Thailand’s ’90s crisis holds lessons for recovering Vietnam

Samsung Electronics is increasing capacity at a smartphone production center in Vietnam.

Vietnam’s economy has rebounded handsomely from a recent crisis thanks to brisk South Korean investment, echoing a similar fall and rise by Thailand decades ago.

Lumens, a South Korean maker of light-emitting diodes, has kicked off production at a plant in Vietnam’s Binh Duong Province, Vietnam-focused news outfit Hotnam said online Sept. 6. The company is said to be among the world’s top three producers of LEDs for mobile device displays — a major get for a country where parts makers have been slow to arrive.

Through the mid-2000s, heavy foreign investment kept Vietnam’s economy growing at around 7% annually. But the rapidly expanding product assembly and garment industries required components and raw materials the country could not produce, leading to a towering trade deficit as imports surged.

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By 2008, Vietnam had little choice but to devalue the dong, which had been fixed at roughly 16,000 to the dollar. After a series of cuts, the currency now trades at 22,000 to the dollar or so.

This set off a currency crisis in miniature, throwing cold water on a roiling investment boom just as the global economy headed into the financial crisis. Vietnam’s growth slowed to 5.6% in 2008, and to just 5.4% in 2009.

Back again

Samsung Electronics came to the rescue in 2009, opening a $700 million smartphone factory in the northern province of Bac Ninh. The plant is one of the world’s largest, capable of producing 120 million handsets per year. A similar phone plant opened north of Hanoi in Thai Nguyen Province in 2014, turning Vietnam into a major Samsung export base.

The dearth of component makers remained a concern, however. Samsung continued to import parts from China and South Korea, and thus did little to chip away at the trade deficit, according to many. Yet in this reporter’s view, when assembly plants gather, parts makers inevitably will join them.

Samsung has since added a television factory in Vietnam. Other South Korean electronics makers such as LG have set up shop there as well — and, after a lag, so have the component producers that supply them. Vietnam ended 2015 with a trade deficit, but amassed a $2.4 billion surplus between January and August of this year. Though factors such as a slump in Samsung’s smartphone business could be cause for concern, manufacturing in the country is growing more diverse, potentially averting a large-scale export downturn.

Same story, different decade

For a sense of how Vietnam could advance from here, one need look no farther than Thailand. Through the first half of 1997, the Thai baht was fixed against the dollar, inviting a surge of foreign investment that led to a steep trade deficit as parts imports soared.

When the baht tumbled in July of that year, the shockwave spread across the continent, setting off the Asian currency crisis.

As in Vietnam, the Thai currency’s fall boosted the competitiveness of exports, luring more manufacturing. Japanese companies resumed brisk Thai investment in the years after the crisis, such as with Toyota Motor setting up a pickup truck plant. Once vehicle assembly reached critical mass, component makers arrived as well, and the deficit dwindled.

After Thailand’s wounds healed, the economy grew 6.1% in 2002. Growth hit 7.2% the following year. If Vietnam similarly manages to bring the trade deficit under control, the nation also could retake rapid growth.

Unfortunately for Japan, its companies have been less responsive to this recovery as they were more than a decade ago. South Korea was Vietnam’s leading direct investor in 2015 with $6.7 billion, while Japan stood third at $1.8 billion. One can only hope this does not mean Japan Inc.’s lookouts in Southeast Asia are asleep at their posts.

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