The US dollar global financial system has been questioned by many new forces, the industrial chain with United States as the core has seen a phenomenon of de-globalization, and the Viet Nam manufacturing industry will be negatively affected in 2022 due to the weakening of global demand, and foreign investment will decline briefly in this year.
In the first half of 2024, Viet Nam's economy will grow against the trend, and the source of growth will mainly depend on increased investment from foreign companies, including Chinese companies.
⬆ Ho Chi Minh City, Viet Nam
01Why is there a Viet Nam dream?
The last 10 years have been the golden age of Viet Nam.
In 2014~2018, the growth rate of foreign investment into Viet Nam continued to grow, and the growth rate of foreign investment slowed down briefly in 2020~2022, and continued to grow strongly in 2024. The capital mainly went into the manufacturing and real estate sectors. The growth is as follows:
According to official statistics from Viet Nam, in the first half of 2024, Viet Nam absorbed nearly US$15.2 billion in foreign direct investment (FDI), up 13.1% year-on-year, and the actual funds in place amounted to about US$10.84 billion, up 8.2% year-on-year.
Caixin believes that Viet Nam combined effect of the government's efforts to expand investment spending, the business environment, and the continuous improvement of the legal framework and system, the Viet Nam economy continued to show a positive growth trend in April.
Under the strong control of government policies, Viet Nam's economy continued its strong performance in the first quarter in April, and even accelerated its upward trend.
The expansion of government public investment is the original driving force of economic growth. Viet Nam's public investment spending has grown relatively slowly in recent years, but is coming back strongly in 2024. The latest estimates from the General Statistics Office (GSO) of Viet Nam show that public investment spending reached about 13% of the plan in the first quarter of 2024, compared to only 9.7% in the same period in 2023. This is largely due to the vigorous efforts of the Government and Prime Minister of Viet Nam to promote public investment spending in ministries and localities.
In April 2024, Viet Nam's industrial production maintained an upward trend. The index of domestic industrial production (IIP) surged 6.3% year-on-year, up from 4.8% in the previous month.
⬆ Garment factory in Viet Nam
After a sharp decline in the fourth quarter of 2022 and negative growth in the first four months of 2023, the IIP growth rate has been picking up at a sustained high pace, which means that industrial production has become an important driver of GDP growth in 2024. Further, the manufacturing industry is the main contributor to industrial growth, accounting for 5.5 percentage points of total industrial growth.
Viet Nam's GDP in 2023 will be about 0.2 trillion Viet Nam dong (about 430 billion US dollars), and the per capita GDP is expected to reach 101.9 million Viet Nam (about 4284 US dollars), and the economic growth rate will increase by 5.05% year-on-year.
⬆ Forklift factory in Viet Nam
Comparing Viet Nam with China, it is roughly equivalent to the total GDP of Yunnan, China, which will be 3,002.1 billion yuan in 2023, an increase of 4.4% over the previous year at constant prices, and about 412.626 billion US dollars at this year's US dollar exchange rate.
Viet Nam's slightly higher economic data than China's Yunnan province does not mean that the two have similar lives, Viet Nam has Hanoi as the core in the north, Ho Chi Minh City in the south as the core, and Mui Ne and other cities in the center. The industrial structure is dominated by manufacturing, and the real estate industry occupies a part of the importance, and the housing prices in Ho Chi Minh City have been at a high level for a long time, with large fluctuations, and in some years the housing prices in Ho Chi Minh City are higher than those in Shanghai, but the wage level is lower than that in Lhasa for a long time.
⬆ Kunming, China
According to the World Bank, the population of Viet Nam in 2022 is 98.19 million, and the population of Yunnan, China is 46.93 million, and Viet Nam is 52% more than Yunnan.
From the perspective of per capita GDP, Viet Nam's per capita GDP is US$4,284, Yunnan's provincial per capita GDP is US$3,904.34, and Yunnan's urban residents' per capita income is US$5,987.55.
Considering that Viet Nam is a country with 58 provinces and 5 municipalities, the economy of Yunnan, China, is better than that of Viet Nam in comparison with the actual economic environment and taking into account the interference of the US dollar exchange rate.
Since Viet Nam's economy mainly relies on foreign capital, the country is long and narrow from north to south, with a long coastline, suitable for export-oriented economic development such as foreign trade and processing plants, the country is more vulnerable to global macroeconomic influences, has a high sensitivity to the trend of the US dollar exchange rate, and housing prices and stock markets are also more likely to be shorted by foreign capital.
Many media portrayed Viet Nam as the next world factory, believing that the country would replace China in a short time, but from a practical point of view, it will be difficult to replace China's Yunnan.
In 2023, foreign investment in Yunnan, China, was US$846 million, and the province's industrial output value above designated size increased by 720.283 billion yuan, an increase of 5.2%. The high-tech manufacturing industry increased by 21.2 percent, and the equipment manufacturing industry increased by 25.4 percent.
By economic type, state-owned enterprises increased by 5.7 percent, collective enterprises decreased by 22.2 percent, joint-stock enterprises increased by 5.7 percent, and private enterprises increased by 1.7 percent. The production and supply of electricity, heat, gas and water increased by 3.6 percent.
From the data level alone, Viet Nam is unlikely to replace China, Viet Nam's economic achievements in the past 10 years have attracted worldwide attention, but it has not reached the stage where it can manufacture commercial space, semiconductors, and humanoid robots.
Some people who have good intentions about Viet Nam are full of unrealistic illusions about it, and some may be owners of primary manufacturing factories who have invested directly in Viet Nam, and these investors have made some gains in Viet Nam.
Compared with most economies in the world, Viet Nam has a relatively low-end economic growth and has certain investment prospects, but it has no possibility of mastering the high-end manufacturing industry chain in the short term.
02What is the real situation of foreign investment in Viet Nam?
The transfer did not begin in this year or two, but before the subprime mortgage crisis in the United States in '08.
⬆ Ho Chi Minh City, Viet Nam
In 2007, some Chinese manufacturers of textiles, clothing and shoes moved their factories to Viet Nam, according to Caixin records.
⬆Garment factories in Viet Nam in 2024
In 2010, Intel opened a large chip assembly and test plant in Ho Chi Minh City.
From 2015 to 2020, foreign direct investment (FDI) from Korea and Japan to Viet Nam's manufacturing sector amounted to US$376 billion.
In June 2022, Apple moved some iPad production activities from China to Viet Nam for the first time, and there are more than 21 Apple suppliers in Viet Nam.
Some factories in Viet Nam form a relatively early electronic product industry chain, which is incomplete, and components such as components and chemical materials lacking in the industrial chain need to be purchased from Chinese factories.
Financial media Tiger Sniff reported that Viet Nam's FDI (foreign direct investment) in 2023 increased by 32.1% year-on-year in 2022 to US$36.61 billion, and in terms of the number of new projects, it increased by 56.6% year-on-year to 3,188 projects.
The financial column believes that the FDI inflows of China, United States and the European Union in January ~ September 2023 will be 251, 2651 and 85.3 billion US dollars respectively, with year-on-year growth rates of -84.33%, -9.03% and 120.22% respectively. From this data, it can be seen that in recent years, the FDI data of the world's major economies have been fluctuating downward.
Viet Nam's FDI data is a relatively stable upward trend, with about 80% of FDI flowing into Viet Nam in 2023 coming from Asian countries.
In the past 2023, Viet Nam's exports accounted for about 94% of the output value created by other industries, and a high proportion of exports means that it is highly sensitive to fluctuations in the external political and economic environment, and the decline in external demand will bring about unemployment and other social problems more quickly.
In 1986, Viet Nam carried out market economy reform, and the regulatory function of exports was given to local governments, and the redistribution of resources and surpluses under the market economy promoted Viet Nam's first wave of exports.
In 1987, Viet Nam promulgated the Law on Foreign Investment in Viet Nam, and in the decade of 1990~2000, it has undergone four revisions, the promulgation of the Company Law and the promotion of the shareholding reform of state-owned enterprises. After China's accession to the WTO in 2007, FDI and imports and exports started a new round of growth.
For nearly 30 years, Viet Nam's export data has been in a trade deficit for a long time, and in 2012 Viet Nam achieved a stable trade surplus.
In 2022, 89.6% of exports were industrial products, with mobile phones accounting for the highest share of exports, reaching US$58 billion, accounting for 17.4% of industrial exports.
In the production process, the value of durable goods used to produce products or services reached 316.22 billion US dollars, accounting for 88.1% of the total imports, of which the value of electronic products and their parts reached 81.88 billion US dollars.
⬆ Factory warehouse in Viet Nam
Viet Nam's factories are characterized by relatively isolated, unlike China, which has a complete supply chain from low-end to high-end, taking the mobile phone industry as an example. Almost all of Viet Nam's electronics exports come from the FDI sector (Samsung, Canon, Panasonic, etc.) and Apple's industry chain companies that have moved from China in recent years. However, from the perspective of the main business of these FDI enterprises, most of them are still limited to downstream assembly links.
A financial writer in Tiger Sniff believes that Viet Nam's most advantageous resource endowment is labor costs. As the most important role in Viet Nam's economy, whether the FDI sector can continue to promote the growth of Viet Nam's economy depends on whether its industrial chain can shift to links further upstream and with a higher proportion of industrial added value.
An employee who personally went to Viet Nam to investigate manufacturing factories said: "The solutions and equipment we sell to Viet Nam, many simple metal processing parts need to be shipped from Liangguang or Suzhou, and there is no systematic supplier system there; The most exaggerated thing is that the technical service and commissioning of many key production links actually require Chinese engineers to fly over for guidance and commissioning. Application-level debugging requires Chinese engineers to fly over to teach. ”
⬆ Light rail built by a Chinese company in Hanoi, Viet Nam
⬆ Light rail built by a Chinese company in Hanoi, Viet Nam
Viet Nam has not yet formed a supporting industrial supply system, and lacks familiar jobs, Viet Nam has not been able to become the new world factory as some domestic media fantasize.
The manufacturing systems of Germany and France are relatively more perfect, but in recent years, there have been signs of outflow of manufacturing in the two countries, and it has become a common phenomenon for companies such as Sany Heavy Industry to bring down the price of giant machinery, resulting in a decline in the profits of some German and French companies.
The manufacturing industry is a huge industrial chain cluster, and the more advanced the product, the more specific materials are needed, and the more upstream and downstream factories there are.
In China, products that have belonged to the traditional industry, such as empty circuit boards, resistors, capacitors, inductors, diodes, transistors, MOS tubes, connectors, microphones, LED lights, image sensors, power chips, main control chips, memory chips, RF chips, power amplifier chips, driver chips, expansion chips, charging chips, screens, batteries, heat sinks and other products can be found in mature factories in China, but most of these factories in Southeast Asia are not.
Viet Nam's capital, Hanoi, has frequent power outages due to a lack of power plants and coal, as well as wind and solar power plants, and electricity restrictions can also affect plant starts.
On the other hand, due to the poor living conditions of ordinary people, public opinion is often negatively affected by the European and American media, and there will be occasional strikes, resulting in many Chinese enterprises being smashed.
Except for Singapore, Viet Nam's law and order is the best in Southeast Asia, but even in the best areas, "choppers" on motorcycles often occur in cities where foreigners gather such as Hanoi, Ho Chi Minh, Da Nang, and Mui Ne, where looters grab bags with knives.
Around 2015, China's manufacturing industry has seen a trend of large-scale transfer of foreign companies to Southeast Asia, Mexico, Turkey and other countries, and at the same time, the domestic manufacturing industry has gradually upgraded to the middle and high-end.
The domestic low-end manufacturing industry still exists, but the wages are low, the operators can not recruit more workers, the profits are reduced, more people are unemployed, the income is reduced, the consumption power is weak, and the market is sluggish, resulting in the difficulties of this part of the factory.
The best operating conditions in the high-end manufacturing industry are a few industries such as new energy vehicles, energy storage, and semiconductors, which have not yet formed the scale of absorbing a large number of unemployed people, and these industries are in the stage of gradual growth. At the same time, these industries are also experiencing cruel survival of the fittest, enterprises with broken capital chains, enterprises that cannot find the direction of technological innovation, and enterprises that cannot meet market demand quickly go bankrupt and withdraw from market competition, which objectively also causes a certain amount of unemployed people.
More cutting-edge fields, such as commercial aerospace, humanoid robots, exoskeleton machinery and other industries Although the market size is gradually growing, the output value that can be created is currently limited, most of the enterprises in these industries are start-ups, and the products are generally in the exploration stage, such as Blue Arrow Aerospace has successfully launched two rockets, and plans to launch the Suzaku 3 rocket into space around 2025, the surface of the rocket is composed of ordinary stainless steel, and the rocket can automatically and smoothly land on the ground.
China's manufacturing industry chain continues to expand, while the expansion has brought about the decline of many traditional industry enterprises, foreign investment into Viet Nam is more like a part of the supplement to the industrial chain with China as the core, to be precise, Viet Nam is integrating into the "One Belt, One Road" strategy from the economic level.
03How do Chinese companies consider risk management in Viet Nam?
Recently, a toy manufacturer in Dongguan relocated the company to Viet Nam considering the cost of human resources, and found that Viet Nam lacked important accessories for toys after starting to build a production line in Viet Nam and needed to import them from China.
So at the cost of losing a certain amount of capital, the factory in Viet Nam was moved back to Dongguan. Investing in factories requires a multi-dimensional understanding of the local political and economic environment.
Chinese enterprises need to pay attention to the following aspects when conducting supply chain risk management in Viet Nam:
1. Infrastructure construction: Viet Nam's infrastructure construction has certain shortcomings, such as power supply problems. Companies should assess the potential impact of infrastructure on production operations and develop countermeasures.
2. Labor stability: Viet Nam has seen a wave of workers returning to their hometowns, which has led to the risk of supply chain disruption. Companies need to focus on the stability of the labor market and develop a plan to deal with labor shortages.
3. Policy and regulatory compliance: Enterprises need to pay attention to changes in Viet Nam's policy environment, such as tax rate adjustments, and ensure that business activities comply with local laws and regulations.
4. Changes in external market demand: Viet Nam's economy is highly dependent on foreign trade, so changes in global market demand have a significant impact on Viet Nam's exports. Enterprises should pay close attention to the external economic environment and changes in demand, and adjust their production and export strategies in a timely manner.
5. Supply chain diversification: In order to reduce dependence on a single market, enterprises should consider supply chain diversification and explore closer ties with partners in the region and beyond.
6. Export of technology and management experience: When Chinese enterprises invest in Viet Nam, they can export technology and management experience to help enhance local industrial capabilities and promote the sustainable development of enterprises in the local area.
7. Addressing geopolitical risks: Considering the impact geopolitical risks may have on the supply chain, companies need to assess the relevant risks and prepare corresponding risk management strategies.
8. Environmental and social governance (ESG): The Viet Nam government and partners are paying more and more attention to ESG standards, and enterprises should consider environmental protection and social responsibility in supply chain management.
9. Digital transformation: Enterprises should use digital means to improve the transparency and efficiency of the supply chain, such as Midea's Viet Nam factory plans to improve the competitiveness of the industrial chain through digitalization and automation upgrades.
Last year, Trina Solar planned to invest US$400 million to add a new factory in Viet Nam, and may increase the capital to US$600 million in the future, and it is reported that the products of these factories are mainly for the North American market.
This year, Trina Solar will focus more on finding new technology paths, while absorbing the backlog of inventory as much as possible so as not to have too much negative impact on cash flow.
With the help of the artificial intelligence risk control system "Risk Radar", the risk rating of Trina Solar was observed, as well as the public opinion monitoring information of the company's Chinese headquarters, some screenshots are as follows:
Several other new energy companies are also paying attention to Viet Nam's investment environment, and Gotion Hi-Tech has partnered with VinGroup, a Vietnamese company, to build Viet Nam's first lithium iron phosphate battery plant in Viet Nam, with a total investment of about US$275 million, and is expected to start large-scale production in the third quarter of 2024.
Keshun Co., Ltd. participated in the construction of Viet Nam VinES battery factory project to provide waterproof solutions, which is the first lithium iron phosphate battery factory in Viet Nam.
Viet Nam's manufacturing supply chain is also slowly building up, and is highly bound to Chinese enterprises and Chinese capital.
The construction of the risk management system for investment and factory construction in Viet Nam will also become more professional and in-depth.