Vietnam continues to emerge as Asia’s next manufacturing hub on the back of a successful 2017. In 1H/2018, 1,366 new projects registered capital investment of US$11.8 billion.
The manufacturing and processing sector attracted 477 new projects, 39% of total registered foreign direct investment (FDI) at US$7.9 billion, growing 12.7% year-on-year (YoY). Japanese investments accounted for 32% of total registered FDI with US$6.4 billion, followed by Korea with US$5 billion and Singapore with US$2.3 billion.
Regional competiveness continues to be driven by:
- Low labor costs
- Affordable land prices
- Favorable corporate income tax rates
- Engagement in trade agreements
- A dynamic workforce
- Geographical location near source and destination markets
The low labor costs continue to attract a wave of outward bound foreign companies from China, especially those in labor-intensive industries. Due to the US-China trade war, foreign and mainland Chinese companies are racing to secure manufacturing capacity in South East Asia. As one of the fastest growing industrial markets in the region, Vietnam is well positioned to accommodate the influx of foreign investors. For example, Apple manufacturers have recently shown interest in moving operations to Vietnam to avoid the US$200 billion tariff on Chinese goods. However, the trade war also poses risks for Viet Nam. Imposing broader tariffs on China will affect the cross-border supply chain, which can hurt Vietnam as a supplier of inputs for China’s value-added supply chain. To minimize risk, Vietnam must continue to be proactive in free trade agreements (FTAs) to increase exports to alternative markets.
Despite the failure of the Trans Pacific Partnership (TPP) negotiations, investor confidence has been bolstered by the finalization of the EU-Vietnam Free Trade Agreement (EVFTA) and the imminent passage of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The upcoming Regional Comprehensive Economic Partnership (RCEP) will expand trade routes between the ten member states of ASEAN and the six Asia-Pacific states with which ASEAN has existing free trade agreements. Investors from China and Hong Kong await the ASEAN-Hong Kong, China Free Trade Agreement (AHKFTA) to come into effect, which promises to further deepen trade relations with the largest economy in the region.