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Economy

Vietnam rides on Samsung's coattails

GDP rebounds as South Korean giant's business recovers

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A Samsung Electronics plant in northern Vietnam.   © Reuters

HANOI -- Vietnam's economic growth picked up in the three months through June thanks largely to a recovery in Samsung Electronics' exports.

The Southeast Asian nation's real gross domestic product climbed 6.2% on the year for the quarter, according to government figures released Thursday. This puts growth back above 6%, after a dip to 5.1% in the January-March period.

Much of this recovery is attributable to a single company: Samsung, which makes smartphones and ordinary mobile phones at enormous factories at various locations in Vietnam. Fallout from the widespread recalls of the fire-prone Galaxy Note 7 phones depressed exports through March. This left a mark on Vietnam's economy, since the company accounts for roughly 20% of the country's total exports by value. But business bounced back starting in April as new models were launched.

Samsung is not the only South Korean business driving the growth of the Vietnamese economy. LG Electronics, the Lotte group and others are expanding their own footprints here. South Korea has been the top source of foreign direct investment in this country three years running, starting in 2014. While reliable flows of funding are necessary for economic growth, many are concerned Vietnam is too dependent on South Korea for its continued success.

Meanwhile, even as foreign companies invest heavily in their own Vietnamese facilities, infrastructure investment lags. Funding for construction of Ho Chi Minh City's first metro line, for example, ran short at the end of last year, after the central government released only around 30% of the money it had promised. The resulting delays could cause the line to miss the 2020 target for operation start.

The contractors building the line include Japan's Sumitomo and Shimizu. The Japanese government in May asked Vietnamese Prime Minister Nguyen Xuan Phuc to step in and remedy the situation. But Vietnam's shaky finances can hardly support more infrastructure spending. Rampant borrowing over the years in the form of official development aid loans from Japan and others put the country's debt-to-GDP ratio at 64.7% in December, perilously close to the government-set cap of 65%.

While forays by South Korean companies have fueled GDP growth thus far, Vietnam's manufacturing sector as a whole is too weak to enable the country to compete with leading Southeast Asian economies. Failing to develop railroads, highways and other infrastructure in a timely manner could keep other potential investors at bay, putting the brakes on further expansion.

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