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WHY VIETNAM COULD BE ASIA'S BIGGEST TRADE WAR WINNER

2018-12-26 14:05:37

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WHY VIETNAM COULD BE ASIA'S BIGGEST TRADE WAR WINNER

 

 

Motorcyclists pass vendors selling food in a market at night in Ho Chi Minh City, Vietnam.Photographer: Maika Elan/Bloomberg

 

 

In the race to lure companies looking for alternative sites amid the U.S.-China trade war, Vietnam wields a slew of advantages over its rivals.

 

Vietnam was ranked No. 1 among seven emerging Asian countries as manufacturing destinations by Natixis SA, which looked at demographics, wages and electricity costs, rankings in doing business and logistics, and manufacturing as a share of total foreign direct investment.

 

“Vietnam is poised to capture some of China’s global market share in labor-intensive manufacturing,” said Trinh Nguyen, a senior economist at Natixis in Hong Kong. “It’s the clear winner from the trade war.”

 

Prime Minister Nguyen Xuan Phuc is taking advantage of trade tensions to boost the nation’s profile as a manufacturing and export powerhouse, selling everything from shoes to smartphones. Trade amounts to about twice its gross domestic product -- more than any country in Asia apart from Singapore.

 

Here’s a look at what makes Vietnam attractive to foreign investors:

 

Cheap

Production workers in Vietnam are paid an average of $216 a month, less than half what their peers get in China. Thanks to government subsidies, electricity is also cheaper at 7 U.S. cents per kilowatt hour compared with 10 cents for Indonesia and 19 cents for the Philippines, according to GlobalPetrolPrices.com’s June data.

 

Vietnam also has one of the largest labor forces in Southeast Asia, at 57.5 million. That compared with 15.4 million for Malaysia and 44.6 million for the Philippines, according to the World Bank.

 

Cheap Labor

Vietnam's manufacturing wages are among the lowest in Asia

 

 

Deals, Investment

Vietnam’s communist leaders have pursued free trade deals with South Korea and Europe and joined 10 other nations in March in signing a Trans-Pacific trade pact.

 

Officials completed a trade deal with the EU in June that will eliminate almost all tariffs. In Southeast Asia, only Singapore has a similar agreement with the EU.

 

The government is also making it easier for foreign investors to do business with a proposed securities law that would allow 100 percent foreign ownership of public companies, except those in restricted sectors like banking and telecommunication.

 

Foreign direct investment is surging, with the government expecting disbursed FDI to rise to a record $18 billion this year.

 

Hon Hai Precision Industry Co., the Taiwan-based manufacturer for companies such as Apple Inc., is considering shifting some of its production to Vietnam as a hedge against the trade tensions between the U.S. and China, said Vu Tien Loc, chairman of the Vietnam Chamber of Commerce and Industry. Representatives of the company have spoken with Vietnamese officials, though discussions are preliminary, he added.

 

Geography

 

Vietnam’s proximity to China also adds to its appeal. The two share a land border, compared with countries like Indonesia, Philippines and Malaysia which are all much farther away.

 

Chinese companies that need raw materials or product components from the U.S. will find it easier to source these goods via Vietnam. Vietnam is China’s largest trading partner in Southeast Asia as the two nations become more central in each other’s production chains.

 

Stability

 

Vietnam boasts one of the world’s fastest-growing economies, forecast to expand at about 7 percent this year. The dong has been relatively stable in 2018, compared with other currencies in Asia like the rupee and rupiah which suffered large declines.

 

“Strong economic growth and political stability are very important to investors,” said Tony Foster, the Hanoi-based managing partner in Vietnam for law firm Freshfields Bruckhaus Deringer LLP.

 

The dong will remain fairly stable in the near-term, Fitch Solutions Macro Research, a unit of Fitch Group, said in October, citing support from strong FDI inflows and manufacturing.