Bloomberg names four factors for Vietnam to become biggest trade war winner

Vietnam is poised to capture some of China’s global market share in labor-intensive manufacturing.

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, Trinh Nguyen, a senior economist at Natixis in Hong Kong was quoted by Bloomberg as saying, adding that Vietnam is the clear winner from the trade war.



Bloomberg pointed to four factors that makes Vietnam attractive to foreign investors:



Cheap



Production workers in Vietnam are paid an average wage of US$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, with 57.5 million people. That compared with 15.4 million for Malaysia and 44.6 million for the Philippines, according to the World Bank.

 

Deals, Investment



Vietnamese government has pursued free trade deals with theEU 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% 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 US$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 US 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 countries share a land border, compared with countries like Indonesia, the Philippines and Malaysia which are all much farther away.



Chinese companies that need raw materials or product components from the US 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 about 7% this year. The Vietnam dong (VND) 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 VND 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.