Vietnam overtakes China to become the next world factory

 Research, editing : Gan Yung Chyan, KUCINTA SETIA

News on Vietnam, CCP

News (1) to (5) / Reporter : Li Qiwen / https://ec.ltn.com.tw/article/breakingnews/3948859

News (1)

China and the United States wrestle, Vietnam reaps the benefits of the fisherman  

Image : Due to strong exports and rapid economic growth in recent years, Vietnam is expected to replace China as the next world factory. (Picture taken from VCG)

After the Sino-US trade war broke out in 2018, the willingness of American companies to invest in China dropped sharply. Many multinational companies were alarmed that the "Made in China" that the world has relied on for many years may not be able to go back and turn to Southeast Asia to invest. The number of foreign companies setting up factories in Southeast Asia is increasing, and Vietnam is the most favoured country for foreign investment.

In recent years, the relationship between China and the United States has been turbulent, while the relationship between Vietnam and the United States has continued to heat up. Last year, the bilateral trade volume exceeded 100 billion US Dollars (about 2.9 trillion Taiwan Dollars). At the same time, in order to prevent the continued expansion of Chinese forces in the Asia-Pacific region, the United States organized an African-China economic system - the "Indo-Pacific Economic Framework" (IPEF), intending to gradually shift its strategic focus to Southeast Asia, and the IPEF's first round list of course also includes Vietnam It can be seen that the United States has gradually turned its attention to Southeast Asia, intending to win over its Southeast Asian allies in the Indo-Pacific strategy.

News (2)

Population of 100 million and geographical advantages drive Vietnam's economy take off

Why is Vietnam favoured by the outside world and can replace China as the next world factory? In terms of population, according to the latest statistics, Vietnam has a total population of 98.51 million, and will soon become the 15th country in the world with a population of more than 100 million. The market for labor and domestic demand is huge. , the high economic growth rate has become a major advantage of Vietnam's rise.

In terms of policies, since the implementation of reform and opening up in 1986, Vietnam has gradually opened up its market, relaxed the proportion of foreign shareholding, actively encouraged foreign strategic investment, and promoted the vigorous development of the industry. After Vietnam joined the World Trade Organization (WTO) in 2007, due to preferential tariffs and its strategic position in the regional supply chain, it has attracted a large number of foreign investment, and has rapidly become an emerging manufacturing center of consumer electronics, textiles and clothing in Asia.

Not only that, Vietnam's supply chain is highly stable, and even though the Wuhan pneumonia (covid) epidemic ravages the world in 2020, Vietnam is still the best performing economy in Asia.

News (3)

Vietnam emerges as Southeast Asia's fourth largest economy

Image : Reuters

In recent years, Vietnam's manufacturing industry has sprung up, driving the continuous growth of total exports. Last year, Vietnam's foreign trade volume exceeded 668.5 billion US Dollars (about 19.5 trillion Taiwan dollars), an annual increase of 22.6%, making it one of the top 20 economies in the world's trade volume.

The reason why it can stand out among many Southeast Asian countries is due to Vietnam's industrial structure. Since 2010, Vietnam's export projects have focused on electronic products. In 2015, it surpassed Malaysia, which was the first to develop the semiconductor industry, and became the largest exporter of the electronics industry in Southeast Asia.

In addition, because Vietnam’s economy is not overly dependent on China, it has been able to survive the Sino-US trade war, and during the epidemic, it has successfully caught up with technology products and long-distance business opportunities, enabling Vietnam to surpass Singapore in 2020 , Malaysia, the fourth largest economy in Southeast Asia after Indonesia, Thailand and the Philippines.

News (4)

Successful foreign investment strategy, Samsung and Apple rushed to enter

The Vietnamese government, with its generous tax concessions and abundant and relatively cheap wages, has attracted many multinational companies transferred from China to invest, including: South Korea's Samsung (Samsung), LG; US Intel, Apple, NIKE; Germany's Siemens, Adidas have all invested in Vietnam to set up factories.

Among them, Samsung has invested the most in Vietnam. Since the closure of all mobile phone factories in China in 2019, Vietnam has become Samsung’s largest overseas production location. As of mid-February this year, Samsung’s total investment in Vietnam has reached about 19.2 billion US dollars (approximately US$19.2 billion or TWD 561.3 billion).

Taking into account the supply chain and cost issues, not only Samsung has withdrawn from China, but Apple has also begun to disperse the layout of production sites, transferring some production lines of popular products such as Macs and iPads from China to Vietnam.

In addition to having previously established a chip packaging and testing plant in Vietnam, Intel recently announced that it has signed an agreement with Vingroup, the largest company in Vietnam, to jointly develop a series of self-driving technologies for electric vehicles and accelerate its entry into the field of automotive chips.

Image : Samsung becomes Vietnam's largest foreign investor. The picture shows Samsung's factory in Bac Ninh province, Vietnam. (Bloomberg)

News (5)

The proportion of foreign capital is too high, overtaking China is still unknown

However, Vietnam's advantages also have some hidden concerns. It is highly open to foreign investment, resulting in the country's major enterprises being foreign companies. According to statistics from the Vietnam Statistics Bureau, more than 60% of Vietnam's exports rely on foreign investment. Therefore, Vietnam's economic growth has great momentum. Part of it comes from foreign capital, which has also become the weakness of Vietnam's economic development.

In addition, since the United States is Vietnam's largest exporter, the trade policies adopted by the United States against Vietnam, such as imposing tariffs or being listed as a currency manipulator, will affect the fate of Vietnam's economy.

What the market is most concerned about recently is whether Vietnam can become China's biggest rival? In 2018, Vietnam's total export volume surpassed Shenzhen in the Pearl River Delta region of China for the first time. In March this year, the export volume was even twice that of Shenzhen. In addition, foreign capital gradually transferred factories to Vietnam, which highlights Vietnam's dazzling export business opportunities and status.

Even so, Vietnam's upstream supply chain still continues to rely on China, and China's manufacturing industry has developed for many years and has a certain competitiveness. It may not be easy to transfer the supply chain to Vietnam on a large scale in the short term. Therefore, whether Vietnam can replace China as the The factory of the world, perhaps remains to be seen.

Image : The United States is Vietnam's second largest trading partner and Vietnam's largest export market. (AFP)