Mechanical Engineering - “Flywheel” to Create Development Momentum for Various Economic Sectors

10:16:00 AM | 21/10/2019

The mechanical engineering industry is a “flywheel” that generates development momentum for many economic sectors as well as being a growth engine for the country. In order for the economy to be restructured quickly, improve its competitiveness, maintain a stable growth rate, avoid middle-income trap, create decent jobs and develop sustainably, the processing and manufacturing industries, in which the mechanical engineering sector plays a very important role, are vital.

Plenty of room for growth

Industry and Trade Minister Tran Tuan Anh said, supported by the Government, Vietnam's mechanical engineering industry has achieved certain results in the past years.

According to the General Statistics Office (GSO), Vietnam had 25,014 active mechanical companies by the end of 2017, accounting for nearly 30% of total manufacturing and processing companies. They generated net business revenue of VND1,465 trillion and created more than 1.1 million jobs, accounting for nearly 16% of total employees in processing and manufacturing enterprises. Mechanical factories come in different sizes. In some localities and economic regions, manufacturing clusters have been formed, including Chu Lai - Quang Nam mechanical complex. In addition, some mechanical companies have reached regional development levels.

At present, Vietnamese mechanical engineering is strong in three sub-sectors: motorbikes and parts, household appliances and tools; and automobiles and parts. Data showed that these three sub-sectors account for nearly 70% of total industrial production value of the mechanical engineering sector. However, this sector meets only more than 32% of the domestic demand for mechanical products

Minister Tran Tuan Anh also frankly pointed out existing limitations and weaknesses of the mechanical engineering industry. Specifically, only a few domestic brands are making mechanical products. Domestic companies typically have small scale, have low competitiveness and are yet to master core mechanical technologies. In addition, their product quality is not high and product prices are high, while product competitiveness is low. Thus, indeed, almost no key mechanical products can compete with imported rivals. Moreover, Vietnam has no major mechanical enterprises of regional and international scale to lead the industry. Product research and development is largely dependent on foreign firms.

He added that domestic mechanical manufacturers can hardly become machinery and equipment suppliers for large investment projects licensed in Vietnam in recent years (thermal power, steel, chemical, transport infrastructure and other projects). By the end of 2017, although mechanical companies accounted for nearly 30% of processing and manufacturing companies - a relatively high rate, their share of revenue to all processing and manufacturing companies declined over the past years (falling more than 18%). This proves that the investment efficiency of the mechanical engineering industry is generally not high, and has yet to fill its role as the foundation for industrial development. Important mechanical sub-sectors such as complete equipment, movers, agricultural processing, machine tools, construction engineering, shipbuilding, electrical and electronics engineering, automotive engineering and transportation engineering achieved low results compared to the Mechanical Engineering Development Strategy.

These limitations have raised barriers to market entry. These barriers primarily come from sector-specific conditions like requiring huge initial investment fund, long turnover time and slow capital flow, requiring high scientific and technological levels, knowledgeable and skillful workers; and more difficult distribution and consumption of products than other industries. In recent years, Vietnam's objective and subjective socioeconomic conditions have not been really favorable for industrial development.

Policy support

Given the current status of Vietnam's mechanical engineering industry, in order to institutionalize Party lines and policies on mechanical engineering development, the Vietnam Mechanical Engineering Development Strategy to 2025, with a vision to 2035 (approved in Decision 319/QD-TTg dated March 15, 2018 of the Prime Minister) affirms viewpoints and objectives of mechanical engineering development in the new era. The strategy substantiates that “Mechanical engineering is a foundation industry strategically significant to rapid, sustainable development, increased independence and autonomy; ensured to effectively and deeply engage in global production and distribution networks, and properly invested. In addition, Vietnam will focus on developing strong mechanical sub-sectors; use high-quality human resources and advanced technologies to develop these sectors, take global competition as a driving force for development; utilize existing advantages and international opportunities in the integration process; pay attention to developing some mechanical sub-sectors for national defense and security; and develop Vietnam's mechanical engineering industry on the basis of green growth, sustainable development and environmental protection. Then, Vietnam’s mechanical engineering industry aims at the general goal of successfully developing a majority of specialized sub-sectors powered by advanced technology and internationally standardized product quality, deeper engagement in global value chains, economical and efficient use of energy, fair competition in international integration by 2035. Professional, disciplined and highly productive workers research, design and manufacture mechanical products to basically meet domestic demands.

According to Minister Tran Tuan Anh, investment support policies are aimed to develop mechanical engineering (market development, credit support for domestic mechanical companies, technical and social infrastructure development for key mechanical projects, human resource development, scientific and technical support, technology transfer, research and development (R&D) for businesses, trade promotion support, M&A support for mechanical companies, support for large automobile manufacturing and assembly projects). He also mentioned preferential tax and land policies for mechanical engineering development. In addition, there are solutions for mechanical engineering development like completing preferential policies, offering outstanding support to attract foreign investment, developing supporting industries, improving investment environment and promoting investment in mechanical industries.

Prime Minister Nguyen Xuan Phuc requested that current policy limitations concerning market development, credit support, access to loans; tax regulations, especially special consumption tax on domestically manufactured cars, import tax on machinery, equipment and production materials; regulations on land and environment, need to be definitely resolved in the shortest time. In order to create the most favorable investment environment and business conditions for mechanical engineering enterprises, when being drafted, policies need to create favorable conditions for the social community to pay more attention to industrial production.

He added that efforts of the business community determine the success of the mechanical engineering industry. He affirmed that the Government and the Prime Minister are determined to support enterprises and help the mechanical engineering industry develop more strongly.

Huong Ly