Vietnam - Under FDIs Spotlight in ASEAN A joint report published by the ASEAN Committee and UN Trade & Development in October indicated that FDI flows to ASEAN were $230 billion in 2023, a record high after three consecutive years of increases and just less than 1% as compared to the 10% increase in 2022. As global FDI flow dropped 1.8% in 2023, after decreasing 16.4% in 2022, this region outperformed others. Singapore received 70% of all FDI inflow in ASEAN because of its superior position in Finance and Professional & Administrative Support Services. Indonesia and Vietnam were the first and second runners-up after Singapore, with Vietnamese considered to have the best achievement in this competition, as its FDI still increased while Indonesia shrank. Furthermore, Vietnam has a smaller population than Indonesia, which means Vietnamese FDI per capita would be higher due to a smaller country area and fewer natural resources.
Flourishing Manufacturing and Export
Manufacturing and processing industries accounted for 70% of FDI inflow to Vietnam in the first 8 months of 2024 and received $14.2 billion (up 7.4% year-over-year). The Asian Development Bank (ADB) said in a recent report that "Vietnam remains an attractive destination for manufacturing and processing investments, with numerous investors planning significant projects, supporting the nation's export growth."
During the first eight months of 2024, $265 billion in exports were recorded (16% increase), including $225 billion from manufacturing and processing. The strong export figures and FDI inflows drive Vietnam's economy. Mobile phones, computers, and components have steadily increased export share reflecting the importance of economic activities and potential for technological advancement. Vietnamese authorities always listed the names of high-tech or electronic assembly giants such as Foxconn, Amkor, Goertek, and Victory Giant in their publications to demonstrate the country's achievements.
A Room Created From America-China Trade DisputesVietnam has been labeled as the fastest-growing emerging economy in Southeast Asia, but different stakeholders have different opinions about what might happen down the line. People often quote "China Plus One", "Overcapacity and Overflowing" and "De-risking" to explain how Vietnam's manufacturing sector has been booming in recent years: a third party benefiting from the America-China trade dispute.
China-origin investors have invested in most projects in Vietnam, with investments flowing into sectors such as advanced manufacturing, technology, and professional services. According to the Ministry of Planning and Investment, more large-scale FDI projects from China are still possible, especially in key industries and high-tech collaborations. A recent HSBC publication highlighted that “China-Vietnam trade relations have become one of the world's top 20 trade corridors over the past decade”.
As Vietnam enjoys historically high levels of Chinese investment, it has its own concerns: Vietnam's exports to the United States and Europe increased rapidly at the same time as the America-China Trade Disputes, which attracted the attention of importing countries' related authorities: a growing number of people accuse Vietnam of trade fraud or tariff avoidance because the value added within Vietnam is too low, which leads to abuse of the country of origin regulations. Despite these isolated cases, Vietnamese authorities were pressed to take remedies such as requesting overseas invested factories to increase local contents and not only doing simple processing.
New Chances and New Worries
The domestic supply chains of Vietnam as well as other ASEAN countries are much smaller than those in China, so they must rely on Chinese supply chains and intermediate processing industries and sometimes become part of those supply chains rather than replacing them. The higher the growth of exports, the stronger the relationship between Vietnam and China in the supply chain.
As new investment flooded into the country, domestic producers (especially SME or Micro companies) faced competition from rivals with strong financial and technological backgrounds that not only targeted exporting segments but also penetrated domestic markets. As a result, the government finds itself in a dilemma of welcoming the huge opportunities and immediate economic benefits that FDI will bring, but at the same time, weak and far from matured domestic industries are threatened with elimination.
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