Chinese suppliers race to Vietnam

Vietnam has enjoyed a wave of investment from China since its neighbour abruptly canned its strict virus-containment strategy and unleashed pent-up interest from companies - and their suppliers - fleeing the impact of Sino-US trade friction.

After China ended its zero-COVID-19 policy in December, Chinese firms spent the first 50 days of 2023 investing in 45 new projects in Vietnam, the most from a single country, Vietnamese government data showed.

With big-name players already in the Southeast Asian nation, attracted by its free-trade agreements and proximity to China, the companies making up the current wave of investors are mostly smaller suppliers to those larger firms, industry experts said.

Adding impetus to the move is the increasing cost of labour in China, expanding US restrictions on high-tech-related trade with China, and tit-for-tat tariffs from a Sino-US trade war that triggered a past wave of Chinese investment in Vietnam.

“Enquiries from Chinese firms about manufacturing investment in Vietnam grew exponentially in the last quarter of last year,” said Michael Chan, senior director of leasing at industrial real estate specialist BW Industrial Development.

“Chinese investment has also increased remarkably,” he said.

The earlier influx of major foreign corporations such as Samsung Electronics Co Ltd, Canon Inc and Apple Inc device assemblers Hon Hai Precision Industry Co Ltd (Foxconn) and Luxshare Precision Industry Co Ltd contributed to rapid expansion of industrial clusters in sectors as varied as smartphones and printers.

But supplies for many still largely came from China. That country accounted for more than 20% of imported input for Vietnamese exports in 2021, nearly twice as much as in 2017, showed calculations from trade expert David Dollar of US think tank Brookings Institution based on Asian Development Bank data.

Those smaller firms offering supplies and services to larger corporations with facilities already in Vietnam now make up the bulk of Chinese companies investing in Vietnam, particularly in the north just across the border, industry executives said.

The size of these suppliers is reflected in the average Chinese spend on new Vietnamese projects this year of roughly $5.6 million, compared with a long-term average of $6.5 million. For instance, in Vietnam’s solar panel industry, which is dominated by Chinese firms, there has been an inflow of providers of support services such as plastic moulding, die casting and energy storage, industry sources said.

Last year, Chinese panel maker suppliers, including power storage firm Growatt, were behind two of the main investments in Vietnam in ready-made factories, showed data from US real estate consultancy CBRE Group. Such factories are often favoured by smaller firms when entering new countries.