Increased Chinese investment in Vietnam: More than a phenomenon?

Many foreign firms have moved production facilities to Vietnam

According to the latest report of the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, Vietnam courted $16.74 billion in total foreign direct investment (FDI) in the first five months of this year, with $2.02 billion coming from China alone, which accounted for 12 per cent of the total FDI volume and turned China into the fourth-largest among the countries and territories investing in Vietnam, behind Hong Kong (China), South Korea, and Singapore.

If only newly-registered FDI was taken into account, China continued in the lead with $1.56 billion, equal to a 5.5-fold increase compared to one year ago.

FIA observed that a decade ago, Chinese investment in Vietnam came mainly from small businesses which employed outmoded technologies, but now leading Chinese groups are also showing keen interest.

Particularly, two large-scale Chinese projects were registered to invest in Vietnam in the first five months this year, including the $280 million ACTR full-steel radian tyre manufacturing project in Tay Ninh province, and the $214 million Advance Vietnam tyre manufacturing project in Tien Giang province of Guizhou Advance Type Investment Co., Ltd.

The trend was affirmed by the fact that recently Xu Lejiang, vice president of the All-China Federation of Industry and Commerce (ACFIC), led a delegation of more than 40 major Chinese companies to Vietnam to survey the market and seek for investment opportunities.

The ACFIC event saw the signing of a memorandum of understanding (MoU) with the Vietnam Chamber of Commerce and Industry, which represents the Vietnamese business community, to push up co-operative relations between businesses in the two countries.

Commenting on the Chinese investment shift to Vietnam, Nguyen Duc Thanh from the Vietnam Institute for Economic and Policy Research (VEPR) says this affirms VEPR’s earlier forecast about the shift of FDI into Vietnam to mitigate the implications of the current US-China trade tensions and in anticipation of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), saying that the trend will continue as more and more Chinese investors are paying heeds to the Vietnamese market.

Besides the US-China trade strains, Nguyen Xuan Thanh, a lecturer at Fullbright University Vietnam, in a recent report, said that China’s subdued growth is another reason driving Chinese businesses to increase investment in Vietnam.

Accordingly, China’s economy expanded by 6.6 per cent in 2018, the lowest level in the past 28 years. Many experts shared the view that China’s economic growth might hover at about 6.3 per cent only this year.

In a recent talk with VIR, Nguyen Mai, senior economist and chairman of the Vietnam Association of Foreign-Invested Enterprises expressed concerns over increased Chinese investment into Vietnam.

“There are valued lessons in the past. It is important to select suitable investors who meet our strategy of helping Vietnam bolster its competitive advantages, productivity, and technology," he said. “In addition, China exports huge volumes of materials and accessories to Vietnam. Chinese investors, therefore, might bring their production plants to Vietnam to acquire Vietnamese certificates of origin and benefits from the preferential tariffs that companies based in Vietnam could enjoy from Vietnam's ratified free trade agreements,” Mai noted.