The Hanoitimes - The FDI could leave a country just as quick as it arrives if things turn sour, and China’s current outward FDI is an example.
Experts have recommended Vietnam remain cautious over Chinese capital inflow into the country, which has seen a 450%-jump over the last five months.
Among 59 countries and territories that made greenfield investments in Vietnam in the first five months of 2019, China was the largest investor with US$1.56 billion, a 450%-increase from a year ealier and accounting for 24.1% of the total newly registered capital, according to the Ministry of Planning and Investment (MPI).
Such amount is significantly higher than that of South Korea in the second place with US$1.04 billion and more than doubling third ranked Singapore with US$775.75 million.
Economist Le Dang Doanh told Dan Viet newspaper that the escalation of the US – China trade war has triggered a shift in investment capital from China to other countries, including Vietnam.
Doanh attributed Vietnam’s cheap labor costs, tax incentives and the country’s intensive integration in the global economy to recent capital inflow, but warned Chinese firms could use Vietnam as a proxy destination for its products before being exported to the US.
This would help Chinese companies avoid high tariffs imposed by the US, Doanh added.
Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises (VAFIE), told BizLIVE that China is looking for alternative export markets to the US, and Vietnam being the gateway to ASEAN could help Chinese goods penetrate this market.
Nevertheless, member of the Prime Minister’s Economic Advisory Group Tran Hoang Ngan said Vietnam must be selective when it comes to FDI, in which priority must be given to projects using high technologies and forming strong linkage with local supporting industries.
According to Ngan, the FDI could leave a country just as quick as it arrives if things turn sour, citing China’s current outward FDI as an example.
Matter of grasping opportunities
More than just a trade war, HSBC in its latest note suggested as China moves up the technological curve, its lower-value production is shifting to lower-cost markets.
In this regard, countries where existing infrastructure and production networks are already in place such as Vietnam are likely to be the main beneficiaries of a shift in production capacity as businesses look to Southeast Asia as an emerging manufacturing hub.
Businesses from China, Europe and the US want to see ASEAN and Vietnam further position itself as a viable alternative for lower-end production. However, to convert its much-touted supply chain potential, Vietnam needs to build more visibility and credibility amongst international firms, particularly in the ability to handle and deliver production orders, said CEO of HSBC Vietnam Pham Hong Hai.
Sharing the same view, Nguyen Duc Thanh, director of the Hanoi-based Vietnam Institute for Economic and Policy Research (VEPR), said concerning long-term impact when the production supply chain shifts from China to neighboring countries, Vietnam needs to improve the institutional, business and labor qualifications to grasp this opportunity.
However, Vietnam should not undermine the challenges that go along with it, as the country’s infrastructure is not yet ready to receive waves of production shift, while “the economy of scale is significantly lower than that of China and India,” he added.
Data of the Ministry of Planning and Investment showed that in the January – May period, foreign investors committed to pour US$16.74 billion into Vietnam, marking a four-year high and up 69.1% year-on-year.
The list of the largest projects is dominated by Chinese firms. The big-ticket projects in the period include US$3.85 billion in capital contribution from Hong Kong -based Beerco Limited to Vietnam Beverage for a beer project in Hanoi; the US$260-million electronic manufacturing plant by Goertek (Hong Kong) located in Bac Ninh province; tire manufacturing plant worth US$280 million from a Chinese investor in Tay Ninh province and a similar project worth US$214.4 million financed by Guizhou Advance Type Investment (China) in Tien Giang province; solar power project worth US$216.7 million from Thailand’s investors in Phu Yen province.