Chinese firms are forecast to increase their investment in Vietnam significantly in the time ahead to avail themselves of the country’s high economic growth and free trade agreements. However, local experts are concerned about the inflow, arguing that some of them can target Vietnam just to avoid high tariffs from the US.According to experts, Chinese firms have so far relocated their manufacturing in Vietnam to deal with their rising domestic labor costs at home. Meanwhile, Vietnam offers lower labor costs, coupled with tariff reductions brought by a multitude of free trade agreements, making the country an ideal destination for Chinese exporters.
They also forecast that the number of Chinese firms that will move to Vietnam is expected to rise further in the future.
Some Chinese firms can invest in Vietnam just to avoid high tariffs from the US
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This is an acceleration of a trend that has been ongoing, McCarty said.
Besides, Managing Director of Coats Vietnam Bill Watson said that more manufacturers will relocate their businesses from China to Vietnam to enjoy the advantages of the Europe-Vietnam Free Trade Agreement (EVFTA), which is expected to be effective next year. Under the EVFTA, many Vietnamese products will enjoy preferential tariffs when shipped to the European market.
Statistics from the Foreign Investment Agency under the Ministry of Planning and Investment showed that China became Vietnam’s seventh largest investor in the first five months of this year with 1,923 projects worth a total of US$12.64 billion.
Analysts said that Asian countries, including Vietnam, are the destinations of Chinese investment flows after Chinese investment in the US dropped sharply as both Beijing and Washington curbed a recent surge in cross-border investment. Chinese acquisitions and investments in the US fell 92 percent to just US$1.8 billion in the first five months of this year, according to consulting and research firm Rhodium Group.
Some might take loophole
Though Chinese investment inflows to Vietnam have contributed to satisfying rising capital demands of Vietnam’s investment and development, local experts are concerned that some Chinese investors can move their production bases to Vietnam to avoid the imposition of high taxes from the US.
According to experts, Chinese firms may increase their investments in Vietnam so that their products can bear made-in-Vietnam labels. This could be detrimental to Vietnamese exporters, especially those in the wood processing and textile-garments industries.
Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association (VITAS), said his association was concern over the large Chinese capital inflows headed for Vietnam, allowing Chinese products to claim Vietnamese origin, so they can be shipped to other countries at lower tariffs.
China’s investment in the wood processing industry in the southern provinces of Dong Nai and Binh Duong has been substantial. Chinese companies compete for Vietnam’s labor and wood material resources, and then export their products to the US. Sudden increases in wood exports to the world’s largest economy could lead to the US imposition of antidumping duties on Vietnam.
Given the yuan devaluation, the situation may expand to the Vietnamese textile and garment sector, Giang said.
“I have advised local governments to be cautious with foreign investment flows,” Giang said, explaining that foreign clothing products could be shipped to Vietnam and may later bear made-in-Vietnam labels. Foreign investors will be likely to invest in the final production stage in Vietnam, while other stages are executed in their home countries.
