Vietnam is in a favorable position from the global trade shift

07/11/2024 11:04

Vietnam is well-positioned to benefit from the global trade shift and changes in the supply chain.

Welcoming a new wave of investment

Mr. Joon Suk Park, Director of International Business, Corporate Banking Services, HSBC Vietnam, said: FDI is the keyword that defines Vietnam's success today and is also an essential new source of capital to maintain Vietnam's aspirations for expansion and growth. Therefore, ensuring sustainable FDI inflows into Vietnam is an important goal that needs to be focused on in the long term.

Over the past decades, Vietnam has developed and become closely linked to the global supply chain, moving into the higher-value electronics sector and witnessing  a 7-fold export growth since 2007, of which, 70% of exports are from FDI enterprises.

The latest trend reflects the strength of investment inflows from mainland China, Hong Kong (China) and Taiwan (China) markets in various sectors," said Mr. Joon Suk Park - Director of International Business, Corporate Banking Services, HSBC Vietnam.

Currently, Mixue, a leading brand of milk tea and ice cream, has opened more than 1,000 stores in the Vietnamese market. Global electronics companies such as Luxshare, Geortek, Foxconn, Pegatron, Compal continue to invest heavily in the ecosystem. Hualian Ceramic, a leading household ceramics company, plans to build a ceramic valley. Sailun Group has just committed to further investment in their tire factory.

According to HSBC, the top foreign investors in recent years have definitely been South Korea, with giants such as Samsung, LG, Hyundai, Lotte,... Singapore and Japan have also participated in this investment capital race and won great success.

"However, the dynamics of FDI inflows as well as the list of investors are changing since the second half of 2023, more clearly in 2024. Capital flows from mainland China, Hong Kong and Taiwan (China) markets, led by China, are accelerating," said Mr. Joon Suk Park.

This is thanks to the deep similarities between the two economies, driven by changing and realigning global supply chains. Trade between the two markets has increased 10-fold since 2007, and Vietnam now plays an important role in the downstream segment of China's manufacturing supply chain.

Why is China increasing investment in Vietnam?

According to HSBC's Global Research Division, first of all, China is currently at the center of global trade, where protectionist measures are increasing. China's annual export volume amounts to $3.5 trillion, far surpassing the United States ($2 trillion) and Germany ($1.7 trillion). Chinese businesses are becoming increasingly important to global supply chains.

Vietnam is in a favorable position from the shift in global trade. Source: Internet

The ASEAN region currently has a growing trade deficit with China, but much of it comes from the ongoing supply chain realignment. ASEAN markets actually benefit from importing cheap inputs from China to become competitive in the market, thereby achieving a trade surplus position with the rest of the world. Vietnam is a good example and one of the main beneficiary countries.

Second, the increased investment flow is also a response to a growing domestic market, thanks to a growing middle class in the total population of 100 million people, with the age of access to the media at 30 and the labor force accounting for 70% of the population. China's number one electric vehicle manufacturer, BYD, has recently entered the Vietnamese market as a testament to this.

Finally, fundamental factors continue to be strong and attractive such as salary costs and other production costs.

Vietnam has also made significant progress in implementing both bilateral and regional FTAs. The FDI Regulatory Restrictiveness Index shows that Vietnam is the most open economy after Singapore in the region, while the statutory corporate income tax rate of 20% shows a comparative advantage compared to markets such as China.  Philippines, Malaysia and Indonesia.

Vietnam is in a favorable position

However, according to Mr. Joon Suk Park, structural obstacles remain, and opportunities from global supply chain changes are also open to many countries, not just Vietnam. Neighboring countries will not stand on the sidelines. Thailand, Malaysia, the Philippines and Indonesia are implementing relevant actions, laws and decrees as well as measures to support investors to attract more FDI. The competition is very high.

For Vietnam, it is important to move forward and climb even higher in the value-added chain, as well as to perfect the domestic value-added sectors. Exports of consumer electronics are still strong, but Vietnam is still lagging behind in the global integrated circuit segment and does not have enough skilled technicians in the country to attract investment in high-tech production (although the Government has recently mapped out a roadmap specifically for the semiconductor industry until 2050).

In other sectors including transportation and logistics, infrastructure shortages and high logistics costs can put pressure on investment decisions. Green energy and the transformation journey require further speed of deployment and digitalization to simplify commercial processes, which will facilitate business. At the same time, continuing to improve the comprehensive legal framework to support foreign investment as well as foreign enterprises operating in Vietnam will facilitate the maintenance of Vietnam's efforts to receive current and future sustainable investment flows.

From the above analysis, Mr. Joon Suk Park said that Vietnam is in a favorable position to benefit from the shift in global trade and changes in the supply chain. Welcoming the new wave of investment is for the benefit of Vietnam and will support Vietnam to move higher in the value-added scale of industries and fields.

Source: congthuong.vn