February kicked off in Vietnam with coverage of comments made at an online press briefing in which US Under Secretary of State Jose Fernandez insisted that the Department of Commerce’s review of Vietnam’s non-market economy status would not be politicised. This was after a letter surfaced a few days earlier from several prominent US senators arguing against the review. That said, this is not necessarily good news for Vietnam given that it is becoming more and more important in US geopolitics and this could have proved a valuable selling point.

In numbers, S&P’s Global’s Purchasing Managers Index was up slightly in February, however, Vietnam’s Industrial Production Index fell 18 percent. Notably the Lunar New Year holiday was in February this year as opposed to January last year. With five-days of public holidays, it’s normal for the break to put a dent in Vietnam’s industrial output.

What was abnormal, however, considering the rapid credit growth Vietnam recorded in December–4.35 percent–was that credit growth reportedly went negative .6 percent in January. This bucked official estimates and flew in the face of some pretty lofty aspirations–the target was 4.4 percent for the first quarter of 2024 and is 15 percent for the year.

In line with this fall in borrowing, it was reported in February that Vietnamese firms were keeping more cash on hand. This could have been for many reasons but a 2020 study found that Vietnamese firms tend to keep more cash on hand when they have low growth opportunities or 

when business risks increase.

But that’s not to say everyone was cashed up.

One local firm was struggling with its cash flow to the point that the Ho Chi Minh City Department of Customs decided to restrict the firm from conducting import and export activities over unpaid taxes. What was perhaps more interesting, however, was that the firm claimed it was having cash flow issues on the back of the state power provider, Electricity Vietnam, delaying payment for electricity provided by the firm by up to three months–EVN has been running at a loss for sometime now and if true this would suggest that the situation is not improving.

On trade, figures released in February revealed that imports topped US$30.9 billion in January. Conversely, exports reached US$34.5 billion. The US$3.6 billion trade surplus was welcome news, however, the aforementioned S&P PMI did find that whereas production was up, firms had refrained from buying new stock–or imports–in favour of burning through inventory already on hand. Ergo, if conditions continue to improve that surplus could shrink as firms import more to scale up.

Also in February, questions were raised about Vietnam’s ‘blazing furnace’ crackdown on corruption. In an article published in The Diplomat–blocked in Vietnam–it was argued, among other points, that cases of corruption thus far identified were focused on the individuals involved rather than the systemic challenges that make corruption possible and in this context that it may not be quite as effective as has been claimed.

Finally, butting up against the end of the month were reports that Vietnam would ratify the UN’s Freedom of Association and Protection of the Right to Organise Convention this year. This is a requirement of at least two of Vietnam’s free trade agreements–the European Union Vietnam Free Trade Agreement and the Comprehensive and Progressive Trans-Pacific Partnership–and would essentially give workers the rights to start trade unions independent from the government. What is agreed to, however, and what happens in practice, in Vietnam, are often two different things.

Moving into March, as the Lunar New Year hangover subsides and Vietnam’s 50-odd million workers head back to work, production looks set to pick up relative to February. That said, it’s the financial sector that will likely provide the most interesting developments. With credit growth far below target, intervention may be needed. What form that takes will likely have broad ranging impacts on Vietnam’s economy–watch this space.