However, it is an incremental ignored by local governments. For example, Southeast Asian countries raised their rates continuously, rather than resort to financial retrenchment, to curb their overheated markets. But results were just the opposite because every cut on rates would appreciate the local currency and attract more money from speculators.

It cannot be overlooked that before the 1997-98 crisis broke out, regional trade deficits had occurred because of the decline in competitiveness that was caused by currency appreciation. Meanwhile, consumption and real estate remained hot, bringing serious imbalance to the economic growth structure and high risk to macro-economics. In fact, it was then that Thailand chose exchange liberalization, first in the region, that offered the best time for hedge funds to pull their trigger.

Undeniably, the same foreign capital-led and high-risk structure exists in Vietnam's economy right now. But its banking system is not yet developed to attract enough credit fund and foreign money usually concentrates in stock and real estate markets. Since 1997 in particular when the ASEAN established bilateral currency swap agreements with China, Japan and the Republic of Korea, attacking the Vietnamese dong can no longer be that easy. Therefore, even if Vietnam's markets fell in the short term, it will not trigger a 1997-kind currency devaluation crisis.

But it is worrying that the Vietnamese economy at present has serious deviations in industrial consumption structures. It could trigger new risks through market turbulence.

The first aspect is trade deficit. Vietnam mainly exports oil and iron ore, while its domestic consumption concentrates on petroleum, iron and steel products and consumer-oriented goods. Though price rises increase export earnings, it remains difficult for the country to reverse its trade deficit since goods it consumes show greater price-increases. This trade deficit contrasts sharply with huge capital inflows, and once the latter retrace or transfer elsewhere, an economic crisis might be inevitable due to the lack of capital.

Second, capitalizing trend of consumption exhausts foreign investment in vain and rapidly expands the risk of external debt crisis. In recent years, consumption by the Vietnamese has increasingly shown an assets-consuming tendency of not only real estate or gold, but also of superior grade motors as assets to accumulate.

For example, Honda and Yamaha's high-end motorcycles have become Vietnamese's assets after the country lifted the "one person, one motor" ban in the seven largest cities, and it's estimated its market size will triple that of Japan by the end of this year.

In 2003, Vietnam signed with Japan the Japan-Vietnam Joint Initiative to strengthen Japan's investment to the country. And in December of 2005 the two sides unified respective regulations on seven major fields such as investment, labor, industries and tariff. Vietnam's foreign capital has increasingly become Japan-biased, but it can hardly avoid the risks of foreign capital-biased policies once Japan changes its investment strategy.

The author is a researcher with China Institute of Contemporary International Relations

(China Daily July 1, 2008)