Can China correct course on Covid, like Vietnam?
The world's two largest Communist countries have a lot in common. Just over a year ago, Vietnam's party leaders gave General Secretary Nguyen Phu Trong an unprecedented third five-year term as the top leader, crediting him with successfully containing the Covid-19 pandemic. China's President Xi Jinping is poised to win a third term as well later this year. Both countries waived politicians' age limits for their supreme leaders.
Keen to retain the legitimacy of one-party rule, Mr Trong and Mr Xi are also both anti-corruption crusaders. In China, the scope is so wide and the punishments so severe that any bureaucrat in charge of a bank, brokerage, or insurance unit could reasonably worry about possible jail time for potential missteps. Corporate loan approvals have slowed as a result. In Vietnam, Mr Trong has likened his anti-graft drive to a "blazing furnace", burning so hot that officials are frozen with fear. In the first seven months of 2022, Vietnam disbursed only 34.5% of what the government had planned for public investments.
But there is one key difference. While China digs itself deeper into an economic hole, Vietnam's Communist Party seems capable of correcting its mistakes.
Their approach to the Covid-19 pandemic makes an excellent example. At the outset, both nations were keen to develop their own vaccines, as a matter of national pride and strategic interest. When Vietnam's Nanocovax started Phase 3 clinical trials in June 2021, the nation was way behind on vaccinations, with only 1.5% of its 98 million population having received at least one jab. Hanoi also had a zero-tolerance approach then. Just like Shanghai, the commercial hub of Ho Chi Minh City went through a four-month lockdown last summer. The military was deployed amid food shortages and deaths.
Perhaps reeling from the chaos, Vietnam put aside its pride, approved vaccines from around the world, and in the autumn of 2021 jabbed its people with doses from AstraZeneca, Pfizer and even China's Sinopharm. It accepted donations from foreign governments, through the World Health Organization's Covax facility, and nudged businesses such as Samsung Electronics to find and pay for the jabs.
With more effective vaccines protecting its population, Vietnam was able to reopen its border fully in mid-March. China, by comparison, still refuses to import the more effective mRNA vaccines and continues to resort to citywide lockdowns.
As a result, the economic contrast between the two countries couldn't be sharper.
To enter Vietnam, travellers don't need to show proof of vaccination or negative PCR test results. Meanwhile, the path into China is long and winding. Onerous requirements aside, travellers simply can't get hold of air tickets. Before Covid, Hong Kong's flagship airline Cathay Pacific had hourly air shuttles to Beijing and Shanghai; today, it has more flights to Ho Chi Minh City than to either China's political or commercial hub. The Hong Kong International Airport has become such a ghost town that a traveller couldn't help but think of the Qing Dynasty, the final imperial era, when China tried to close its doors to ideas and innovation from abroad.
In recent months, there has been a lot of debate among the Chinese, about whether Vietnam will displace their country as the leading manufacturing centre. Anxiety has also been engendered by an exodus of global firms. Vietnam is aiming for 7% growth this year, while Chinese leaders have all but acknowledged that the country will miss their 5.5% target.
A lot of Vietnamese electronics factories are still in low-end assembly, and many orders are from their Chinese parent companies, the influential Chinese financial outlet Caixin noted in a June cover story. The Chinese are also more efficient in road and rail infrastructure, which bodes well for its supply chain network. Ho Chi Minh City's first metro line, for instance, which originally slated to start in 2018, is still not complete.
But that's beside the point. A country's economic growth can start with soaring exports, but does not end there. Vietnam grew 7.7% in the second quarter. Manufacturing accounted for 2.4 percentage points, but services, including retail sales and tourism, contributed 2.9 percentage points to the overall growth. When the economy reopened, Vietnamese travelled to resort islands such as Phu Quoc with a vengeance, spending on hotels and restaurants. In China, by comparison, travellers to the southern Hainan island got stuck when the tourist hot spot entered snap lockdowns after a local Covid outbreak. Surely, that experience would scar some consumers.
Real estate agents in Ho Chi Minh City like to call the eastern Thu Thiem area the "Pudong" of Saigon, a reference to a new urban development that aspires to be as prosperous -- and expensive -- as Shanghai's main financial district. When I was here three years ago, standing on an empty stretch of grassland, I found the analogy a bit stretched. But during China's Covid zero era, imagination runs a bit wilder this time, even though I am still standing on grass. After all, there are more international flights to Saigon than Shanghai these days. ©2022 Bloomberg
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets.
Bloomberg Opinion columnist
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charter holder.