THE UNIVERSITY OF DANANG
UNIVERSITY OF ECONOMICS
FACULTY OF INTERNATIONAL BUSINESS
..............
GROUP ASSIGNMENT
INTERNATIONAL ECONOMICS
TOPIC: ASEAN- CHINA FREE TRADE AREA (ACFTA)
Instructors
Class
Group Number
Group members
: Mrs. Truong Mai Anh Thu
: IBS2002_48K01.2
:1
: 1. Le Duy Bao
2. Tran Tuan Kiet
3. Phan Thi Ngoc Minh
4. Tran Thi Thuy Tien
5. Vo Le Ngoc Thong
Da Nang, October 2024
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TABLE OF CONTENTS
1. INTRODUCTION .......................................................................................................................... 1
1.1. HISTORY AND CONTEXT .............................................................................................................. 1
1.2. TIMELINE OF FORMATION ........................................................................................................... 1
2. OVERVIEW OF THE AGREEMENT ......................................................................................... 2
2.1. PURPOSE OF THE AGREEMENT .................................................................................................... 2
2.2. OBJECTIVES OF THE AGREEMENT................................................................................................ 2
3. SUMMARY OF AGREEMENT CONTENT AND COMMITMENTS .................................... 2
3.1. SUMMARY OF THE MAIN POINTS IN THE AGREEMENT ................................................................... 2
3.2. THE MAJOR COMMITMENTS IN THE ACFTA AGREEMENT ............................................................ 4
3.2.1 Commitments on Tariff ......................................................................................................... 4
3.2.2 Commitments on Rules of Origin ......................................................................................... 5
3.3. INCENTIVES FOR VIETNAM.......................................................................................................... 6
4. IMPACT ON TRADE FLOWS ..................................................................................................... 7
4.1. PRE-AGREEMENT TRADE OVERVIEW .......................................................................................... 7
4.2. POST-AGREEMENT TRADE CHANGES .......................................................................................... 7
a. Export .................................................................................................................................... 8
b. Imports .................................................................................................................................. 9
5. IMPACT ON CAPITAL AND LABOR FLOWS ...................................................................... 10
5.1. CAPITAL FLOWS ........................................................................................................................ 10
5.2. LABOUR FLOWS ........................................................................................................................ 12
6. OPPORTUNITIES AND CHALLENGES ................................................................................. 13
6.1. OPPORTUNITIES FOR VIETNAM.................................................................................................. 13
a. Access to China’s market .................................................................................................... 13
b. Diversification of Export Destinations ................................................................................ 15
c. Increased Capital Flow: ....................................................................................................... 17
d. Infrastructure Improvements: .............................................................................................. 17
e. Technological Advancement................................................................................................ 18
f. Reduction of Trade Barriers ................................................................................................. 18
6.2. CHALLENGES FOR VIETNAM ..................................................................................................... 18
a. An excessive reliance on the Chinese market ...................................................................... 18
b. Deficit in Trade.................................................................................................................... 19
c. Barriers Without Tariffs ....................................................................................................... 19
d. Insufficient Product Differentiation .................................................................................... 19
e. Concerns Regarding Border Trade ...................................................................................... 19
f. Limited Understanding of the Market and Reliance on Chinese Brokers ........................... 19
7. CONCLUSION ............................................................................................................................. 20
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TABLE OF FIGURES
Figure 1: Vietnam’s trade from 2001 to 2010 ..................................................................................... 7
Figure 2: Vietnam’s export from China by group of commodity ......................................................... 8
Figure 3: Vietnam’s imports from China by group of commodity .................................................... 10
Figure 4: Number of projects and FDI from China to Vietnam (2008-2018) ...................................... 10
Figure 5: Total FDI from China to Vietnam (2012-2022) ................................................................... 11
Figure 6: China’s main export products to Vietnam in 2022 ............................................................. 14
Figure 7: Vietnam’s main export products to China......................................................................... 15
Figure 8: Export Destinations (2002) ............................................................................................... 16
Figure 9: Export Destinations (2022) ............................................................................................... 16
Figure 10: Import Origins (2002) .................................................................................................... 17
Figure 11: Import Origins (2022) .................................................................................................... 17
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1. Introduction
The agreement established an important legal foundation for enhanced and diverse economic
collaboration between ASEAN and China, serving as a pivotal legal framework. The highlight of this
agreement was the formation of the ASEAN-China Free Trade Area (ACFTA) within a decade. This
not only facilitated free trade in goods and services but also bolstered strategic economic ties, ensuring
long-term stability and prosperity for both regions.
1.1. History and Context
It was the year of 1991 when the ASEAN-China Dialogue Relations was descended by the
participation of the Foreign Minister of the People’s Republic of China Qian Qichen at the ASEAN
Ministerial Meeting in Kuala Lumpur. And China has taken this opportunity to show their interests
and desires in boosting cooperation with ASEAN for mutual benefits. There are some key political
and economic causes which need this cooperation and leads to the establishment of the ASEAN-China
Free Trade Area (ACFTA) agreement, (Krishnamurti, 2014): (WTO center, 2012)

The end of the Cold War encouraged China to quickly improve embassy
establishment and relationship with each of the ASEAN neighboring countries
to help develop regional stability.

The need for economic integration: China and ASEAN fully sought to utilize
economic cooperation when ASEAN is a strategic key for the growing
economic power of China’s expansionary aspiration in economic strength.
Beside ASEAN's drive for regional integration, there is a common objective of
creating a peaceful stable environment, and thereby enough conditions to create
security and prosperity.
1.2. Timeline of Formation
-
November, 2000: Chinese Premier Zhu Rongji proposed the creation of an ASEAN-China
Free Trade Area during the ASEAN-China Summit in Singapore. (Yu Sheng, 2012)
November, 2001: The Fifth China-ASEAN Summit was held in Brunei. ASEAN and China
approved the establishment of the China-ASEAN free trade zone within 10 years.
November 4, 2002: At the sixth China-ASEAN Summit in Phnom Penh (Cambodia), the
then Chinese Premier and ASEAN leaders signed the Framework Agreement on ChinaASEAN Comprehensive Economic Cooperation, making preparation for the establishment
of the ASEAN-China Free Trade Area (ACFTA) in the following 10 years. (Xinhua, 2019)
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-
October 2003: At the 7th ASEAN-China Summit in October 2003 in Bali, Indonesia,
ASEAN and China agreed to set up "a strategic partnership for peace and prosperity."
November 2004: The Agreement on Trade in Goods was signed. (WTO center, 2012)
January 2007: The Agreement on Trade in Services was signed. (ASEAN, 2004)
January 1, 2010: ACFTA officially came into force, creating one of the world's largest free
trade areas with over 1.9 billion people.
-
2. Overview of the Agreement
2.1. Purpose of the Agreement
The agreement was established with the main purpose to minimize barriers by eliminating
tariffs and non-tariff barriers, deepening economic connections, lowering costs, and enhancing
economic efficiency. It creates a larger market, offering greater opportunities and economies of scale,
facilitating market access, and ensuring a predictable environment for service suppliers. The
agreement fosters a close partnership, enhances cooperation, contributes to economic stability in East
Asia, and establishes an open, competitive investment regime, promoting investment and liberalizing
trade in services. (WTO center, 2003)
2.2. Objectives of the Agreement
The ACFTA aims to strengthen and enhance economic, trade, and investment cooperation. It
seeks to liberalize and promote trade in goods and services while establishing a transparent investment
regime. The Agreement encourages exploring new areas for closer economic cooperation and focuses
on integrating newer ASEAN Member States, bridging development gaps for balanced and inclusive
growth. (WTO center, 2003)
3. Summary of Agreement Content and Commitments
3.1. Summary of the main points in the agreement
The ACFTA (including the amendment protocol) contains the fundamental commitments to
eliminate tariffs and apply rules of origin to qualify for preferential treatment. The agreement includes
several chapters, each covering a different aspect of trade and economic cooperation. While the exact
number of chapters may vary depending on the specific version or supplementary agreements (such
as those on services or investment), these agreements below formed parts of the broader ACFTA
framework:
Framework Agreement: outlines a 10-year plan to establish a free trade zone, promoting
economic cooperation and regional integration. It includes provisions for tariff reduction, rules of
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origin, trade remedies, investment liberalization, dispute settlement, intellectual property protection,
and cooperation in various areas. Additionally, it offers special and differential treatment for newer
ASEAN members to facilitate their adaptation to the agreement. Overall, this framework aims to foster
trade, investment, and economic prosperity between ASEAN and China. (WTO center, 2021)
Dispute Settlement Mechanism (DSM): establishes procedures for resolving trade disputes
between ASEAN and China. It encourages consultations, provides for good office mediation, and
allows for arbitration as a last resort. The DSM also includes provisions for interim measures,
transparency, and confidentiality, aiming to ensure fair, efficient, and predictable dispute resolution
within the ASEAN-China Free Trade Area. (WTO center, 2004)
Agreement on Trade in Goods: The agreement encompasses various provisions aimed at
reducing tariffs, establishing rules of origin, ensuring national treatment, promoting transparency,
implementing safeguard measures, managing dispute resolution, and fostering cooperation. Its main
goal is to progressively eliminate tariffs on most traded goods, which would lower import and export
costs and stimulate economic growth. The framework outlines criteria for determining the national
origin of products, ensuring that only those meeting specific regional value-added standards qualify
for preferential tariffs. Both parties agree to treat imported goods equally to domestic products and
emphasize transparency in trade regulations to aid businesses in understanding the rules. To protect
domestic industries from import surges, temporary safeguard measures can be applied in line with
WTO guidelines. A dispute resolution mechanism is also included to facilitate amicable settlements
of trade conflicts. Additionally, newer ASEAN members will receive special considerations, such as
extended deadlines for obligations and higher permissible tariffs on certain items. The agreement
acknowledges China's market economy status and aligns its trade practices with other WTO members.
Oversight will be conducted by the ASEAN-China Joint Trade Committee and the Trade Facilitation
Working Group to ensure effective implementation and enhance trade facilitation efforts, marking a
significant step toward economic growth and regional integration between ASEAN and China.(WTO
center, 2004)
Agreement on Trade in Services: promoting economic integration between ASEAN and
China by liberalizing trade in services. It aims for fair market access, ensures equal treatment of
foreign and domestic services, and emphasizes transparency in regulations. The agreement encourages
Mutual Recognition Agreements (MRAs) for professional mobility and allows safeguard measures to
protect local industries. Special provisions support newer ASEAN members' adaptation, while a
dispute resolution mechanism handles disagreements. Oversight committees ensure the agreement's
smooth implementation, fostering regional growth and cooperation.
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Agreement on Investment: purposing to enhance investment flows and create a transparent,
liberal environment for economic cooperation. Key provisions include national treatment, ensuring
that foreign investors receive the same favorable treatment as domestic ones, and most-favored-nation
(MFN) treatment, extending any benefits granted to other countries to ASEAN and China members.
The agreement emphasizes transparency and investment protection, including safeguards against
expropriation with compensation. It also provides a dispute resolution mechanism for conflicts
through international arbitration or local courts. Recognizing the varying development stages among
ASEAN nations, the agreement offers special provisions for newer members. Overall, it seeks to
promote economic growth and mutual benefits through increased investment and cooperation between
ASEAN and China.
3.2. The major commitments in the ACFTA agreement
3.2.1 Commitments on Tariff

Vietnam’s commitment in ACFTA (VNTR, 2004)
Vietnam has pledged to eliminate 90% of its tariff lines within a decade, flexibly adhering to
the timeline established in 2018. For the remaining tariff lines, Vietnam aims to reduce rates by 5% to
50% by the end of the schedule set for 2020.
As of January 1, 2015, Vietnam implemented a reduction of an additional 3,691 tariff lines to
a rate of 0%, following a previous cut of 7,983 lines in comparison to 2014. This reduction represents
approximately 84.11% of the total tariff table and primarily targets categories such as plastic and raw
materials, furniture and wood products, machinery and equipment, spare parts, computers and
electronic components, fabrics for garments, textile raw materials, footwear, textile goods, as well as
certain iron and steel items. The tax rates remained unchanged in both 2016 and 2017 when compared
to those in effect during 2015.
On January 1, 2018, an additional reduction saw another 588 tariff lines brought down to a
rate of zero. This increase raised the total number of tariff lines set at zero percent to 8,571, which
constitutes approximately 90.3% of the complete list. This category includes various food products
such as meats and processed items; produce from vegetables and fruits; cereals; electric motors;
household goods; chemicals; auto parts; construction materials; plastics; rubber; and paper.
By the year 2020, around 475 sensitive tariff lines are expected to be reduced to a rate of five
percent. These include products such as iron and steel items; electric cables; household electrical
appliances; rubber goods; ceramics; paper products; cement; general plastics along with other
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industrial outputs; processed agricultural goods along with specific truck types and specialized
vehicles.
Tariff lines that will either maintain high rates or have no commitment for reductions consist
of a total of 456 lines including poultry eggs; sugar; tobacco products; engines; means of transport
(excluding trucks exceeding six tons); petroleum products; iron and steel materials used in
construction projects along with certain items linked to national security concerns. From January 1,
2015, Vietnam cut another 3691 tariff lines to 0% compared to 2014 (the number of tariff lines cut to
0% was 7983 lines, accounting for 84.11% of the total tariff table), focusing on commodity group:
plastic & plastic raw materials, furniture & wood products, machinery and equipment, spare parts,
computers and electronic components products, garment fabrics, raw materials textile materials,
footwear, textile products, and some iron and steel products. Tax rates in 2016 and 2017 remained the
same compared to 2015.

China’s commitment (VNTR, 2004)
China pledged to eliminate tariffs on 95% of its tariff lines by 2011. For the remaining sensitive
tariff lines, the country aimed to reduce tariffs by 5% to 50% by the conclusion of its roadmap in 2018.
By 2015, a total of 7,845 tariff lines had been reduced to zero, representing 95.35% of all tariff
lines and accounting for 91.59% of total import turnover from Vietnam. The average tariff rate
imposed by China on ASEAN products during the period from 2015 to 2017 stood at 0.73% per year,
which decreased to 0.56% in 2018.
Certain Chinese goods continue to have retained tax rates, including cereals and grain
products; coffee, tea, and spices; petroleum; various fertilizers; plastic raw materials; fabric for
apparel; materials for textiles and footwear; engines, machinery, and equipment; as well as
automobiles and their parts; furniture among others.
3.2.2 Commitments on Rules of Origin
Goods are considered to have ACFTA origin if they are wholly obtained or produced entirely
within the ACFTA region, or if they meet one of the following two conditions: (ASEAN, 2021)

Goods meet the general rule of origin: the regional value content (RVC) is at least 40%.

Goods comply with product-specific rules: some goods that do not meet the general
rule of origin are subject to specific rules applicable to those goods as specified in the
List of Product-Specific Rules.
The certificate of origin (C/O) under ACFTA is C/O Form E. ASEAN and China currently
issue 100% of C/O Form E in paper form. Corrected C/Os are directly adjusted on the issued C/O
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rather than reissuing a new one. The C/O can be issued before, at the same time as, or after (no more
than 1 year) the export date of the goods. ACFTA does not include provisions for self-certification of
origin.
3.3. Incentives for Vietnam
In line with the provisions of the Early Harvest Program (EHP) established by the Framework
Agreement on Comprehensive Economic Cooperation, the Vietnamese government issued Decree No.
99/2004/ND-CP, which outlines the list of goods and corresponding import tax rates. (THE
MINISTRY OF FINANCE, 2004)
To qualify for benefits under the EHP, imported goods from ASEAN countries and China must
fulfill the following criteria:
(i) Being on Vietnams list of goods and their import tax rates participating in the EHP,
promulgated together with the Governments Decree No. 99/2004/ND-CP of February 25, 2004;
(ii) Being imported into Vietnam from ASEAN member countries or China, which sign the
Framework Agreement and participate in the EHP.
(iii) Being transported directly to Vietnam from a member country participating in the EHP
and satisfying the ASEAN-China goods origin requirement, being granted certificates of ASEANChina goods origin Form E.
Goods of export-processing enterprises in Vietnam, when being sold into the domestic market
with the EHP preferential import tax rates, must fully satisfy the following conditions:
(ii) Satisfying the ASEAN-China goods origin requirement, evidenced by certificates of the
ASEAN-China goods origin Form E, granted by the Ministry of Trade or a body authorized by the
Ministry of Trade.
The import tax rates applicable to import goods eligible for the EHP preferential tax rates as
prescribed in Part I of this Circular shall be the EHP tax rates for each year, corresponding to the EHP
tax rates for each of those years, specified in Vietnams list of goods and their tax rates for
implementation of the EHP, promulgated together with the Governments Decree No. 99/2004/ND-CP
of February 25, 2004 (hereinafter called the EHP preferential tax rates for short). The EHP preferential
tax rates for each year shall automatically apply as from January 1 to the end of December 31 of such
year, starting from 2004.
For goods imported from ASEAN countries and goods sold by export-processing enterprises
in Vietnam into the domestic market, the importers may select the lowest of the following import tax
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rates at the time of importation under the tariff preference programs which Vietnam has participated
in if the application conditions are fully met:
(i) The EHP preferential import tax rates.
(ii) The preferential import tax rates under the Agreement on Common Effective Preferential
Tariffs for materializing the ASEAN Free Trade Area.
(iii) The MFN preferential import tax rates; preferential import tax rates, for which Vietnam
has participated in bilateral commitment with an ASEAN member country (if any).
4. Impact on Trade Flows
4.1. Pre-Agreement Trade Overview (World Bank, 2022)
China has become Vietnam’s top trading partner, ranking first in imports and second in
exports. From 1991 to 2000, Vietnamese goods struggled internationally and domestically due to high
prices and low quality. Although trade improved modestly after 2000, challenges persisted.
Before ACFTA, 29.9% of Vietnam’s exports to China faced tariffs over 20%, 32.86% were
taxed at 11–20%, and 37.14% under 10%, making market access difficult. Border trade was
inconsistent, with Vietnamese exporters heavily dependent on Chinese traders, increasing their
exposure to fraud. Smuggling and illegal imports from China further complicated consumer protection
and trade monitoring efforts.
4.2. Post-Agreement Trade Changes
Unit: billion USD
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Expor
t
1.417
1.518
1.883
2.899
3.228
3.03
3.356
4.535
4.909
7.308
Impor
t
1.606
2.158
3.138
4.595
5.899
7.39
12.50
2
15.65
2
16.44
20.01
8
Total
trade
3.023
3.676
5.021
7.494
9.12
10.42
15.85
8
20.18
7
21.34
9
27.32
6
Figure 1: Vietnam’s trade from 2001 to 2010
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Vietnam’s General Department of Customs reports that bilateral trade with China has grown
steadily since 2001, averaging 28% annually. Trade rose from $3.023 billion in 2001 to $27.326 billion
in 2010. Key drivers include China’s economic growth, both countries joining the WTO, and the
ASEAN-China Free Trade Area (ACFTA). After ACFTA’s tariff cuts in 2004, trade increased sharply
to over $7 billion and continued rising, reaching more than $27 billion by 2010—nearly $20 billion
more than in 2004.
a. Export
Vietnam's exports to China grew steadily from 2001 to 2010, with a notable spike in 2004.
During this period, China became Vietnam's third-largest export market, with exports increasing at an
average annual rate of over 21%. Export value rose from $1.417 billion in 2001 to $7.308 billion in
2010—comprising 10% of Vietnam’s total exports.
The ASEAN-China Free Trade Area (ACFTA) tariff reductions, introduced in 2004,
significantly boosted Vietnam’s exports. That year, exports nearly doubled to $3 billion compared to
2001. The upward trend persisted, reaching over $7.3 billion by 2010—an increase of $4.3 billion
from 2004.
Unit: Million USD
2005
2006
2007
2008
2009
Materials
2519.5
77.6% 2478.6
76.4%
2625.8
72.0%
3519.
4
72.6%
3556.
6
65.8%
Motor fuel
22.4
0.7%
34.3
1.1%
17.9
0.5%
28.8
0.6%
124.8
2.3%
Consumer
goods,
machinery
and
equipment
546.1
16.8%
598.1
18.4%
826.0
22.7%
1068.
0
22.0%
1305.
8
24.2%
Agriculture,
forestry,
aquatic
products and
others
158.3
4.9%
131.7
4.1%
176.4
4.8%
233.9
4.8%
415.7
7.7%
Total export
3246.4
100%
3242.8
100%
3646.1
100%
4850.
1
100%
5403.
0
100%
Figure 2: Vietnam’s export from China by group of commodity
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Vietnam's exports to China fall into three key categories:
Agricultural, Forestry, and Fisheries Products: Between 2005 and 2009, this
group accounted for 4%–7% of Vietnam’s total exports to China.
Materials, Fuel, and Minerals: This category, including crude oil, coal, ores, and
minerals, maintained a stable share of over 70% during 2005–2009, playing a crucial
role in driving export growth.
Consumer Goods, Machinery, and Equipment: This group includes textiles,
footwear, electronics, and machinery. Exports surged from $546.1 million (16.8% of
total exports) in 2005 to $1.305 billion (24.2%) by 2009, marking an increase of
nearly $760 million.
b. Imports
China has become Vietnam's leading import source, with an average annual growth rate of
33.4% over the past decade. Vietnam’s imports from China rose from $1.606 billion in 2001 to
$20.018 billion in 2010—more than twelvefold—accounting for 23.6% of the country’s total imports.
The ASEAN-China Free Trade Area (ACFTA) tariff reductions in 2004 significantly boosted
imports. That year, imports exceeded $4.5 billion, nearly $3 billion more than in 2001. This upward
trend continued, with imports surpassing $20 billion by 2010, marking an increase of $14.5 billion
since 2004.
Unit: Million USD
2005
2006
2007
2008
2009
Machinery
and
equipment
876.8
14.9
%
1303.
3
17.6% 2909.1
22.9
%
4316.2
27.0
%
4761.1
30.9
%
Materials
3503.
4
59.4
%
4964.
8
67.2%
8369
65.8
%
9965.7
62.4
%
8177.7
53.1
%
Motor fuel
884.3
15.0
%
563.7
7.6%
473.5
3.7%
451.6
2.8%
1275.4
8.3
%
Consumer
Goods
499.5
8.5%
555.2
7.5%
753.6
5.9%
912.7
5.7%
956.5
6.2
%
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Other
Goods
135.7
2.3%
4.2
0.1%
204.8
1.6%
327.3
2.0%
240.7
1.6
%
Total export
5899.
7
100%
7391.
3
100%
12710.
0
100% 15973.
6
100
%
15411.
3
100
%
Source: Vietnam General Department of Customs
Figure 3: Vietnam’s imports from China by group of commodity
5. Impact on Capital and Labor Flows
5.1. Capital Flows
Figure 4: Number of projects and FDI from China to Vietnam (2008-2018)
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Figure 5: Total FDI from China to Vietnam (2012-2022)
In November 2002, China and ASEAN signed the Framework Agreement on
Comprehensive Economic Cooperation to establish an ASEAN-China free trade area. This led to
further agreements on trade and services, with the Investment Agreement becoming effective in
February 2010, spurring a significant rise in FDI inflows to Vietnam, particularly from China (Ha,
2019)
Since 2011, China’s FDI in Vietnam has seen notable changes in form, field, scale, and
ranking. Registered capital from China (excluding Taiwan) rose from US$700 million in 2011 to
about US$2.3 billion in 2013, according to Vietnam's General Statistics Office.
By the end of 2022, China had become Vietnam's second-largest FDI source with 3,567
registered projects across various sectors, boosted by Vietnam’s FDI-friendly policies, strategic
location, and stable environment. By 2018, the registered capital of China had reached over
US$2.4 billion, a three-fold increase sustained by an average anual growth rate of about 18%. In
2018, China accounted for 6.8% of the total foreign direct investment (FDI) registered in Vietnam,
positioning it as the fifth-largest investor in the country. This placed China behind Japan, which
held the top rank at 24.5%, followed by South Korea at 20% and Singapore at 14%. This is an
impressive rise in Chinese foreign direct investment into Vietnam; in 2011, China was only 14th
out of 94 countries that made investments in Vietnam. The figure rose continuously until 2021, at
which it dropped to 1703 million dollars in 2022. After it rose to 4.47 billion dollars in 2023.
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In general, we can see that after the agreement was signed, FDI tends to increase over the
years, this is a positive sign showing that Vietnam is becoming an attractive destination for foreign
investment, thereby facilitating economic development.
Through the ASEAN-China Free Trade Agreement (ACFTA), both sides have actively
reduced tariffs and non-tariff barriers, easing investment for Chinese businesses in Vietnam. This
has made Vietnam an attractive location for production targeting both domestic and foreign
markets. Since ACFTA’s implementation, Vietnam has improved its investment environment by
strengthening infrastructure, simplifying procedures, and offering incentives to foreign investors.
China’s "Going Global" strategy, launched in 1999, further supports domestic firms investing
abroad, making Vietnam a favored destination due to its proximity and favorable conditions.
(VietnamPlus, 2024)
Since the ACFTA, Chinese FDI in Vietnam has shifted from traditional sectors like
furniture, steel, and garments to focus more on construction, manufacturing, and energy projects.
Processing and manufacturing industry now account for 61.4% of total investment capital,
followed by production and distribution of electricity, gas, and water, and air conditioning at
18.2% and real estate at 5.6%. As of 2018, the average investment capital of a Chinese project is
about US$6.3million, with many projects valued in the range of US$1 million to US$10 million.
5.2. Labor Flows (WTO center, 2016)
The Agreement on Trade in Goods and the Agreement on Trade in Services, which came
into effect in July 2005, have facilitated the movement of skilled professionals between Vietnam
and China. This has resulted in a greater number of cross-border employment opportunities for
both professionals and skilled labor.
Since the inception of the ASEAN-China Free Trade Area (ACFTA), the flow of labor
between Vietnam and China has experienced notable transformations. As previously noted,
Vietnam has attracted considerable foreign direct investment (FDI) from China, especially within
labor-intensive industries such as high-tech sectors, component manufacturing, spare parts for
industrial production, electronics, automotive industries, and renewable energy. This influx of
investment has generated an increased demand for both skilled and semi-skilled workers in
Vietnam. When Chinese companies establish factories and production facilities in Vietnam, they
commonly recruit local personnel for various roles, thereby contributing to job creation within
industrial zones. Although there has been significant growth in Vietnam's manufacturing sector
that predominantly benefits local workers, this has not led to a marked increase in labor migration
to China.
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The surge of Chinese investments necessitates upskilling within Vietnam's workforce,
particularly in fields like technology and electronics assembly. In response to this need, Chinese
firms are collaborating with Vietnamese businesses to develop training programs aimed at
enhancing productivity and meeting contemporary production standards. For instance, in 2023,
“Chinese companies are preparing to forge partnerships with Vietnamese enterprises during the
Economic and Technological Program for Lancang-Mekong Cooperation.” (Van, 2023)
The ACFTA does not include any specific provisions for labor mobility among its member
countries. ACFTA centers on trade in goods, services, and investment. Consequently, formal labor
movement between China and Vietnam is still restricted by national immigration and labor
policies.
6. Opportunities and Challenges
6.1. Opportunities for Vietnam
a. Access to China’s market (Le, ASEAN-CHINA FREE TRADE AREA AND
ITS IMPACTS ON THE DEVELOPMENT OF THE VIETNAM’S
TRADE, 2012)
The ACFTA has granted Vietnam favorable access to China’s vast market through tariff
reductions, boosting exports in agriculture, seafood, textiles, and electronics. This has led to
increased exports of rice, coffee, seafood, and footwear. China remains Vietnam's top trading
partner, as its largest import source and second-largest export market globally. (Vietnam Plus,
2024)
In 2018, Vietnam-China trade reached nearly $107 billion, a 13.5% increase from the
previous year. Vietnam's exports to China exceeded $41 billion (up 17%), while imports surpassed
$65 billion (up 12%). China is Vietnam's main market for agricultural and aquatic exports and a
key supplier of essential raw materials for Vietnam's production and export activities. (Vietnam
Plus, 2019)
China sold Vietnam goods worth almost US$90 billion in 2022. This is a reflection of the
two nations' supply chains becoming more integrated. Parts of various products are frequently
manufactured in China and sent to Vietnam for assembly. Notably, Vietnam's top imports from
China in 2022 were computers, electrical goods, spare parts, and component parts. Vietnam and
China had a US$50.4 billion trade deficit in 2022 as a result of Vietnam's nearly US$49.6 billion
in exports to China. This trade imbalance is consistent with integrated supply chains, in which
China performs advanced manufacturing and Vietnam largely handles product assembly and
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testing. (Associates, Chinese President Xi Jinping Visits Hanoi to Talk Trade and Investment,
2023)
Description
Value
Computers, electrical products, spareparts, and components thereof
18,854,754,636
Machine, equipment, tools and
instruments
18,090,627,737
Telephones, mobile phones and parts
thereof
5,924,826,793
Iron and steel
4,444,373,983
Plastic products
3,293,838,540
Total
89,338,454,185
Figure 6: China’s main export products to Vietnam in 2022
Description
Value
Telephones, mobile phones and
parts thereof
13,154,563,852
Computers, electrical products,
spare-parts and components thereof
11,008,926,570
Still image, video cameras and
parts thereof
3,312,375,229
Fruits and vegetables
3,185,168,521
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Machine, equipment, tools and
instruments
Total
2,518,368,412
49,584,069,601
Figure 7: Vietnam’s main export products to China in 2022
In 2024, the bilateral trade volume between Vietnam and China is poised to reach 100
billion USD within the initial six months of the year. There exists considerable potential for
enhancing trade relations between the two nations, bolstered by various trade agreements such as
the ASEAN-China Free Trade Area (ACFTA). According to recent data from the General Statistics
Office, Vietnam's exports to China amounted to 27.8 billion USD in the first half of this year,
reflecting a growth of 5.3% compared to the same timeframe last year. Additionally, Vietnam's
imports from China during this period totaled 67 billion USD, marking an increase of 34.7%.
Consequently, Vietnam experienced a trade deficit of 39.2 billion USD with China in this
timeframe, which represents a rise of 67.9%. (Vietnam Plus, 2024) , (Associates, 2023)
→ The trade office pointed out that Vietnam has plenty of opportunities to increase exports
to China.
b. Diversification of Export Destinations
Through the tariff reductions facilitated by ACFTA, Vietnamese companies have
broadened their export markets, lessening reliance on a single market and enhancing their
ability to withstand global economic fluctuations. Prior to ACFTA, Vietnam's primary export
destinations were predominantly the US, EU, and Japan. However, post-ACFTA, due to these
tariff cuts, China has emerged as one of Vietnam's largest export markets. (Workman, 2023) ,
(Statista, 2023)
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Figure 8: Export Destinations (2002)
Figure 9: Export Destinations (2022)
Import in 2002 and in 2022
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Figure 10: Import Origins (2002)
Figure 11: Import Origins (2022)
c. Increased Capital Flow:
Since the establishment of the ACFTA, Vietnam has seen a significant increase in Chinese
investments across various sectors, including infrastructure, real estate, and manufacturing. In
contrast, prior to this agreement, Chinese foreign direct investment (FDI) in Vietnam primarily
targeted manufacturing activities such as the processing of wooden furniture for households, iron and
steel production, footwear manufacturing, garment production, food processing, and plastic
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packaging. This surge in investment has contributed to job creation, facilitated technology transfers,
and accelerated the modernization of Vietnam's industrial landscape.
d. Infrastructure Improvements:
Chinese investments in infrastructure, including roads, bridges, and industrial zones, have
significantly improved Vietnam's logistics and connectivity. This development has bolstered the
country's export capabilities and lowered business expenses, making it more attractive for future
investments.
A notable example is PowerChina, which has operated in Vietnam since 2000. The
organization has participated in various projects such as the Lai Chau and Son La hydropower plants,
the Vinh Tan thermal power center, along with multiple solar and wind energy initiatives.
PowerChina's total contract value in Vietnam surpasses US$9 billion. Additionally, the company has
indicated a desire to invest in pumped-storage hydropower projects, wind energy projects in the
northern region, and integrated LNG ventures within Vietnam. They have also expressed interest in
contributing to transportation infrastructure development that includes highways and high-speed rail
systems. (The Saigon Times, 2024)
e. Technological Advancement
Cooperation with Chinese firms has enabled Vietnam to adopt advanced technologies and
manufacturing methods, boosting productivity in sectors like electronics, textiles, and automotive
components. This technology transfer has promoted innovation and skill development within the
Vietnamese workforce.
f. Reduction of Trade Barriers
“Despite the numerous agreements between ASEAN and China, the most effective aspect of
their "free" trade in practice is the trade agreement on goods. This agreement primarily focuses on key
commitments, such as eliminating tariffs and establishing rules of origin to qualify for preferential
treatment. Additionally, it covers other commitments, including principles for the treatment of goods,
some non-tariff measures, exceptions, the recognition of China as a market economy, and customs
and trade facilitation measures.” (WTO center, 2012)
In general, ACFTA eliminates tariffs around 90% of goods traded between ASEAN and China,
making it easier and cheaper for businesses to export and import products.
6.2. Challenges for Vietnam
a. An excessive reliance on the Chinese market
China is now one of Vietnam's top export markets, greatly boosting the country's trade
expansion. This, however, creates vulnerabilities because Vietnam's exports could be negatively
impacted by any economic downturn, change in regulations, or geopolitical tension with China.
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Diversifying export markets is still difficult, and Vietnam may be more vulnerable to supply chain
disruptions and unexpected shocks if it relies too much on one major trading partner.
b. Deficit in Trade
Vietnam's trade deficit frequently widens in spite of the country's increasing exports to China
because of the country's booming imports of consumer goods, machinery, and raw materials.
Vietnam's manufacturing industry depends heavily on these imports, but the imbalance is concerning
for the country's long-term economic health. Vietnam must figure out how to close this disparity,
either by strengthening the competitiveness of its exports or seeking alternative suppliers to reduce
reliance on Chinese imports.
c. Barriers Without Tariffs
Non-tariff barriers (NTBs) like strict customs inspections, import quotas, and complicated
technical standards still prevent Vietnam from accessing China's market, even though the ACFTA has
reduced tariffs. Vietnamese exporters face uncertainty because of these barriers, which also make it
challenging for them to comply with changing regulatory requirements. The efficacy of the tariff
reductions agreed upon under the ACFTA framework is diminished by NTBs, which function as covert
trade barriers.
d. Insufficient Product Differentiation
Vietnamese goods frequently find it difficult to compete in China's fiercely competitive
market, particularly consumer goods and agricultural products. Vietnamese exports find it difficult to
differentiate themselves from Chinese domestic goods or those from other ACFTA nations due to their
slower rate of technological advancement and lower level of brand awareness. Vietnam's capacity is
hampered by this lack of competitiveness.
e. Concerns Regarding Border Trade
One major barrier still exists in the form of unstable regulations governing cross-border trade.
Although there is a lot of informal trade along the Vietnam-China border, there are risks involved,
including smuggling, fraud, and policy uncertainty. Vietnamese exporters suffer financial losses
because of disruptions caused by abrupt crackdowns on border trade or frequent changes in
regulations. Long-term trade strategy planning is challenging for businesses due to a lack of clear and
consistent policies.
f. Limited Understanding of the Market and Reliance on Chinese Brokers
Many Vietnamese companies are not well-versed in the legalese, consumer preferences, and
regulatory requirements of the Chinese market. Because of this information gap, exporters frequently
have to depend on Chinese trading agents or middlemen to distribute their goods. However, this kind
of reliance raises the possibility of being taken advantage of by dishonest partners, meeting with
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unfavorable terms, or losing control over branding and positioning in the market. Vietnamese
businesses might find it difficult to establish long-term trading connections with China if they don't
lessen their reliance on China.
7. Conclusion
China is a giant economy and has many similarities with ASEAN as it’s still developing
strongly in technology fields such as mobile phones or other electronic devices, but 70% of the
Chinese economy still depends on agriculture production. Signing ACFTA will help enhance the
competitiveness of export goods. The reduction and exemption of tariffs on input materials for export
goods makes China the center of the global production chain. Additionally, China views ASEAN
countries both as a consumption market and as a source of raw materials, especially oil, for China.
For Vietnam, participating in ACFTA helps access high-tech industries to apply and develop
in the agricultural sector, thereby improving the efficiency and competitiveness of domestic
agricultural products. ACFTA also opens up potential for attracting investment and creating a
significant market for some of Vietnam’s industrial products, especially small machinery for
agriculture and minerals in the Chinese market. However, Vietnam also faces a lot of challenges in
competing with the giant China.
Therefore, Vietnam needs to implement robust and effective policies to improve product
quality and develop human resources to enhance its competitiveness. Also, Vietnam should take
advantage of strengths and opportunities from ACFTA for ensuring sustainability and successful
participation in the long term. In summary, the China-ASEAN Free Trade Area is the largest free trade
area with the potential to create significant benefits, bringing many advantages to businesses and
consumers in the region, but also facing numerous challenges. (Le, 2012)
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