FINANCIAL PANIC: A bank clerk in Hanoi sorts out banknotes of Vietnamese dong. Devaluation, inflation and hot money flight pose huge challenges to the Vietnamese economy

Devaluation of currency, runaway inflation, huge outflow of speculative capital, decreasing resident purchasing power, a series of strikes against price hikes … Viet Nam is confronted with an economic crisis.

Although the Vietnamese economic crisis has not yet caused any severe adverse reactions for other Asian economies, the international community, particularly emerging economies, is not relaxing its vigilance.

Effect on Chinese investors

To the south of China, Viet Nam began to receive Chinese investment from 1991. Since the beginning of 2008, various factors in China (readjustment of corporate income tax rate, the implementation of the Labor Contract Law and readjustment of the tax rebate policy) increased operating costs and caused some Chinese companies in the labor-intensive industries such as electronics, garment and shoe-making to transfer their factories to Viet Nam.

At present, there are over 20 Chinese companies with factories or large trade volumes in Viet Nam. Chinese investors in Viet Nam are involved in the industries of farm machinery, textiles, power and automobiles, including such companies as TCL, Midea, Supor, Gree and New Hope Group (NHG). Of them, NHG has the largest investment volume. It has set up three branches in Hanoi, Ho Chi Minh City and Haiphong, with total assets of $200 million. Its revenues and profits generated in Viet Nam both surpassed 10 percent of the group's total revenues and profits.

An announcement released by NHG says that its factories in Viet Nam are not yet affected by the economic crisis and that sales in Viet Nam remain as healthy as in China. Although inflation in Viet Nam increased prices of raw materials, and subsequently raised the prices of finished products, sales are still stable because of the large market demand.

Supor, a Chinese investor in the home appliances industry, also recently announced that the economic crisis has not had a severe impact on its business and the company is optimistic about its factory in Viet Nam. It believes that the factory will help promote the company's business performance and brand recognition in the future.

According to Midea, which mainly produces home appliances like electric and electromagnetic cookers in Viet Nam, since its investment volume is small, its sales performance is not influenced by the devaluation of Vietnamese dong.

TCL made an emergent assessment on its investment projects in Viet Nam and the result shows that losses are not substantial. Established in 1999, the Viet Nam branch of TCL sells consumer electronics and computers. The group says it will continue its development strategy in Viet Nam.

The most severely affected Chinese companies are Hubei Yihua and Chongqing Lifan.

In an announcement released on June 12, Hubei Yihua said that the company decided in 2005 to set up a chemical engineering company in Viet Nam to produce and sell fertilizers such as urea. Because of the economic fluctuations in Viet Nam, the company has recalled its staff in the country and only hires a translator for liaison of the project.