Image source: Figureworm Creative
In the Spring Festival of 2022, the Chinese men's football team lost to the Vietnamese men's football team 1:3, reminding fans of the concern of international Fan Zhiyi about "losing vietnam first, then losing to Myanmar" before 2013. Less than three months later, anxiety about Vietnam's rise seems to have spread from fans of the Chinese men's soccer team to foreign trade practitioners.
On April 27, 2022, the Shenzhen Bureau of Statistics released the import and export data for the first quarter: the total import and export volume of Shenzhen was 740.48 billion yuan, down 2.8% year-on-year. Among them, exports were 407.66 billion yuan, down 2.6%; imports were 332.82 billion yuan, down 3.1%.
The decline in Shenzhen's export data has long been premonitioned by some foreign trade practitioners. But unexpectedly, also on April 27, the number of Baidu searches about "Vietnam" began to climb sharply.
(Baidu "Vietnam" search index trend in the past month / Chart: Baidu index)
According to data released by Vietnam Customs, the total import and export of goods in Vietnam in the first quarter of 2022 was 176.35 billion US dollars (about 1.15 trillion yuan), an increase of 14.4% year-on-year. Among them, the export volume was 89.1 billion US dollars (584.2 billion yuan), an increase of 13.4% year-on-year.
Vietnam's export data in the first quarter of 2022 surpassed Shenzhen, once again triggering a heated discussion about The snatching of Chinese manufacturing orders. However, comparing Shenzhen with Vietnam is inevitably biased.
However, it is worth noting that from 2014 to the first quarter of 2022, China and Vietnam do have a certain situation of trade-off in terms of container traffic share on the Far East to the United States. China's container traffic share fell from 72.49% in 2014 to 63.37% in the first quarter of 2020, while Vietnam's container volume share climbed from 4.78% to 11.38% during the same period.
On the face of it, Vietnam seems to be becoming the next "factory of the world." So, what is the real situation?
1
The order was not snatched by Vietnam, just processed in another place
Vietnam's rapid growth in export data in recent years is inseparable from China and the United States. The United States is the largest buyer in Vietnam, according to Vietnamese customs statistics, Vietnam's exports to the United States in 2021 will be 96.3 billion US dollars, accounting for about 29% of Vietnam's total exports, an increase of 24.9% year-on-year. In 2021, the United States contracted 46.2% of Vietnam's exports of textiles and clothing, and 42.1% of Vietnam's exports of machinery and equipment (mainly consumer electronics such as computers and mobile phones).
China is Vietnam's largest source of imports. In 2021, Vietnam's imports from China (excluding Hong Kong, Macau and Taiwan) amounted to US$109.9 billion, accounting for about 33% of Vietnam's total imports, an increase of 30.4% year-on-year. Coincidentally, in 2021, 55.8% and 42.1% of Vietnam's imports of textile raw materials and consumer electronics raw materials came from China.
Through the data, it can be found that whether in terms of trade amount, trade structure or trade growth rate, Vietnam's imports to China and exports to the United States have a high degree of coherence. Vietnam relies heavily on imports of raw materials from China, processed or assembled before being exported to the United States. This is especially true in textiles, apparel and consumer electronics.
What is more embarrassing is that Vietnam's foreign trade orders, in addition to the raw materials being "stuck in the neck", have not been able to achieve "independent control" in the processing or assembly process.
According to data from the Vietnam Bureau of Statistics, the export value of Vietnamese foreign-funded enterprises has always accounted for no less than 70% of Vietnam's overall exports since 2015, and further rose to 73.8% in the first quarter of 2022.
Moreover, the contribution of foreign enterprises to Vietnamese exports is much higher than that of Vietnamese local enterprises. Taking the export of wood products as an example, the number of foreign-funded enterprises in this industry accounts for about 15%, but it accounts for 48% of the overall export volume of wood products.
The current situation of Vietnam's foreign trade can be described as: foreigners use foreign capital to engage in foreign trade in Vietnam, and only land factory and workshop workers remain in Vietnam. From 2019 to 2021, China accounted for 36.2%, 22.8% and 20.8% of Vietnam's foreign direct investment (FDI) respectively. In 2021, 58.2% of Vietnam's FDI went to manufacturing.
In other words, some Orders for Chinese manufacturing were not snatched away by Vietnam, but were actively transferred. In fact, in recent years, many Chinese manufacturing companies have laid out production capacity in Vietnam.
Textile and garment foundry giant Shen Chau International has about 50% of its fabric production capacity from Vietnam's Xining Province, and another 40% of its garment production capacity is distributed in Vietnam's Xining Province, Ho Chi Minh City and Cambodia. In 2015, the ergonomic cross-border sale of Lege shares laid out a transnational manufacturing production base in Baan Giang Province, Vietnam, and put into operation at the end of 2016, with an additional investment of 30 million yuan in 2021 for renovation and expansion. According to the 2021 financial report, the assets of Lege's wholly-owned subsidiary in Vietnam reached 320 million yuan, accounting for 16.78% of Lege's net assets, and contributed a net profit of 39 million yuan.
2
Why Vietnam?
According to incomplete statistics, among the A-share or Hong Kong listed companies, Huali Group and Blum Oriental in the textile and apparel industry, Luxshare Precision, Goertek, Industrial Fulian, Side Battery, USI Electronics, TCL, AAC Technology, and Petty Co., Ltd., which manufactures pet supplies, have all landed in Vietnam.
In 2021, Samsung's company revenue in Vietnam alone totaled $74.2 billion, equivalent to 20.46% of Vietnam's GDP in the same period, which shows Vietnam's attractiveness to foreign investment.
Demographic dividends, policy advantages and geographical conditions are the three major selling points for Vietnam to attract foreign manufacturing to "nest".
A manufacturing foundry owner who transferred some of the Production Capacity in the Pearl River Delta to northern Vietnam told Hugo Cross Border that the wages of Vietnamese workshop workers are about 5 million to 9 million VND, equivalent to about 1388-2500 yuan, while the minimum standard wage is about 1200 yuan, and the labor cost in southern Vietnam is higher than that in northern Vietnam.
Data from research firm IHS Markit validated his claim. The data shows that in 2020, the labor cost of Manufacturing in Vietnam will be $2.99 per hour, compared with $6.50 per hour in China, about 44% in China and 62% in Mexico.
At the same time, from the perspective of gdp per capita, Vietnam's labor costs still have advantages over other Southeast Asian countries. As Vietnam's labor force grows year by year, Vietnamese workers are relatively inexpensive, young, and more skilled.
Since joining the World Trade Organization in 2007, Vietnam has signed free trade agreements with many countries, making it one of the countries with the largest number of free trade agreements in the world.
Since 2018 alone, Vietnam has entered into four new free trade agreements. Among them, the Free Trade Agreement between Vietnam and the European Union (EVFTA) shows that Vietnam and the EU 28 economies enjoy preferential tariffs, and vietnam immediately cancels 65% tariffs on European imports after the agreement takes effect, and the EU also cancels 70% tariffs on Vietnamese imports. Both sides will eliminate 99% of the tariffs within 10 years.
The China-led Regional Comprehensive Economic Partnership (RCEP) is a more important positive. According to the data, after the agreement enters into force, more than 90% of the trade in goods will eventually be reduced to zero tariffs.
In addition, Vietnam's corporate income tax rate is 20%, lower than China's 25%. Enterprises in industrial parks can obtain the policy preference of tax exemption in the first two years and halving the tax payment in the next four years, and even the high-tech industry can be upgraded to "four exemptions and nine halves".
Finally, Vietnam's unique geographical conditions provide great convenience for importing raw materials and finished products from China for export to other countries.
A closer look at the map reveals that only Vietnam borders Yunnan and Guangxi at the same time. The total journey from Longhua, Shenzhen to Bac Ninh, Vietnam, does not exceed 13 hours, and if you start from Nanning, Guangxi, the time can be shortened by nearly half. At the same time, the cumulative throughput of Vietnam's four major ports in 2020 exceeded 7.91 million TEU, of which Ho Chi Minh was 5.72 million TEU.
3
Vietnam has become the world's factory, and the road is long and difficult
From the reform and opening up in 1978 to 2014, China's manufacturing industry has achieved non-linear high-speed growth under the linear GDP growth rate of 8%-10% per year.
In the 2018 issue of Hub, the director of the Center for World Politics at the China Foreign Affairs University attributed the nonlinear growth of this manufacturing industry to the coupling of three conditions at the same time: "China's accession to the World Trade Organization; the Western world's entry into the era of innovative economy, bringing about large-scale outsourcing of manufacturing processes and finding people on a global scale to undertake outsourcing; China's land finance has given China the most powerful outsourcing capabilities in an unexpected way." "Moreover, the coupling of these conditions is completely non-repeatable.
The situation in Vietnam's manufacturing industry is described as a "semi-extracorporeal cycle" of "two ends outside". In his 2020 book Overflow, he pointed out that the "transfer" of manufacturing to Vietnam is essentially an "overflow" of China's supply chain capacity.
"Spillover" wrote, "Research in Vietnam and the Pearl River Delta tells us that what is transferred from China to Vietnam is not the entire industry in certain industries, but some specific links in the production process of that industry, mainly the links with lower supply chain demand and higher labor costs, usually the final assembly link." Other links are difficult to move out and remain in China's supply chain network. ”
From the data point of view, this spillover did not bring additional precipitation to Vietnam's manufacturing industry, but made Vietnam's economic structure overly dependent on foreign trade. In 2021, Vietnam's total imports and exports will reach 1.85 times GDP, while the proportion of net exports will be only 1.13%. In contrast, in 2021, China's total import and export volume will account for only 34.19% of GDP, and net exports will account for 3.82% of GDP.
In other words, Vietnam is still assuming the role of selling cheap labor, importing raw materials and parts and assembling them and then shipping them out, which is actually a natural extension of China's industrial chain, rather than innovation and subversion. Vietnam still has a long way to go to replace China as a true "factory of the world."