Chongqing Lifan, meanwhile, suspended production of its motorcycle factory in Viet Nam. At present, the products of Lifan in Viet Nam include automobiles and motorcycles. Since exports of automobiles are settled with U.S. dollar, there won't be a large influence-except in decline of export volume. In contrast, sales of motorcycles in Viet Nam are settled in Vietnamese dong and there will be huge losses if dong is not changed to dollar or renminbi.

An alarm to China

In fact, the problems bothering Viet Nam also exist in China in varying degrees, so the economic crisis in Viet Nam arouses disquiet among economists over the economic development of China.

"If the Vietnamese economic crisis further expands, it is likely to spread to other countries, and China may be infected," said Cao Honghui, head of Financial Market Research Office of the Institute of Finance and Banking of the Chinese Academy of Social Sciences (CASS). In his opinion, as with Viet Nam, South Korea and Thailand are experiencing record inflation highs in the last seven and 10 years respectively, and inflation in Indonesia has also surpassed 10 percent. If these emerging economies are confronted with the same problems as Viet Nam, it will be impossible for China to escape alone.

According to Cao, the most likely problem is that the hot money withdrawn from countries like Viet Nam may flow to China, making it more difficult to strictly control excessive liquidity.

The People's Bank of China, the country's central bank, has launched a circular, requiring banks and other financial institutions to pay close attention to capital flows of foreign capital accounts and prevent an inflow of hot money.

A report released by China International Capital Corp. Ltd. says that among emerging Asian economies, China has the most stable economic situation and its foreign exchange reserve is the largest in the world. With improving fiscal conditions, it has ample fiscal revenue and the banking system is being perfected. However, once neighboring emerging markets are in turmoil because of inflation, the crisis may influence China in three aspects.

First, China's financial market will inevitably be affected and companies listed overseas will be directly influenced. Second, in terms of foreign trade, the demand for Chinese goods will decrease since increasing uncertainties in the financial market will strike the confidence of investors and consumers, and reduced economic growth and devaluation of local currencies will make imported goods more expensive. Furthermore, the devaluation of currencies of other emerging markets will also affect China's exports. Third, as for investment returns, the devaluation of currencies in Viet Nam and other emerging Asian economies will decrease returns of renminbi-valued Chinese investment in these countries, and an increase of local interest rates, prices and wages will also increase operation costs.

In spite of worries and vigilance, some research institutions still deem that the economic crisis in Viet Nam is unlikely to inflict a substantial impact on China.

In a research report released on June 10, Goldman Sachs says that since China has sufficient financial strength and a strong position of international payments, the infection risk of economic turmoil from Viet Nam to China will be limited.

A Bank of China report released on June 17 indicates that the possibility is still low that Viet Nam would trigger a wider Asian financial crisis and that the influence of Vietnamese economic crisis on China is limited. According to the report, China can draw the following lesson from the crisis: controlling inflation should be the top priority. The report also points out that China cannot solve the problem of domestic inflation through renminbi appreciation and only governmental cooperation can fundamentally solve the problem of imported inflation.

Aid proposed

"China should offer loans aid to Viet Nam and promote cooperation among East Asian nations to guard against financial crisis via a regional currency cooperation framework," said He Fan, researcher at the Institute of World Economics and Politics (IWEP) of CASS.

IWEP has conducted specific research on the economic crisis in Viet Nam. According to its report, it is necessary for the international community to offer aid to Viet Nam. It suggests that China, Japan and South Korea and the Association of Southeast Asian Nations should consult to offer short-term loans to Viet Nam.

According to the IWEP report, Viet Nam needs loans of $30 billion-50 billion in market estimation. "To East Asian nations, to offer such sums of money to aid Viet Nam is like putting out a potential fire with a ladle of water, conducive to both maintaining prosperity and promoting unity of Asia," he continued.

In his opinion, there may be various means to offer aid, such as direct U.S. dollar loans, by employing foreign exchange reserves, or issuing bonds.

The IWEP report holds that China should play a more active role in offering aid to Viet Nam. The report proposes that China should provide more governmental aid to Viet Nam in fields like rural development, poverty reduction and urban development. Technological and financial aid may also be offered toward infrastructure construction.

Moreover, the report deems that China should encourage more companies to invest in Viet Nam, establishing joint ventures and employing more local people. China should also further open its market to Viet Nam, encouraging more Vietnamese companies to export to China while encouraging Viet Nam to absorb more Chinese capital.

Guo Tianyong, professor at the Central University of Finance and Economics, says that in both creating a good external environment for China and maintaining stability in the regional economic system, it is necessary to take measures to avoid an expansion of financial market panic in the region and a series of adverse impacts.

Since Viet Nam owns abundant mineral and coal resources, Guo suggests China sign long-term purchasing contracts with Viet Nam and increase imports from it. This is normal bilateral trade which can offer capital aid to Viet Nam at a critical moment in its financial market, and is conducive to the long-term and stable cooperation between the two countries.