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Chinese investors target Vietnam assembling industry
Ngoc Thuy 12:03, 2019/07/30
Vietnam’s push for deeper global economic integration through new trade deals is a decisive factor for a shift of Chinese capital, while evidence is still needed to back up the argument that trade war is behind such trend, said an expert.
Chinese FDI flows are pouring into Vietnam, especially in low added value and labor-intensive sectors, such as the assembling industry, according to Tran Toan Thang, head of the World Economic Department at the National Center for Socio-Economic Information and Forecast (NCIF). 
 
Overview of the conference. Source: Ngoc Thuy.
Overview of the conference. Source: Ngoc Thuy.
“They are targeting Vietnam’s comparative advantages and preferential treatments from various free trade deals that Vietnam is currently a member of,” Thang said at a conference discussing the impact of the US – China trade war to Vietnam on July 29. 

“Chinese investors expect Vietnam to be an ideal investment destination,” added Thang, following uncertainties surroundings the trade war and opportunities emerged from Vietnam’s participation in the EU – Vietnam Free Trade Agreement (EVFTA) and the Comprehensive and Progressive Trans – Pacific Partnership (CPTPP). 

Thang stressed Vietnam’s push for deeper global economic integration through new trade deals is a decisive factor for a shift of Chinese capital, while evidence is still needed to back up the argument that trade war is behind such trend. 

Chinese capital averages US$250 million per project, focusing on solar power projects and tire manufacturing. However, “a thorough research is needed to see which sectors are receiving Chinese funds,” he asserted. 

“For the purpose of tariff evasion, assembling is their main focus. Chinese investors expect to ship input materials to Vietnam for later exports, especially in less developed sectors in Vietnam,” Thang said. 

Under this context, Thang warned that Vietnam would only gain short-term benefits by exploiting the trade war to import cheap input materials from China, but in the long term, this move could backfire and cause negative effects on the economy. 

Pham Sy Thanh, director of China Economic Research Program under the Vietnam Institute for Economic and Policy Research (VEPR), predicted China is unlikely to devalue its currency and sell out government bonds. 

“Investors would face huge risks for making long-term investments in China, as the trade war could drag on for a foreseeable future,” Thanh stated. 

“China’s devaluation of its yuan is projected to put huge pressure on its current debts worth trillions of dollars, not to mention it could trigger an exodus of foreign investors from the country,” Thanh added. 

Meanwhile, China would rule out selling bonds due to concern of the appreciation of the Yuan, in turn affecting its advantage in the trade war, Thanh concluded. 

Disbursement of FDI projects in Vietnam totaled US$10.55 billion in the seven-month period, representing an increase of 6.63% year-on-year, according to a report of the Foreign Investment Agency (FIA).

FDI commitments in the January – July period totaled US$20.2 billion, down 13.45% year-on-year, of which the figure in July amounted to US$1.75 billion. 

The data showed that out of 95 countries and territories investing in Vietnam in the seven-month period, Hong Kong (China) took the lead with US$5.44 billion. South Korea came second with US$3.13 billion, while the third and fourth places belonged to Singapore and mainland China with US$960 million and US$440 million, respectively. 

In terms of fresh projects in Vietnam in the first seven months of 2019, China was the largest investor pouring US$1.79 billion into 364 projects, followed by South Korea with 600 projects worth US$1.47 billion and Japan with US$1.12 billion in 257 projects. 
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