Strong Ties Between Hainan and Vietnam to Boost Trade for Both

As the ‘world’s biggest free trade port’, China’s Hainan province will undoubtedly play a key role in bilateral trade between Vietnam and China moving forward. Here’s what trade between the two looks like now.

Shen Xiaoming, Secretary of the Provincial Party Committee and Chairman of the Standing Committee of the People’s Congress of Hainan Province, met with Vietnam’s Foreign Minister, Bui Thanh Son, late last month on a visit to Vietnam.

Among a range of topics, the Chinese provincial leader and Vietnam’s foreign minister discussed trade between the province and its neighbor to the south and the potential for Hainan’s port, one of the biggest in the world, to boost trade for both China and Vietnam.

In particular, Secretary Shen Xiaoming expressed a desire to turn Hainan into a ‘gateway’ for Chinese firms to penetrate Vietnam’s market and vice versa.

Notably, import and export turnover of goods between Vietnam and Hainan in 2022 reached US$1.35 billion, 56 percent higher than the same period a year earlier. This is a sizable increase and a strong foundation on which to build further trade ties.

Trade relations between Vietnam and Hainan

Free trade agreements

Trade between Hainan and Vietnam is governed by two free trade agreements – of which both Vietnam and China are a part.

• The ASEAN – China Free Trade Agreement (ACFTA)
• The Regional Comprehensive Economic Partnership (RCEP)

Trade promotion office

Vietnam and Hainan are in the process of establishing a Vietnam Trade Promotion Office in Hainan. The office will connect the two-sides to grow cross-border investment and support businesses on both sides to strengthen ties with each other.

Hainan’s (China) exports to Vietnam 

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Furthermore, this number is expected to grow with Hainan expected to become one of China’s biggest economic centers.

In this light, understanding Hainan’s exports to Vietnam can be best understood in the context of China’s trade with Vietnam more broadly with key goods transiting through the province like electronics, iron and steel, and plastics.

Electronics and machinery

Export turnover to Vietnam of electronics and machinery accounted for 5 percent of China’s total exports in 2021.

This is in line with major electronics manufacturers diversifying parts of their supply chains out of China and into Vietnam. A large number of electronics components are still made in China with assembly taking place in Vietnam.

See also: Vietnam’s Diversification of Trade and the China Plus One Strategy

Iron and steel

China is one of the largest iron and steel exporters in the world and it is geographically close to Vietnam. It is therefore a key supplier of iron and steel to Vietnam.

Total imports of iron and steel from China in 2022 reached 5.1 million tons, up nearly 2 percent compared to the previous year.

Plastics

Plastics imported into Vietnam from China are a key component of a number of finished goods that Vietnam exports. Over US$7 billion worth of plastics were imported into Vietnam from China in 2021.

Top 5 exports from China to Vietnam in 2021

Source: Trade Map

Vietnam’s exports to Hainan (China)

According to the Hainan government, import turnover from Vietnam reached US$658 million, in 2022, an increase of 7.5 percent. Among these imports were products like textiles, wood, and rubber.

Textiles

China is the second largest market for Vietnam’s textiles after the US. Chinese products imported from Vietnam include all kinds of yarns, jackets, shirts, and children’s clothes.

Wood and wooden products

The export value of wood and wooden products to the Chinese market in 2022 increased strongly, reaching US$2.15 billion, up 43.8 percent over last year, according to statistics from the General Department of Customs.

Rubber and articles thereof

With more than 938 thousand hectares of rubber trees, Vietnam is the third largest rubber exporter in the world and Vietnamese rubber is exported to 80 countries and territories.

China is the biggest consumer of Vietnamese rubber with 1.5 million tons worth US$2.34 billion imported in 2022.

Top 5 exports from Vietnam to China (2021)

Source: Trade Map

See also: Vietnam Import Export Tracker: January 2023 Update

China FDI projects in Vietnam

From 2015-2022, the total registered FDI from China into Vietnam increased at an average compound growth rate of 17 percent a year.

In 2021, China invested more than US$2.13 billion in Vietnam and ranked seventh highest among all countries investing in Vietnam. Figures from the Ministry of Planning and Investment show that in 2022, FDI from China into Vietnam reached US$2.5 billion, ranking it 4th after Singapore, Japan, and South Korea.

As of December 20, 2022, China had 3,567 valid FDI projects in Vietnam with registered capital equivalent to US$23.3 billion.

See also: Vietnam FDI Tracker

Notably, in recent years, Chinese investment in Vietnam has shifted from light industry and consumer goods to construction and manufacturing. This is being driven by lower wages in Vietnam and, in some instances, a means to circumvent trade restrictions imposed on Chinese exports (See: Explainer: Countervailing and Antidumping Duties in Vietnam).

Future trade between Vietnam and Hainan

The meeting in February between Shen Xiaoming and Bui Thanh Son further affirms a strong trade relationship between the Chinese province of Hainan and Vietnam. Moving forward, as Hainan’s port becomes an ever more important hub for imports and exports in the region, this relationship will likely grow stronger with both sides realizing a myriad of benefits.

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