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Majority of Chinese firms consider Vietnam preferred investment destination
According to Nikkei, since last June, those companies have informed China’s two stock exchanges of their plans to follow their foreign counterparts out of the country to mitigate the prolonged trade war between China and the US.As with foreign manufacturers, US President Donald Trump’s multiple rounds of tariffs on Chinese goods, combined with rising wages and other costs, are prompting Chinese companies to move out of the country, stated Nikkei.Among those companies is Jinhua Chunguang, a rubber product maker, which announced on July 19 an investment of US$4.35 million to set up a production base in Vietnam. This is in addition to its three existing plants in Malaysia and China. The company, based in Zhejiang Province near Shanghai, said the investment is a response to “changes in international environment,” as well as part of global expansion plans.
Zhejiang Henglin Chair Industry is also looking to Vietnam, where it acquired a Taiwanese-owned factory as part of a US$48 million investment to accelerate its expansion.
“We will begin production in the second half of the year,” an executive at the company told Nikkei at its factory in Anji county. Henglin counts Swedish furniture maker Ikea and Japan’s Nittori among its clients.
Textile manufacturers have also decided to increase production in Vietnam, despite the growing concerns of garment companies already operating there.
Huafu Fashion announced in December it was investing US$362 million to build a factory there. The rolled yarn maker said setting up a manufacturing facility in Vietnam will allow it to source cheaper raw material, reduce labor costs and avoid the tariff barrier.
China’s nominal wage jumped by 44% to 6,193 yuan per month in the five years through 2017, according to data from the International Labor Organization. That is big compared to Vietnam’s 30% rise, Malaysia’s 28% and Mexico’s 11% during the same period.
Rising costs have been encouraging companies to move overseas even before the trade war, according to analysts. Indeed, China has had “going out” policy encouraging such moves since 2001, but few companies felt an urgent the need to pursue it due to the huge market at home.
“What the US-China trade war has done is to accelerate this trend in the short-term, potentially benefitting countries like Malaysia, Thailand and Vietnam,” said Darren Tay, a risk analyst at Fitch Solutions.
Competitive wages are not only thing attracting foreign investors to these countries. “A skilled, well-educated workforce, good infrastructure and a strong network of free trade agreements, including being part of the ASEAN Free Trade Area and EU-Vietnam FTA” are also factors, according to Rajiv Biswas, a Singapore-based economist at IHS Markit.
While most countries welcome foreign direct investment from China as they would from anyone else, they are also leery of being used to avoid Trump’s punitive tariffs. The US president recently threatened to impose a 10% tariff on the remaining US$300 billion worth of imports from China starting September 1.
“The authorities must set up measures to prevent Chinese products relabeled as Vietnamese bound for the US,” Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association said in an interview.