How does China's interest rate policy affect Vietnam's exports?

In the context of the global economy facing constant fluctuations, China's policy decisions always have far-reaching impacts, not only on its own economy but also on countries with close trade relations, including Vietnam.

One of the important factors affecting the economy is interest rate policy. The decision of the People's Bank of China (PBOC) to keep the benchmark loan prime rate (LPR) unchanged in March 2025, despite forecasts of the need for further monetary policy easing, is an important strategic decision. This not only reflects the recovery of the Chinese economy but also has a significant impact on Vietnam's export activities, especially in areas such as agricultural products, electronics, textiles and industrial goods.

A stable interest rate policy will help the Chinese economy maintain stability, significantly affecting Vietnam's export activities, especially in areas such as agricultural products, electronics, textiles and industrial goods. Illustrative photo

China's economic outlook and decision to keep interest rates unchanged

China is the world's second largest economy and has a profound influence on global markets, including Vietnam. China's decision to keep its benchmark lending rate (LPR) unchanged after a period of cuts reflects a cautious move in monetary policy by the People's Bank of China (PBOC). Key economic indicators such as manufacturing, industrial production and retail sales all showed a slight recovery in the first months of 2025, easing pressure on domestic banks and limiting the need for further policy easing.

The PBOC’s decision to keep interest rates unchanged reflects a near-term strategy to support economic recovery while minimizing the risk of inflation and yuan depreciation. However, analysts still expect modest rate cuts in 2025, especially if inflationary or yuan exchange rate pressures continue to mount.

Impact on Vietnam's exports

First, the impact on Vietnam's competitiveness: China is a major trading partner of Vietnam, especially in items such as electronics, machinery, textiles and agricultural products. China's keeping interest rates unchanged can have a direct impact on Vietnam's competitiveness in the international market. A stable interest rate policy will help the Chinese economy maintain stability, promoting demand for imported goods from partner countries, including Vietnam. However, at the same time, this stability also helps China maintain strong competitiveness in export sectors, especially with low value-added goods.

In the field of agricultural and consumer goods exports, China is still a large consumer market for Vietnam. However, if China maintains stability in its monetary policy, it could make products from other countries such as Southeast Asia or European countries more competitive, as their production costs could be lower thanks to monetary easing measures.

Second, China’s failure to cut interest rates in the near future could also keep the yuan stable. This would ease the pressure on Chinese businesses, especially when importing goods from other countries, including Vietnam. However, this could also prevent the yuan from depreciating against other currencies, making it difficult for Vietnamese businesses to maintain competitiveness when exporting to China.

At the same time, some experts believe that the stability of the Yuan exchange rate will help the Chinese market avoid sharp currency devaluation, which will not increase the cost of imports from Vietnam, helping Vietnamese export products maintain their competitive value in the Chinese market.

Third , the impact on Vietnam's strategic export sectors. China's economy is recovering and domestic demand for consumer goods is growing strongly, which can help promote the export of consumer goods from Vietnam to China. Especially in areas such as rice, seafood, fresh fruit, processed products, Vietnam can still maintain its competitive advantage in terms of price, quality and production costs.

However, this does not mean that Vietnam will not face difficulties. If China continues to maintain a stable interest rate policy while other economies tend to loosen their monetary policies further, Vietnam's exports will face fiercer competition, especially from rivals with lower production costs.

Opportunities and challenges for Vietnam

China's decision to keep interest rates unchanged opens up great opportunities for Vietnam, especially in the context of strong fluctuations in the global economy. One of the obvious opportunities is the increase in domestic consumption demand in China. The Chinese government is implementing measures to stimulate consumption, which not only boosts the domestic economy but also creates favorable conditions for Vietnam to increase the export of consumer products to this market. With a large population and strong purchasing power, China has become a potential market for Vietnamese products, from food, consumer goods to light industrial goods.

In addition, China’s policy of maintaining stable interest rates creates a stable economic environment, making it easier for Vietnamese enterprises to plan and implement long-term export strategies. This is an important factor in helping Vietnamese enterprises build sustainable growth, while reducing uncertainties when they face other competitors who are also looking to expand their markets. In this context, Vietnam can take advantage of low production costs and free trade agreements to boost exports to the Chinese market, thereby creating development opportunities for the Vietnamese economy.

While China’s interest rate freeze creates a stable environment for Vietnamese businesses, it also poses some significant challenges. One of the biggest challenges is increased competition from other countries in the region. Countries such as Thailand, India and Southeast Asian countries may adopt loose monetary policies to support exports, creating a fiercely competitive environment for Vietnam in maintaining market share in China. This requires Vietnam to make efforts to improve product quality, reduce production costs and strengthen marketing strategies to maintain its competitive advantage.

In addition, fluctuations in the exchange rate of the Chinese Yuan are also an important factor affecting Vietnam's competitiveness in exporting to China. If the Chinese Yuan depreciates, Vietnam's export products may become more expensive compared to products from other countries, reducing competitiveness in the Chinese market. This requires Vietnamese enterprises to closely monitor exchange rate developments and have flexible adjustment strategies to protect profits and maintain export market share.

China’s decision to keep interest rates unchanged will create a stable economic environment, but also pose challenges for Vietnam in terms of exports. Despite opportunities from economic recovery and rising consumer demand, Vietnam needs to make efforts to maintain its competitiveness, especially in key export sectors such as agricultural products and textiles. Therefore, Vietnamese enterprises need to seek new markets, improve product quality and enhance supply chains to minimize risks from China’s economic policies.

ThanhThanh

Reuters