Hong Kong capital finds way to Vietnam amid trade war

Hong Kong investors are enticed by Vietnam's manufacturing growth and domestic market

Trade tensions between the US and China are reverberating across the world, including the manufacturing industry in Hong Kong. After years of setting up camp in China, factory owners are now shifting their production lines to Southeast Asia, particularly Vietnam, to protect themselves from rising tariffs.

This trend is clearly reflected by the latest statistics. For example, the Hong Kong Trade Development Council (HKTDC) showed that in the first nine months of 2018, bilateral trade between Hong Kong and Vietnam already reached $18 billion. The figure for the entire year of 2017 was $18.11 billion.

Direct capital is also robust, as inbound investments from Hong Kong are the sixth largest in Vietnam. The Vietnamese Ministry of Planning and Investment recorded $19 billion of foreign direct investment from Hong Kong in the first half of 2018.

Terence Chiu, head of Commercial Banking at HSBC Bank (Hong Kong), told VIR that Vietnam is “the exciting new home” for his Hong Kong-based clients. The banker stressed that the manufacturing shift already started in previous years, but the trade war has brought a sense of urgency to factory owners.

“We have already seen the trade diversion into the ASEAN before the trade war, as China became more expensive and companies wanted to diversify their production lines. But the trade war definitely affected sentiments, as manufacturers must prepare for potential tariffs,” said Chiu.

Trade and investments between Hong Kong and Vietnam can benefit from recent deals

Last month, the ASEAN-Hong Kong Free Trade Agreement and the Investment Agreement took effect, promising to boost economic activities between Southeast Asia and Hong Kong. The 14 chapters cover broad areas of market access, liberalisation, and co-operation to facilitate trade in goods and services.

At a trade promotion event held by the HKTDC in Ho Chi Minh City last September, Hong Kong businesses spoke warmly of Vietnam’s booming domestic market. This will complement Vietnam’s emerging status as a regional manufacturing hub, they said.

“Investors look deeper than low labour cost – it is Vietnam’s strong fundamentals, growing consumption market buoyed by the middle class, and plenty of government support to do business,” said Nick Mahon, head of International Subsidiary Banking at HSBC Vietnam. The bank has more than 100 Hong Kong groups as clients.

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