Indonesia, Malaysia to benefit with Vietnam struggling to cope with China trade war exodus
- Rising land and labour costs, bottlenecks at ports, traffic jams on roads and diminishing manufacturing capacity are leading to saturation in parts of Vietnam
- Other parts of Asia, including Malaysia and Batam in Indonesia, emerge as alternative manufacturing hubs to Vietnam
When Ernie Koh first opened a production plant in Vietnam in 1993 to manufacture furniture, the Southeast Asian nation was not on the radar of many manufacturers, but a quarter of a century on, and companies are moving there in their droves.
A combination of higher wages and increasing environmental regulations means China’s southern manufacturing powerhouse of Guangdong is no longer the low-cost hub it once was, and for many companies, Vietnam has been viewed as a logical alternative. The US-China trade war, which is set to ratchet up a notch on Friday with a planned increase in tariffs on Chinese exports to the US from 10 per cent to 25 per cent, has accelerated this trend.
The first quarter of 2019 saw foreign investment in Vietnam rise by 86.2 per cent, to US$10.8 billion, with Chinese investment accounting for almost half of that, according to the Chinese state-run Securities Times newspaper.
Koh, executive director of Singaporean furniture manufacturer Koda, runs plants in Malaysia and Vietnam, and while he is fully committed to his Vietnamese investments, he is now worried that parts of the country are struggling to cope with the influx of companies, many of which are looking to escape trade war tariffs.
“Everywhere, there are buildings going up. The roads are more crowded, the traffic jams are getting worse,” Koh said. “There has been a big difference in port congestion in the last two years. Nowadays, we have to book space on a ship two weeks in advance. We did not have to do this before.”
Vietnam’s economy grew by 7.1 per cent last year compared to 6.8 per cent, while it has attracted a plethora of multinational companies, including Intel, Samsung and LG, all of which have made huge investments.
Fred Burke, managing partner of law firm Baker McKenzie’s Vietnam office, noticed a flood of Chinese manufacturers into Vietnam even before the trade war.