Q: Vietnam has excellent free trade agreements, such as with EU and the CPTPP. How has the US-China trade war affected Vietnam’s trade and FDI climate?
A: In the short term, the US-China trade war is encouraging Chinese manufacturers to move some of their production to Vietnam [for export back to China or to the US]. We’re seeing Chinese real estate and construction groups buying land in Vietnam to rent or sell to Chinese exporters. I suspect that in the medium term, Vietnam will benefit as well. I can’t see these manufacturing plants just leaving when the trade war is over. FDI is long-term and sticky. Once they are in, they educate the workforce, they see the cost is low, and they will probably stay and expand their manufacturing activities.
Q: What risks does the trade war pose to Vietnam?
A: The Vietnamese government is concerned that the US might go after Vietnam after they’ve gone after China, since Vietnam exports more to the US than it imports from the US; Vietnam is sixth on the list in terms of trade deficit with the US. However, the trade war is more about intellectual property and protection, and Vietnam is [not like China in that sense]. Businesses that come to Vietnam...the government doesn’t force Apple or Google or IBM to give up their IP to enjoy Vietnam’s market.
Q: FDI into Vietnam has seen strong gains over the past five years. Why is that?
A: For about five to 10 years, and still today, labour costs have been low. In Vietnam, it’s about $3500 to $4000 per annum for an average factory worker. China’s is about $10,000 per annum. You can argue that productivity in China is higher, but it’s not three times higher than in Vietnam.
The other strong point of Vietnam is that it has 3000 km of coastal land. That means we can build ports and export goods anywhere along that 3000 km line. Goods produced in southern China, Laos, Cambodia and Vietnam can be exported directly off the coast, and logistically, it is well positioned in the centre of south-east Asia.
The third component is that the government of Vietnam has made a significant effort to keep very stable for the past five years, at least. The local currency against the US dollar has been very stable, much more stable than even the UK pound or other currencies around Asia.
From a political and economical perspective, Vietnam has been probably the most stable country in south-east Asia (other than Singapore) over the past five years and that has encouraged a lot of FDI. In the region, Vietnam is probably number one in terms of encouraging FDI investment as a percentage of GDP, which is about 8% to 9% already. That’s one of the highest; China like most countries is 2% to 3%. Every year, 1.5 million people are joining the middle class in Vietnam.
[In terms of manufacturing], almost 50% of Samsung’s smartphones sold globally are produced in Vietnam. Apple is producing in Vietnam. Last I heard, all your iPods are produced in Vietnam. You have Foxconn who produces Apple products and you have many other electronics manufacturers that come to Vietnam such as LG and Canon. That’s just electronics. Textile is huge as well, shoes, your shirt, your clothes, now you can see that a lot of them are made in Vietnam. The manufacturing of goods for exports has gone up significantly over the past five to 10 years.
Agriculture production is massive in Vietnam too. Ten to 15 years ago the country used to be an importer of food. Now, we are the food basket of south-east Asia. Vietnam has probably gone to number one in the world in terms of exports of rice [next to Thailand], and is first or second in terms of coffee, competing with Brazil. Vietnam has a massive system of fresh water, the river system, and a lot of fish and shrimp come from there.