Vietnam Emerges as Safe Haven Amid US-China Trade War

Impact of US-China Trade Friction on Vietnamese Investment

The increasing trade friction between the US and China will likely prompt more South Korean and Japanese firms to come to Vietnam and use it, instead of China, as a key market to produce and export their products to the US.

Japanese Investment in Vietnam

More Japanese businesses are investing in Vietnam to produce goods and then export them to the US. Last week, the Quang Ninh People’s Committee hosted 72 Japanese businesses exploring investment opportunities in sectors such as electronics, heavy industry, finance, property, and textiles. Nguyen Duc Tiep, from the Quang Ninh Investment Promotion Centre, highlighted Quang Ninh's Van Don Economic Zone as a burgeoning investment destination for Japanese firms looking to mitigate risks from rising production costs in China and the US-China trade war.

JETRO Survey on Japanese Firms

A recent survey by the Japan External Trade Organization (JETRO) of over 4,630 Japanese firms, including 652 in Vietnam, showed that 70% plan to expand their business in Vietnam, compared to only 48% in China. Additionally, 65.1% of the firms reported profits in Vietnam. As of July 20, Japan had 3,835 valid investment projects in Vietnam, valued at $55.86 billion, making it the second-largest foreign investor in the country. In the first seven months of the year, Japan's registered investment capital in Vietnam was nearly $6.9 billion.

South Korean Investment Surge

Hong Sun, vice chairman of the Korea Chamber of Businesses in Vietnam, noted that the US-China trade war is prompting many South Korean businesses to relocate to Vietnam. These firms are moving their production bases to avoid high US tariffs on Chinese goods. Vietnam is seen as an ideal alternative due to its lower production costs and numerous free trade agreements. As of July 20, South Korea had 7,080 valid investment projects in Vietnam, with a total investment of $61.5 billion, making it the largest foreign investor in Vietnam. In the first seven months of the year, South Korea's registered investment capital in Vietnam was nearly $5.46 billion.

Vietnam as an Alternative Investment Destination

Professional services firm Dezan Shira and Associates noted that Vietnam could serve as an alternative to China for investors affected by US-China trade frictions. The country is already benefiting from "China plus one" strategies, where investors in China shift focus or expand to other countries to diversify risks and reduce labor costs. The growing trade war will accelerate this shift, especially for labor-intensive industries such as clothing, footwear, and electronics.

Strategic Relocation to Vietnam

JLL, a major US professional services and investment management firm, reported that China’s shift from basic, labor-intensive industries to higher-value activities has led to firms moving their production bases to Southeast Asian countries. Vietnam, with its strategic location, stands to benefit significantly from these moves. Concerns over the increasing trade tension between the US and China have prompted companies based in China to relocate to Vietnam to avoid high tariffs.

Maintaining Vietnam’s Investment Appeal

Trang Le, research director at JLL in Vietnam, emphasized that Vietnam is currently the best choice for businesses moving factories out of China due to rising business expenses and the trade war. However, Nguyen Mai, chairman of the Vietnam Association of Foreign-Invested Enterprises, cautioned that Vietnam should not become complacent. He urged the country to improve its investment climate and reform administrative procedures to maintain its advantages. Mai highlighted that while China attracted over $100 billion in foreign investment last year, Vietnam only secured $17.5 billion, indicating a need for increased efforts to attract FDI.

Reference: Vietnam Investment Review