Source:
https://scmp.com/news/china/diplomacy/article/3009405/us-china-trade-war-gift-keeps-giving-vietnam Diplomacy
US-China trade war is a gift that keeps on giving for Vietnam
- Southeast Asian country’s manufacturing and export boom shows no sign of letting up as businesses try to offset cost of tariffs on Chinese-made products
A man works at a mechanical factory in Hanoi. Photo: Reuters
Foreign investors have continued to flock to Vietnam’s factory districts as the trade war between the United States and China approaches its second year.
US President Donald Trump’s threats to deepen the US-China trade war with further tariffs could accelerate the inflow of manufacturing investment, but those who have chosen to “wait and see” so far my face a more competitive environment as factory districts fill up, analysts have said.
Many manufacturers in China considered shifting more production to Southeast Asia after the two sides started their tariff tit-for-tat, fearing the impact of higher levies on Chinese-manufactured goods on sales to the US market.
Vietnam has become a favoured site for investors fleeing rising labour costs in China, and the threat of tariffs.
“The trade war is speeding up a trend that was already well under way, namely to move factories out of (more expensive) China,” said Adam McCarty, chief economist at Mekong Economics in Hanoi.
“It is hard to say how many of the new factories would have to come to Vietnam without a trade war.”
Investment in Vietnam, particularly in light, labour-intensive manufacturing, has boomed since last year.
Newly registered investments in the country are up by 81 per cent, and capital contributions, used to fund new facilities, are up by 215 per cent, according to government data from April.
US-bound exports also rose by 28.8 per cent in 2019 compared with last year.
The trend is only expected to gain momentum in third and fourth quarters of this year as the newly established factories start operating, according to Maxfield Brown, senior associate with Dezan Shira & Associates in Ho Chi Minh City.
But the surge in investment has also caused growing pains, which are expected intensify in the near future, but those who did not make an early move may find it harder to relocate.
A transformer manufacturing plant in Hanoi. Photo: EPA
“Those that took a wait-and-see approach in 2018 are facing increasing pressure from competitors that have moved production elsewhere and stand a higher chance of following suit the longer trade tensions continue,” said Brown.
But he warned that Vietnam’s infrastructure networks, labour pools, and local suppliers are all being “pushed to their limit” as investment continues to climb in traditional manufacturing hubs around Ho Chi Minh City and Hanoi.
The US has said it would raise tariffs on US$200 billion of goods from 10 per cent to 25 per cent by Friday, an escalation after months of no new tariffs between the two countries, causing concern that a trade war that was nearing an agreement may continue.
Should the trade war roll on, Vietnam would continue to benefit, though some trade with China may be affected, said McCarty.
“The exceptions are where Vietnamese firms are outsourced suppliers to Chinese assembly operations. They will suffer.”
Le Anh Tuan, head of research at Dragon Capital in Hanoi, said that while investment will continue to shift from China to Vietnam, the size of its population – just under 100 million, about the same size as the Chinese province of Guangdong – puts limits on its capacity to absorb the flow.
“Let’s be clear: China has been, and will continue to be, the biggest manufacturing powerhouse in the world, there’s no doubt.
“But I still think the marginal spill over from China to different countries, especially Vietnam, has been increasing,” said Tuan.
He said Vietnam’s official foreign investment figures may level off, or even taper down, compared to the rapid, capital-intensive growth in foreign direct investment of the past few years.
The trade war aside, Vietnam has been able to attract investment to manufacture mobile phones, semiconductors and flat screens from companies like Samsung.
Vietnam’s economy grew at a breakneck 7 per cent in 2018, the fastest in more than a decade, driven in large part by US$19 billion in foreign direct investment.
“Right now we receive more manufacturing from China, which is not very highly capital intensive, so you might employ more labour, but you in near future you will not see a big surge in FDI figures to Vietnam.”