Vietnam has been seen as one of the major beneficiaries of the US-China trade war, with firms seeking alternative locations for their factories to avoid costly tariffs.
Post reporter Erika Na recently travelled to Vietnam, and her three-part series looks at how the South-East Asian country has fared over the last four years. In part one, she looks at the new wave of foreign investor interest.
At a factory in the southeast Vietnamese province of Tay Ninh, on the border with Cambodia, 400 people work in shifts around the clock to turn spools of white thread into the colourful logo-emblazoned tape seen on sportswear.
The finished tape, ironed and neatly piled into boxes, is trucked to the port of Saigon in Ho Chi Minh City for shipment to customers, factory manager Max Lee said.
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The factory, which opened in 2019 and quadrupled its workforce in three years, was born out of the impact of the United States-China trade war that broke out in 2018 and encouraged China-based manufacturers to move some production to Vietnam.
The factory is owned by a Hong Kong company, which asked not to be named because it did not want to give the impression it was leaving the mainland. Established in the 1980s, it had previously based all its production in the Chinese provinces of Guangdong and Jiangxi.
In 2019, after the trade war led to increased tariffs on US imports from China, the company decided to expand manufacturing to Vietnam.
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“Our output is increasing and we hope to build another factory in the near future,” Lee said, pointing to an empty plot of land next to the factory.
“We hope to eventually expand the size of our workforce here from 400 to 1,000. That will be as big as our factory in Jiangxi.”
Duong Thanh Cong, deputy general director of Vietnamese energy supplier Thuan Hai, said the whole Tay Ninh industrial area was born out of the trade war.
“When we went to Tay Ninh in 2015, there was nothing – only land,” he said. “But when we went again five years later, it was completely occupied with factories. At one point, Tay Ninh was the biggest industrial area in Vietnam.”
Many in Vietnam say the US-China trade war spawned the country’s biggest inflow of manufacturing from China.
The trade war began in July 2018, when then-US president Donald Trump levied a first round of tariffs on US$34 billion worth of Chinese goods. In the next 15 months, three additional rounds meant a total of more than US$360 billion of imports from China were subjected to higher tariffs. China reciprocated with increased tariffs on more than US$110 billion of American products.
Zhang Dien Sheng, the general manager of Hang Sinh International Investment Group, a company in Ho Chi Minh City that has helped hundreds of Chinese factories move some production from China to Vietnam since 2006, said it was a busy time.
“More than 1,200 companies came for consultations during those months,” he said. “In the end more than 150 opened factories in Vietnam.”
Vietnam became an unexpected winner of the trade war between the world’s two biggest economies because manufacturers saw it as a way to avoid the extra costs incurred by the “Made-in-China” label.
In 2018, foreign direct investment in Vietnam rose by 9.1 per cent to US$19.1 billion, with the processing and manufacturing sector accounting for 46.7 per cent of the total, according to Vietnam’s Ministry of Planning and Investment.
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The following year, investment from China rose around 62 per cent to US$4.1 billion and that from Hong Kong by around 150 per cent to US$8.17 billion it said, attributing the surges to the impact of the trade war.
While 2020 was a sluggish year for foreign direct investment due to the start of the coronavirus pandemic, with investment falling 24 per cent, it bounced back with a 25.2 per cent rise in 2021.
Total newly-registered foreign direct investment amounted to US$38.85 billion that year, boosted by two projects worth a combined US$7.7 billion that received investment licences from the Vietnamese government on the last day of 2021.
Another wave of interest was witnessed after Vietnam fully reopened its borders in March 2022 as the effects of the pandemic waned, and people in the country said they expected that would continue as companies with factories in China – in sectors ranging from the hi-tech to the lower-end – adopted a fundamental change of strategy.
China would remain an important manufacturing hub for most, they said, but the need to diversify production was strongly felt by global investors because of tariffs and potential pandemic and geopolitical risks to supply chains.
Zhang said the continuation of high tariffs would mean more clients for his company in Vietnam.
“If Europe and North America keep levying high tax rates on Chinese manufactured products, Chinese enterprises will continue to move to another country,” he said. “But if they stop, they won’t move.”
However, Bruno Jaspaert, CEO of DEEP C, one of Vietnam’s biggest industrial estates, said more factors were at play and investors were being very strategic and their moves had long-term implications. The industrial estate in Haiphong is where Taiwanese electronics manufacturer Pegatron, a supplier to Apple, is building a US$1 billion manufacturing facility. Pegatron also has factories in China.
“The complete breakdown in logistics and supply chains recently, due to both Covid-19 and enormously congested ports, created the awareness among supply chain specialists that going for a few mega factories and shipping everything from there is cost efficient only when everything is OK,” Jaspaert said.
“But the question is – will the world ever be a very stable place in the next 10 to 15 years, with no big problems?”
Another elephant in the room is the Taiwan issue.
“If something were to happen regarding Taiwan, every company operating in [mainland] China would face terrible pressure to limit activities and to pull out,” said Marko Walde, the head of the German Chamber of Commerce in Vietnam, adding that he thought everybody wanted to make sure they were prepared for such a scenario.
He said Vietnam fully opened up its borders to businesspeople on March 15, and the very next day a group of German businesspeople with manufacturing bases in China flew in to look for ways to diversify production.
The Ministry of Planning and Investment said foreign direct investment in Vietnam in the first 11 months of this year was estimated at US$19.68 billion, up 15.1 per cent year on year.
While investors from countries such as Germany, where borders were already open in March, could visit Vietnam immediately, Chinese investors were slow to join in because it was difficult for them to travel overseas.
But Zhang said the demand was still there, and his company had been holding online consultation sessions with potential clients in China.
“Thirty companies expressed intentions to open factories here in 2022,” he said. “Only five could visit because of very strict Covid rules in China.”
Jaspaert said decisions by “queen bee” hi-tech investors like Pegatron had a big impact because they encouraged associated supply chains to follow in their footsteps.
The sight of workers erecting a new factory opposite Pegatron’s 34 hectare DEEP C manufacturing facility proved his point. It is being built by one of Pegatron’s suppliers, also from Taiwan, that makes electronic parts.
Pegatron had already decided to build its factory at DEEP C two years ago, well before it announced that two wholly owned subsidiaries in the Chinese cities of Shanghai and Kunshan had been forced to temporarily suspend production in April this year due to government-imposed Covid-19 restrictions.
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In June, Pegatron president Liao Syh-jang said the company, which assembles some iPhone models for Apple, would place further emphasis on expansion outside the Chinese mainland.
Pegatron is not the only big name investing in new manufacturing facilities in Vietnam, with Apple and Samsung among others doing the same.
Jaspaert said DEEP C had witnessed a “very clear change” in not only the number of deals but also their size over the past four years.
“Before, we quite often had somebody buying one or two or three hectares of land from us,” he said. “Now, 10, 20 and 30 hectares are quite common.”
Moves to diversify supply chains have not been confined to big-name manufacturers, although they receive the most attention, with Walde saying the 12 German manufacturers that had established production bases in Vietnam with the chamber’s help since March this year were all mid-sized.
“Such medium-sized companies are really the backbone of our German economy and often the world leader in a very specialised niche,” he said.
He declined to detail the size of the Vietnamese factories due to commercial sensitivities, but said all 12 companies were making long-term investments and looking ahead at least 30 years.
While the Vietnamese government prefers to welcome hi-tech manufacturers, lower-end manufacturers have also continued to enter the country this year. But Duong, whose biggest client base is lower-end manufacturers from China, said numbers were down on 2018.
“It’s harder for latecomers because moving currency out of China is highly restricted right now and getting a licence from the Vietnamese government has got much more difficult, especially for industries that produce a lot of emissions such as textiles,” he said.
“The clever, big investors already came to Vietnam early on and now they enjoy the benefit. They have the good pieces of the cake.”
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Increased investment in Vietnam does not mean manufacturers are exiting China, with Walde and Zhang saying they had not seen a single company shift all its production from China to Vietnam.
But Jaspaert said China was now facing a more difficult time attracting further investment.
“China will probably stay for a much longer time as the most advanced and biggest manufacturing facility of the world,” he said.
“But for the first time in 20 years of growth, I believe China is now facing the same dilemma as the rest of the world. How can you convince new investors to invest in your country and not in another country?”
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