A surge in number of merger and acquisition deals conducted by Chinese firms in Vietnam this year has raised concerns of potential origin frauds, risks of environmental pollution and creating pressure on infrastructure.

Vietnam’s exports will face severe losses if origin fraud is not contained.

Reports from the Ministry of Planning and Investment’s Foreign Investment Agency (FIA) showed that Chinese firms conducted 1,680 transactions to contribute funds to and acquire shares in local firms in the past 11 months, with a combined value of nearly US$686 million. The respective figures in the same period last year were 922 transactions and over US$503 million.

Compared with South Korea, the largest foreign indirect investor in Vietnam, the number of Chinese firms’ transactions came second. However, Chinese investment reported a much higher growth rate of more than 82%, compared with a 48% increase of South Korean investment with 2,570 deals worth US$1.38 billion in Vietnam during the period.

According to experts, increased technological pressure required by the Chinese government has driven Chinese companies to move their low-quality and old-fashioned technology investment to other developing countries, including Vietnam, which would potentially pose risks of environmental pollution and create pressure on the country’s infrastructure.

Especially, they noted, the surge in Chinese indirect investment in the country should be considered a problematic issue amid the US-China trade war. Despite the high number of transactions, the investment value of each transaction is small. Therefore, the experts are concerned that Chinese firms are investing in Vietnam to sell their products in the Vietnamese market and transport their products to Vietnam before shipping them to the United States to evade US punitive tariffs or benefit from free trade agreements that Vietnam has signed.

Nguyen Mai, chairman of the Association of Foreign Invested Enterprises, said that China is a country that exports a lot of raw materials to Vietnam. Therefore, it is not ruled out that they invest in manufacturing in Vietnam to get the origin of goods to take advantage of tariff benefits from the free trade agreements Vietnam has signed with other countries.

It was reported that Vietnam earned US$217 billion from exports in the first 10 months of this year, up 7.4% year-on-year. Notably, the growth rate of exports to the United States was reportedly four times higher than the average growth rate of Vietnam’s exports to other markets.

Experts and representatives of associations have so far also warned that Vietnam’s exports will face severe damage if origin fraud is not contained.

Close watch

Nguyen Noi, deputy director of the Foreign Investment Agency, said that regarding the issue of Chinese firms investing in Vietnam to avoid high tariffs from the US, the Ministry of Planning and Investment (MPI) is unable to make an official conclusion. However, he noted, when the US imposes high customs duties on some Chinese goods, investors will shift to Asia, including Vietnam, as it is a very attractive investment destination.

Noi said that Vietnam will receive only good investment projects and limit low quality ones. The country will consider carefully preventing projects forging origin or causing bad impacts on the environment.

“This issue has been mentioned by the MPI in a project to improve the efficiency of attracting foreign investment,” Noi said, adding low quality projects will be scrutinized and its prevention is likely to be included in the draft amendments of the Investment Law.

According to Au Anh Tuan, director of Customs Control and Supervision Department under General Department of Vietnam Customs, Vietnamese customs authorities are keeping close watch on investment shift from foreign countries, especially China, into Vietnam to prevent product origin fraud and illegal transshipment.