Vietnam'S Situation In Globalization: Input Capital Input Risk

Stiglitz, the Nobel Laureate in economics, lists a lot of data and facts in his book "globalization and its discontent". The final conclusion is that many developing countries are not satisfied with the economic situation or even get rid of absolute poverty. It is marketization and globalization that have hurt them.

At the end of 2006, after 11 years of hard work, Vietnam finally joined the World Trade Organization (WTO) and fully integrated into the long-awaited international stage.

The Vietnamese have greatly improved their economic growth expectations in the next few years.

But the good times are always too short. After experiencing the rapid growth in 2007, the Vietnamese economy soon saw a 25% inflation rate in the first half of 2008. The stock market and the property market were cut down, and the Vietnamese shield began to depreciate sharply.

What does it bring to Vietnam on the global stage?

Some other less obvious data may make people see more clearly.

In 2006, Vietnam's trade deficit was 1 billion 200 million US dollars. After entering the WTO, the trade deficit increased to US $3 billion 100 million. In the first quarter of this year, this figure expanded rapidly to 8 billion 300 million US dollars.

For a country wishing to participate in the international division of labor with the comparative advantage of cheap labor, the trade deficit has increased exponentially.

Countries with a shortage of capital are always willing to embrace their international capital with open arms.

For any country in the world who is eager to get rid of poverty and become rich, it is almost the only way to boost economic growth through massive investment. The source of investment is nothing more than two aspects: first, domestic savings and two foreign capital.

For most developing countries with a shortage of capital, the introduction of foreign capital has become a necessary path.

After joining the WTO, Vietnam also introduced huge amounts of foreign investment. In 2007, Vietnam's foreign direct investment (FDI) reached a record $20 billion 300 million, an increase of 70% over the same period last year. This growth rate ranks first in the world.

What is the concept of $20 billion 300 million for Vietnam?

In 2007, Vietnam's GDP was 71 billion 300 million US dollars and foreign exchange reserves amounted to US $21 billion, that is to say, FDI accounted for 28.5% of GDP and accounted for 96.7% of foreign exchange reserves.

Although China has always been a hot attraction for global investment, these two ratios are dwarfed by Vietnam, which are only 2% and 5.5% respectively.

It is evident that Vietnam attracts huge foreign investment.

As far as Vietnam's economic capacity is concerned, the foreign direct investment of US $20 billion 300 million is obviously an unbearable figure. The influx of large quantities of foreign capital will inevitably be a flood of liquidity.

For Vietnam, which has only 21 billion dollars in foreign exchange reserves, it is difficult to effectively hedge these excess liquidity, so inflation is inevitable.

Freedman, a master of monetary science, once said that inflation is a monetary phenomenon in the final analysis.

Although this conclusion may not be applicable in the real world, it is just right to explain the inflation problem faced by Vietnam.

In the foreign direct investment of 21 billion US dollars, only a part of the funds really invested in the real economy. Most of the rest became hot money and invested in high speculators such as stock market and property market.

Although Vietnam also realized the seriousness of inflation, it did not pay enough attention. Between GDP and CPI, they obviously preferred to see a record 8.48% growth of GDP in 2007, rather than the same record of 12.63% CPI growth.

The Vietnamese government made such a plan for economic growth in 2008: gross domestic product (GDP) grew by 8.5%. 9%, and the price rise index was lower than the GDP growth rate.

Now, Vietnam is obviously overly vulnerable to the growth of inflation. In 2008, Vietnam's FDI continued to grow rapidly, coupled with the rise in domestic rice and energy prices, resulting in inflation. In May, CPI reached 25.2%, which was far higher than the growth rate of GDP.

The only thing to be thankful is that at the very beginning of Vietnam's participation in the stage of globalization, Vietnam retained at least the last piece of private land, that is, capital account control, which made the Vietnamese shield unwantonly attacked by international speculators and plunged into the Thai baht dilemma in 1997.

Although in the forward market, forex traders expect the Thai baht to depreciate by 40% in the coming year, but at least for now, it is only a bet for international speculators.

The Vietnam crisis did not evolve into the Southeast Asian financial crisis in 1997. The last hope is also on its capital account which has not yet been opened.

In the background of the depreciation of the US dollar in the past few years, a lot of hot money has flowed out of the United States and entered the emerging market. This kind of capital importation of hot money also means risk input.

More than 200 years ago, David Ricardo put forward the theory of comparative advantage. He believed that the participation of countries in comparative advantage in international division of labor could make the situation of both sides better.

With the almost perfect theory of David Ricardo, the wheels of globalization are advancing vigorously, and all countries are trying to get into this train instead of being abandoned by it.

However, globalization does not always bring benefits to every passenger. Vietnam, as a country that has changed dramatically after a year and a half after joining the WTO, has provided fresh proof for the harm of globalization.

People began to reflect on it many years ago, and protested the gap between the rich and the poor brought about by globalization and the social injustice created by the backward countries. Today, some developed countries in Europe and the United States have joined the camp against globalization as a result of more and more job opportunities flowing to developing countries.

Among all those who oppose globalization, the most famous one is Stiglitz, the winner of Nobel economics. He wrote a controversial "globalization and its discontent" a few years ago. The book lists lots of data and facts, and finally comes to the conclusion that many developing countries are not satisfied with the economic situation or even get rid of absolute poverty. It is marketization and globalization that have hurt them.

No matter how controversial the globalization still is, the trend of continuing to move forward is still overwhelming. For many countries, what needs to be done is not only to catch the train of globalization, but also to learn how to avoid being hurt by its violent concussion.

Globalization can be divided into trade globalization and financial globalization. The former is the first step for most developing countries to join the international arena, while the latter is the last step for developed countries to urge developing countries to open as soon as possible.

There is relatively little opposition to trade globalization, because global trade does seem to be beneficial.

Most of the time, it does, but it doesn't mean everything.

For example, Vietnam today has shown that even trade globalization is not so beneficial and harmless.

Even without considering the damage to the national industry, the globalization of trade has gone beyond the capacity of Vietnam from the perspective of capital inflow.

China has always been regarded as the winner of Global trade, earning huge trade surpluses worldwide every year, but the negative effects are obvious.

This year's top enemy inflation of China's economy is largely due to the globalization of trade: a large number of hot money flows through trade surplus and foreign direct investment, leading to domestic liquidity, too much money chasing too few commodities, thus pushing up inflation.

In June 7th this year, the Central Bank of China suddenly announced a 1 percentage point increase in the deposit reserve ratio.

Just a few days later, the National Bureau of statistics will soon release the CPI data in May. The market is generally expected to drop from 8.5% in April to 7.7%.

In accordance with the central bank's past regulatory measures, it is usually followed by the announcement of CPI after the announcement of the Statistics Bureau. In May, the CPI data had begun to fall markedly. The central bank has been in a state of abnormal regulation ahead of schedule, bringing a panic to the market and causing a sharp decline of more than 7% in Shanghai and Shenzhen stock markets.

Investors are beginning to talk about what the central bank has discovered, and why such a common man has not found any signs of such abnormal regulation.

In the end, people put the conjecture on hot money - the hot money was so fierce that the central bank had to hedge liquidity by raising the deposit reserve ratio.

In the first quarter of this year, China's foreign exchange reserves increased by US $153 billion 900 million, the trade surplus was US $41 billion 400 million, and foreign direct investment was US $27 billion 400 million, which means that the scale of hot money entering China in the 1 quarter of this year has exceeded 85 billion 100 million US dollars.

With the start of the two quarter, the speed of hot money influx increased significantly. In the trade surplus, the surplus in the two months of April and May reached 36 billion 800 million dollars, reaching 88.9% in the first quarter.

In the context of the appreciation of the renminbi and the slowdown in the US and EU markets, the trade surplus has accelerated.

Foreign direct investment (FDI) has also increased substantially. After China launched the "two taxes combination" this year, foreign direct investment has not been reduced or increased.

A large number of hot money poured into the central bank must be hedged by the corresponding means. As the interest rate space has been curbed, raising the deposit reserve ratio has become one of the few options.

As high as 17.5% of the reserve ratio is bound to form a great pressure on banks, and then affect the survival environment of large loans such as real estate.

China's stock market has fallen by more than half from its high point. If we do not consider some irrational panic factors, inflation can be regarded as the chief culprit.

India is also tested by inflation. In June 13th this year, India announced its CPI in May, setting a 7 year high of 8.75%.

Because India is a big oil importing country with an import dependency of more than 70%, the soaring price of crude oil in the international market has brought import inflation directly to India.

In such a era of globalization of trade, inflation is no longer a problem of a country, but a global problem. No country can stand alone, and the difference lies in its own ability to resist.

For some small countries that are not yet well prepared, the benefits of globalization can be swept away in an instant.

The risk of financial globalization is unimaginable. It seems that trade globalization is not so perfect. The risk of financial globalization is unimaginable.

After the Asian financial crisis in 1997 subsided, Stiglitz and other economists have actually made a deep reflection on this.

Their research found that although most Southeast Asian countries were swept over, Malaysia suffered the most damage and the fastest recovery. The reason was that its capital account was not open to foreign investment, which led to the international super speculator's "super cash machine" tactics in the Thai baht and other currencies could not be copied at will.

Looking back at the numerous financial crises in history, any country has a large amount of capital inflow before the outbreak of the crisis, and a large number of capital outflows after the outbreak of the crisis further aggravate the degree of crisis.

For example, the depreciation of the local currency, the sharp fall in the stock market and so on, are the uncontrolled capital projects leading to the free entry and exit of international capital.

Whether China should open capital account is a controversial topic in recent years.

The advantage of opening capital account is to reduce the cost of capital in and out, help to grow into an international financial center, and RMB can become an international currency and so on.

In the long run, it should be corresponding to the goal of China's "great power rise". After the financial system is quite complete in the future, capital account liberalization should not be controversial.

But in the medium and short term, the risk of capital account liberalization is much higher than that of opportunity.

There is a famous "Mundell Impossible Triangle" in modern financial theory, which is put forward by Mundell, the father of the euro.

Mundell believes that a country can not simultaneously achieve freedom of capital flow, independence of monetary policy and stability of exchange rate.

That is to say, a country can only have 2 items, and not 3 at the same time.

If a country allows capital flows and requires an independent monetary policy, it will be difficult to maintain exchange rate stability. If exchange rate stability and capital flows are required, monetary policy must be abandoned.

For most developing countries, the independence of monetary policy and the stability of exchange rate are obviously higher than that of capital mobility.

The risks brought by large scale capital import and export not only bring risks to developing countries, but also face the impact of developed countries.

For example, the problem of hot money in the current round of global (especially emerging markets) is rooted in the depreciation of the US dollar, resulting in the influx of hot money into emerging markets with high returns, creating inflation and other troubles for these countries.

But in turn, when the US subprime mortgage crisis hit a climax in the first few months, Americans embarrassed to find that a strong US could not resist massive capital withdrawals and plunged into a liquidity crisis.

As a result, the Fed has taken the stigma of "interfering in the market and losing its independence", and has injected capital into the market again and again, so that market liquidity is not exhausted.

After the United States federal government launched a series of combined punches, such as interest rate cuts and capital injection, the subprime crisis continued to deteriorate.