Top legislator's visit to Japan generates huge opportunities for bilateral trade

After more than five decades since the two countries established the diplomatic ties, the friendship and cooperation between Vietnam and Japan have grown increasingly strong. In particular, the upgrade of relations to a Comprehensive Strategic Partnership for peace and prosperity in Asia and the world reflects a high level of political trust and opens a new period of substantive and effective cooperation across all fields.

Solid foundations

According to experts, bilateral economic and trade relations are built on the foundation of bilateral and multilateral free trade agreements (FTAs) that the two countries have signed, as well as through foreign direct investment (FDI) projects and official development assistance (ODA) of Japan in Vietnam.

Japan is currently the largest ODA provider, the second-biggest labour cooperation partner, the third-largest investor and tourism partner, and the fourth-biggest trading partner of Vietnam. Bilateral trade reached US$47.6 billion in 2022, US$44.98 billion in 2023, and US$38.1 billion in the first 10 months of 2024.

As of October 2024, Japan is the third-largest foreign investor in Vietnam, with 5,456 valid projects worth over US$77.37 billion. Notably, it is the largest provider of ODA for Vietnam, with a total value of more than JPY2.81 trillion (US$27.5 billion) as of the end of the 2020 fiscal year, accounting for more than 26% of the Vietnamese Government’s total foreign loans.

Japan's ODA capital has played a crucial role in developing key infrastructure projects in Vietnam, creating momentum and positive effects for sustainable socio-economic development. It has also supported the transfer of advanced technology and the training of high-quality human resources for the Sourheast Asian country.

In March 2024, the two sides agreed to launch the "Japan - Vietnam joint initiative in the new era". They agreed to continue discussions towards achieving specific cooperation results in energy, innovation, strengthening supply chains, developing high-quality human resources, and improving the investment environment.

In August 2024, Tokuyama Corporation of Japan established a subsidiary in Vietnam to produce and sell multicrystalline silicon for semiconductors. Two months later, Rorze Robotech company decided to build a new factory in an industrial park in the northern port city of Hai Phong, expanding its factory manufacturing robots used in semiconductor production equipment.

At a meeting in July with Japanese Minister in charge of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) Shindo Yoshitaka, Vietnamese Minister of Industry and Trade Nguyen Hong Dien affirmed that the countries' economic and trade relations have been flourishing, as evidenced by many achievements and close collaboration since both became members of the CPTPP.

According to the Ministry of Industry and Trade, both sides have benefited much from the bilateral and multilateral FTAs they are part of, especially the Vietnam - Japan Economic Partnership Agreement (VJEPA), the ASEAN - Japan Comprehensive Economic Partnership Agreement (AJCEP), the CPTPP, and the Regional Comprehensive Economic Partnership (RCEP).

The structure of imports and exports between the two countries is clearly complementary, with no direct competition. Vietnam mainly produces and exports seafood, crude oil, textiles, apparel, electrical wires and cables, wood and wood products, computers and components, coal, and footwear, to Japan. Meanwhile, it imports commodities serving industrial production from the Northeast Asian nation like machinery, equipment, electronic products and components, steel, fabric, and chemicals.

Vietnam is actively collaborating with many Japanese enterprises such as Toyota, Canon, and Panasonic to implement programmes and projects aimed at seeking and developing Vietnamese suppliers, towards improving the competitiveness of Vietnamese businesses, increasing the rate of locally made components in their products, and helping local firms join supply chains of Japanese companies.

Growth drivers

A recent report reviewing the Vietnam - Japan economic ties released by HSBC showed two-way trade has grown significantly over the past three decades thanks to great efforts in trade liberalisation. It has posted a compound annual growth rate (CAGR) of 15.2% since 1990.

With a population of over 126 million, Japan is a market with high import demand for such products as fish, shrimp, eel, meat, soybean, cereal products, fresh and processed vegetables, and coffee. Meanwhile, Vietnam is strong at those products and has good supply capacity.

Particularly, the RCEP, which officially came into effect on January 1, 2022, has created the world's largest free trade area, accounting for approximately 30% of the global GDP and a market with one-third of the world's population. Making use of opportunities provided by this deal to increase exports and reduce trade barriers is a great goal for management agencies and businesses of Vietnam.

In addition, experts believe that many Japanese businesses plan to open factories in Vietnam will also create an important impetus for bilateral trade to thrive more strongly in the time ahead.