VAMI, from now to 2025, Vietnam will spend $107 billion to build power plants and import equipment for ore mining. If Vietnam still does not have reasonable systems, the country may become a dump for low quality equipment made in the region. Therefore, VAMI believes that relevant ministries should propose that the National Assembly amend some articles of the bidding law and other legal documents to prevent this from happening.
However, the managing director of an economic group told reporters that, if forcing state-owned enterprises and economic groups to purchase and use equipment made by domestic enterprises, this will violate the Competition Law. He stressed that businesses always strive to optimize their profits, and they will surely purchase foreign-made products if they are cheaper and of better quality than domestic products.
“We will use domestic products, if manufacturers can improve their quality and reduce production costs,” he maintained.
Hoang Chi Cuong, General Director of the Vietnam Industrial Construction Corporation, suggested that, in order to heighten the capacity of domestic manufacturers, the State should act as a guarantor for firms to borrow long-term capital to manufacture equipment themselves.
Cuong has been told, however, that mechanical enterprises should not expect state intervention if they persist in making high-priced, low-quality products.