Concern in Vietnam over trade with China Table 1: The Value of Vietnam's Trade in Goods with Selected Trading Partners: January–July 2014 | | United States | China | Japan | South Korea | Germany | | :------------------- | :------------ | :---- | :---- | :---------- | :-------- | | Exports of Goods (US$ billion) | 15.9 | 8.6 | 8.5 | 3.7 | 2.9 | | Imports of Goods (US$ billion) | 3.7 | 23.7 | 6.9 | 12.2 | 1.4 | Source: Vietnam Customs Tycoon to the rescue as cheap Chinese goods overwhelm Vietnam's economy Vietnam is enjoying rapid growth but its small businesses are being overwhelmed by a huge influx of cheap, mass-produced goods from China. These goods are undercutting the prices of domestically produced items. A Vietnamese entrepreneur has a rescue plan designed to support new business start-ups. He has spent US$27 million developing his V+ shopping mall. He is now offering new businesses rent-free 50-year leases in the mall, which is located in Hanoi as long as they sell only Vietnamese-made products. He is also urging the Vietnamese government to introduce this idea nationwide to prevent the closure of tens of thousands of businesses each year and encourage customers to buy Vietnamese products. "China exports to the world at very, very low prices and that's put huge pressure on the Vietnamese economy," he explained. “I'm a businessman, I understand why firms can't develop. Without this kind of support, Vietnamese businesses will perish.” China's recent devaluation of its currency, the yuan, triggered fears of China overwhelming Vietnam with even cheaper goods. As a result, Vietnam's central bank devalued the Vietnamese currency, the dong. Despite the Vietnamese dislike of Chinese products, their prices make them unavoidable when Vietnamese businesses lack funds and household budgets are modest. There have been calls for boycotts of Chinese goods but they have all failed miserably. An economist at the Asian Development Bank, however, said the V+ concept showed good intentions but the government should only support firms with the potential to compete. "There needs to be a change in the government's policy,” he said. “It needs to move away from subsidies for all goods towards targeted subsidies for industries with the potential to compete." Source: Martin Petty, The Times, 18 April 2015

1. (a)(i)State the country shown in Table 1 that has the greatest deficit on its balance of trade in goods with Vietnam.[1]
2. (a)(ii)Identify the three other components of the balance of payments that would allow you to calculate the current account balance of Vietnam with that country.[3]
3. (b)Explain any two factors that would determine the impact of China's decision to devalue the yuan upon Vietnam's trade with China.[4]
4. (c)Explain how subsidies for all Vietnamese goods and a boycott of Chinese goods are expected to help Vietnamese goods to compete with Chinese goods. Use supply and demand diagrams to support your answer.[6]
5. (d)Discuss whether the principle of comparative advantage would justify the support of Vietnam's government for the development of all industries in Vietnam or just those that have the potential to compete.[6]

This question uses a diagram from the original paper, which isn't shown here. Open the full paper from the past papers archive to see it.