More Chinese Companies Investing in Vietnam as Sino-US Trade War Deepens

Vietnam has been a major beneficiary of Beijing’s abrupt ending of zero-Covid strategy, which has unleashed pent-up interest from the Chinese companies and their suppliers to invest in the country and escape from the impact of the intensifying Sino-U.S. trade war. After China ended its zero-Covid 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. While big name companies have already been investing in the Southeast Asian nation, attracted by its proximity to China and the free trade agreement between the two countries, the current wave of Chinese investment mostly comes from smaller suppliers of those larger firms.

In addition to the trade frictions between Washington and Beijing, the rising labor costs in China has also added urgency to the move.

The earlier influx of major foreign corporations including Samsung , Canon and Apple; and device assemblers such as Foxconn and Luxshare 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.

Those suppliers to larger corporations with facilities in Vietnam now make up the majority of Chinese companies investing in the country, particularly in the north just across the China border.

As an example, in Vietnam’s solar panel industry, which is largely dominated by Chinese companies, there has been an influx of providers of support services such as plastic moulding, die casting and energy storage.

Last year, Chinese panel maker suppliers, including power storage firm Growatt, were behind two of the main investments in Vietnam in ready-made factories. Such factories are often favored by smaller firms when entering new countries.

Chinese electronics, robotics and home appliance firms were also among top spenders on industrial leases last year, the data showed. Others included flooring firms, glass makers and suppliers of cartons and components for Apple gadgets assembled by the likes of Foxconn and Luxshare.

In total, while economies worldwide struggle to normalize following the pandemic, and with a consequent fall of foreign investment in Vietnam, Chinese firms have tripled spending on new building sites in Vietnam so far this year to $250 million versus the same period a year earlier. That is second only to investment from Singapore, and more than traditionally bigger investors such as South Korea and Japan.

Making the move is not without risk. With thousands of years of bloody history between the neighbors, competing claims in the South China Sea unleashed entrenched anti-Chinese sentiment in 2014 with Vietnamese rioters targeting Chinese factories.

Investment applications from Chinese firms tend to be vetted with extra care, resulting in delays or rejections which encourage investment through shell companies domiciled in Hong Kong or Singapore instead. Chinese firms also experience longer times to obtain staff visas and work permits.

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