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By Keegan Elmer
Although US-China trade tension could impair growth in Southeast Asia, the region is siphoning output away from China, where rising wages have driven up costs.
Vietnamese workers assemble motorcycle parts at a joint venture of Chinese motorcycle company Lifan. Photo: Xinhua
The looming US-China trade war has boosted foreign investment in Vietnam, accelerating an already strong trend of foreign firms veering away from China and its rising costs and eyeing ventures in Southeast Asia.
Despite economists’ warnings that the escalating trade tensions between the world’s two largest economies could indirectly hurt growth in Southeast Asia, the region is still seen as a destination for foreign companies shifting production away from China, where rising wages have increased manufacturing costs.
US President Donald Trump’s intention to impose 25 per cent tariffs on US$34 billion of Chinese products on July 6, sparking a promise from China to retaliate on the same day with equivalent action on its US imports, has increased the climate of uncertainty and stock market volatility that has driven some foreign businesses away from China to Vietnam.
“This is an acceleration of a trend that has been ongoing,” said Adam McCarty, chief economist at Mekong Economics in Hanoi. “The [US-China] trade war has given it a little kick in the last few months, causing people to re-adjust their country risk strategies now that trade actions are ramping up.”
Foreign companies from Japan, South Korea, Hong Kong and mainland China are flocking to Vietnam, largely to diversify their investments, McCarty said. That is especially true in manufactured goods, where Vietnam’s cheaper costs make it more desirable than China.
Vietnam’s economy has been growing at a record pace, driven largely by inflows of foreign direct investment. Growth surged 7.08 per cent in the first half of 2018, the biggest increase since 2011.
First-half FDI rose 8.4 per cent from a year earlier, building on last year’s record 10-year high, according to Vietnam’s Ministry of Planning and Development.
Hong Kong firms are among the big investors in Vietnam who aim to diversify away from China.
Last month, Man Wah Holdings, a Hong Kong furniture maker with factories exclusively in the mainland, bought a Vietnam sofa manufacturing and export company for US$68 million.
Hung Hing Printing Group, another Hong Kong company, had produced products solely in China, but is expanding into Vietnam with a new printing and packaging facility in Hanoi.
Taiwan firms could quit mainland over US-China trade war
That move is part of Hung Hing’s joint venture with Dream International, a leading toy producer that works with big brands such as Hasbro, Mattel and Disney.
More than 70 per cent of Hung Hing’s business comes from exports, primarily to the US and Europe.
A company representative told the South China Morning Post that diversification will help it better serve its large overseas customer base. The representative dismissed the idea that the move was related to avoiding the consequences of US-China trade tensions.
Vietnam’s economy has been growing at a record pace, driven by inflows of foreign direct investment. Photo: Reuters
“We would never think of something like that,” the representative said. “We are in no way getting away from China. It is our bread-and-butter business.”
A company statement showed that Hung Hing also bought another manufacturing facility in the mainland in March, and expanded its plant in Heshan in the southern province of Guangdong.
China set to cancel 1.1 million tonnes of soybean deliveries from US
Analysts said that even without the trade war, a developed system of free trade agreements involving Asean, or the Association of Southeast Asian Nations, and its members will make moving to the region even more attractive for companies looking to diversify away from China.
The Asean consumer market is large and growing rapidly. The combined household expenditures of Asean countries came to around US$1.5 trillion in 2017, according to World Bank data. The combined GDP of Indonesia, Malaysia, Philippines, Thailand and Vietnam is expected to increase 5.3 per cent this year.
https://m.scmp.com/news/china/diplo...rade-war-and-chinas-rising-labour-costs?amp=1
Although US-China trade tension could impair growth in Southeast Asia, the region is siphoning output away from China, where rising wages have driven up costs.
Vietnamese workers assemble motorcycle parts at a joint venture of Chinese motorcycle company Lifan. Photo: Xinhua
The looming US-China trade war has boosted foreign investment in Vietnam, accelerating an already strong trend of foreign firms veering away from China and its rising costs and eyeing ventures in Southeast Asia.
Despite economists’ warnings that the escalating trade tensions between the world’s two largest economies could indirectly hurt growth in Southeast Asia, the region is still seen as a destination for foreign companies shifting production away from China, where rising wages have increased manufacturing costs.
US President Donald Trump’s intention to impose 25 per cent tariffs on US$34 billion of Chinese products on July 6, sparking a promise from China to retaliate on the same day with equivalent action on its US imports, has increased the climate of uncertainty and stock market volatility that has driven some foreign businesses away from China to Vietnam.
“This is an acceleration of a trend that has been ongoing,” said Adam McCarty, chief economist at Mekong Economics in Hanoi. “The [US-China] trade war has given it a little kick in the last few months, causing people to re-adjust their country risk strategies now that trade actions are ramping up.”
Foreign companies from Japan, South Korea, Hong Kong and mainland China are flocking to Vietnam, largely to diversify their investments, McCarty said. That is especially true in manufactured goods, where Vietnam’s cheaper costs make it more desirable than China.
Vietnam’s economy has been growing at a record pace, driven largely by inflows of foreign direct investment. Growth surged 7.08 per cent in the first half of 2018, the biggest increase since 2011.
First-half FDI rose 8.4 per cent from a year earlier, building on last year’s record 10-year high, according to Vietnam’s Ministry of Planning and Development.
Hong Kong firms are among the big investors in Vietnam who aim to diversify away from China.
Last month, Man Wah Holdings, a Hong Kong furniture maker with factories exclusively in the mainland, bought a Vietnam sofa manufacturing and export company for US$68 million.
Hung Hing Printing Group, another Hong Kong company, had produced products solely in China, but is expanding into Vietnam with a new printing and packaging facility in Hanoi.
Taiwan firms could quit mainland over US-China trade war
That move is part of Hung Hing’s joint venture with Dream International, a leading toy producer that works with big brands such as Hasbro, Mattel and Disney.
More than 70 per cent of Hung Hing’s business comes from exports, primarily to the US and Europe.
A company representative told the South China Morning Post that diversification will help it better serve its large overseas customer base. The representative dismissed the idea that the move was related to avoiding the consequences of US-China trade tensions.
Vietnam’s economy has been growing at a record pace, driven by inflows of foreign direct investment. Photo: Reuters
“We would never think of something like that,” the representative said. “We are in no way getting away from China. It is our bread-and-butter business.”
A company statement showed that Hung Hing also bought another manufacturing facility in the mainland in March, and expanded its plant in Heshan in the southern province of Guangdong.
China set to cancel 1.1 million tonnes of soybean deliveries from US
Analysts said that even without the trade war, a developed system of free trade agreements involving Asean, or the Association of Southeast Asian Nations, and its members will make moving to the region even more attractive for companies looking to diversify away from China.
The Asean consumer market is large and growing rapidly. The combined household expenditures of Asean countries came to around US$1.5 trillion in 2017, according to World Bank data. The combined GDP of Indonesia, Malaysia, Philippines, Thailand and Vietnam is expected to increase 5.3 per cent this year.
https://m.scmp.com/news/china/diplo...rade-war-and-chinas-rising-labour-costs?amp=1
