The ASEAN-Hong Kong China Free Trade Agreement and Vietnam
The ASEAN-Hong Kong, China Free Trade Agreement (AHKFTA) came into effect on June 11 for Vietnam, Laos, Myanmar, Singapore, and Thailand. The remaining ASEAN member states will complete the ratification process later this year. The deal was first signed and agreed in November 2017 to increase economic cooperation, reduce taxes, and increase investment between regional markets and Hong Kong.
Analysts have noted that with ongoing trade tensions, Hong Kong businesses are keen to expand investment opportunities in Southeast Asia, and particularly in Vietnam. At the end of 2018, Hong Kong businesses had invested more than 1,300 projects in Vietnam on key sectors such as textiles and garments, real estate and investments. Many expect these numbers to improve following the AHKFTA.
Vietnam is Hong Kong’s third largest trade partner and biggest export market in ASEAN. In the first five months of this year, Hong Kong accounted for 30.4 percent of total FDI investment in Vietnam, equaling US $5.08 billion.
Hong Kong’s importance as an entrepôt for trade between mainland China and Vietnam will continue to grow at a much faster pace with the FTA coming into force. Re-exports of goods of ASEAN origin through Hong Kong to China have been growing at an annual average rate of 6.4 percent since 2012.
On the other hand, re-exports of mainland China’s origin goods to ASEAN through Hong Kong have been growing at an annual average rate of 3.7 percent since 2012. Vietnam, was the sixth largest destination for Hong Kong’s exports in 2018, with 60 percent being re-exports originating from the Chinese mainland. With ASEAN countries custom duties reduced or eliminated, Hong Kong’s domestic goods will become more competitive in the region.
While China has been rapidly increasing investment in Vietnam, some analysts say China is also pushing investment into through Hong Kong as Vietnam becomes more cautious about Chinese investment.
In addition to an increase in traded goods, the FTA and the Investment Agreement (IA) will encourage the service sector in ASEAN countries to take advantage of Hong Kong’s professional, financial, commercial, and legal services. The region will also benefit from increased investment flows, especially in the real estate, manufacturing, and service industry.
With increased access to Hong Kong’s trade network, its proximity to mainland China, and China’s Belt and Road Initiative, foreign and domestic firms should prepare to take full advantage of the FTA.
This is an excerpt from an article appearing in Vietnam Briefing, a subsidiary of Dezan Shira & Associates. For the latest economic, regulatory and business news from Vietnam, visit vietnam-briefing.com.