Chinese investors still moving to Vietnam, free of US tariffs for now, as Trump 2.0 looms

Number of Chinese manufacturers shifting production to Vietnam has boomed since Donald Trump’s first term as US president

Cargo ships ply the Saigon River deep into the night, delivering materials to factory hubs near Ho Chi Minh City, Vietnam’s main financial centre.

The container vessels chug past newly built blocks of flats and glittery riverside bars teeming with market researchers, consultants and corporate lawyers abuzz about the growing number of foreign manufacturers who are hot on Vietnam. Above the river, plane after plane prepares to land at the city’s crowded airport on a normal Friday night.

Much of that activity services Chinese manufacturers looking to establish or expand bases in Vietnam. Their numbers have boomed since 2018, when Donald Trump first raised tariffs on Chinese imports.

“Vietnam is still benefiting from Trump 1.0, but we don’t know for how long,” said Winnie Lam, a business consultant based in Ho Chi Minh City, referring to Trump’s first term as United States president – from 2017 to 2021 – and the uncertainty about how his second term will affect world trade.

Trump will return to the White House in January with a pledge to impose tariffs of at least 60 per cent on Chinese imports. He said on Monday that he would add a 10 per cent tariff on all Chinese imports – on top of duties already in place – on his first day in office.

Jack Nguyen, CEO of ­professional services firm InCorp, said he helps one or two Chinese companies set up in Vietnam every week.

“They need to get out – in China there are economic issues,” he said. “I don’t see any reason that trend wouldn’t continue in the next few years.”

China ranked No 1 in direct foreign investment in new projects in Vietnam in the first seven months of this year, contributing 29.7 per cent of the total, professional services firm Dezan Shira and Associates said.

Direct investors from China parked US$1.97 billion in Vietnam in the same seven months, “maintaining rather fast growth”, a Chinese Ministry of Commerce spokesman said last month.

China’s share of goods imported by the US peaked at 20 per cent in 2018 before falling to 14 per cent last year, said Alex Muscatelli, director of economics at Fitch Ratings. Vietnam’s share has almost doubled over the same period, to 3.7 per cent, he said.

One of the more bullish people in Ho Chi Minh City is Ding Wei, chairman of the local China Business Association branch.

The Vietnamese economy is growing, the government keeps rolling out pro-manufacturer policies and the country’s location along the Chinese border helps goods cross by land or sea, Ding said. Low-cost labour is abundant, he added, while the infrastructure beats that of other emerging Asian manufacturing centres.

Vietnam’s expanding list of free-trade agreements makes exports more competitive, Ding added. The list covers 17 deals with 50 countries, and includes the US-Vietnam Bilateral Trade Agreement, which sets tariffs for most Vietnamese exports to the US at 15 per cent or less.

Vietnam’s lack of a trade war with the US is particularly welcomed by Chinese businesses, said Ding, who is also the general manager of consumer electronics manufacturer TCL Smart Device (Vietnam), a subsidiary of China’s TCL Technology Group, which is based in Huizhou, Guangdong province.

That means that as long as they obey the legal 30 per cent localisation rate for a given manufactured good they can still do some of the preparatory work in China and then ship it to the US without trade war tariffs.

In his TCL office, which occupies a floor in one of Ho Chi Minh City’s numerous new office buildings, Ding said Vietnam’s development momentum has been “really strong” in the past decade.

“This is one of the factors that most attracts Chinese investors,” he said, adding that he expects Vietnam’s advantages will improve over at least the next five years.

TCL has run a factory up the Saigon River in Binh Duong province since 2019. It will produce more than 6 million television sets this year and has the capacity to increase annual output to 8 million.

China ranked as Binh Duong’s top investor in 2022 with more than US$10 billion invested in the province up to that point across 1,561 projects, according to the Viet Nam News.

Chinese investors have shifted in the past five years from making low-value-added goods such as garments to consumer electronics and solar and wind power equipment, Ding said.

Trump’s new administration is likely to raise tariffs on China “slowly” and could put pressure on Vietnam to raise its country-of-origin localisation rate to 35 or 40 per cent, he said.

Nguyen said he expects investment inflows from China to Vietnam will be “expedited” when Trump returns to office, with some companies already telling InCorp that “we have to get out”.

But some market watchers in Vietnam say Trump might also target Vietnam from next year, either for its role in offering a workaround for US tariffs on China or because the Southeast Asian country has an annual trade surplus of more than $100 billion with the US.

Some clients don’t care if their Vietnam operation isn’t making money as long as the risk is spread out

Winnie Lam, Hong Kong Business Association Vietnam

As a US senator, vice-president-elect J.D. Vance co-signed a letter last year to the US commerce secretary warning that Vietnam “actively collaborates with China and is one of the largest sources of transshipped Chinese goods”.

Vance “seems to be the guy watching the trade circumvention issue”, said Frederick Burke, a Ho Chi Minh City-based senior adviser with law firm Baker McKenzie.

But Lam, who is also general secretary of the Hong Kong Business Association Vietnam, said any Vietnam-specific tariffs would “have a negative effect on the US economy” by pushing factory work towards American plants where production costs more.

“Can you deal with the American unions at US$32 per hour?” she asked on a break from her increased workload helping foreign companies develop scenarios for Vietnam in the wake of Trump’s November 5 US presidential election victory.

Non-Chinese firms with factories in China that are exposed to the threat of increased tariffs are stepping up investment in Vietnam as well and may keep coming, she said.

Canadian business delegations that have visited Vietnam since the start of last year have brought hundreds of people to help investors “close deals”, Lam said.

She said some corporate clients farther afield have told factory contractors in China that if they “want to keep working for us” they must meet deadlines for opening factories outside China.

“Some clients don’t care if their Vietnam operation isn’t making money as long as the risk is spread out,” Lam said.

By Ralph Jennings – The South China Morning Post – 29 novembre 2024