Chinese wary of Vietnam’s potential as new world factory

ThinkChina, an English language e-magazine focused on China and powered by SPH Media Limited’s flagship Chinese daily Lianhe Zaobao, said in an Aug. 8 report that “headlines such as ‘Vietnam’s exports overtake Shenzhen’ and ‘Is Vietnam the next China? have drawn attention in China’s media and online forums, reflecting anxiety that Vietnam might usurp China’s position as the world’s factory.”

The report also cited a June study by German newspaper Frankfurter Allgemeine Zeitung with the headline “Goodbye China, Hello Vietnam,” in which one manufacturer said: “Vietnam seems to be a better and cheaper China.”

Meanwhile, Chinese news portal Sina said information that has continuously appeared recently to show the increasing foreign investment into Vietnam’s manufacturing sector, including reports saying Apple suppliers are in talks to produce Apple Watch and MacBook in Vietnam for the first time, Samsung prepares to produce semiconductor components in Vietnam, American chip corporation Synopsys expands operations in Vietnam have raised Chinese concerns that Vietnam might take over from China to become the world’s powerhouse.

A Global Times report in May said, “recent Vietnamese media reports that business mogul Li Ka-shing invested billions in Vietnam’s infrastructure after retreating from the U.K. have surely sent shockwaves across Chinese market watchers.”

In contrast, the picture is less vibrant in the Chinese smartphone assembly market as demand for mobile phones fell while some major manufacturers moved part of their production lines to Southeast Asia and neighboring countries.

Many smartphone assembly workers in China have lost their jobs, with some saying they have even seen mushrooms growing in abandoned smartphone factories, according to Sina.

Some factories in Dongguan have closed, showing they could not compete with factories in Vietnam, which has a cheap labor source and the potential to replace China as the world’s factory, an account named Zhang Lei commented on Weibo, Chinese social media platform, this week.

ThinkChina also cited several business owners and executives of foreign enterprises saying that Vietnam was already emerging as a key beneficiary of the China-U.S. trade tensions that began in late 2018, prompting many foreign companies to mitigate supply chain risks by setting up manufacturing operations outside China, including in Vietnam.

Back then, many experts had called Vietnam a “winner” of the trade war as it has received increasing investment as major manufacturers leave China to avoid high tariffs.

Charles Wong, director of Hong Kong-based Superior EMS Limited, which is operating a factory in northern Hai Duong Province and specialized in making toys and automated production lines, told ThinkChina the firm moved to Vietnam in March 2020 as many clients started shifting their operational focus to Southeast Asia around four years ago, and set new requirements for supply chain security.

“They’re worried that problems in one place might cause a breakdown in the supply chain,” he said.

According to Vietnam’s General Statistics Office, the country’s economy grew by 5.03% in the first quarter this year compared with the same period last year, surpassing China, which grew 4.8 percent.

During that period, Vietnam’s foreign trade rose to $176.35 billion, a year-on-year rise of 14.4 percent while that of China rose by 10.7 percent.

However, some experts consider China’s position as the world’s factory as irreplaceable.

In a South China Morning Post report on June 24, Yao Yang, an economist and professor with the National School of Development at Peking University, said: “There’s nothing to worry about in terms of manufacturing industries in China offshoring to Southeast Asia, because those that left were low in the value chain.”

He added that despite concerns triggered by Vietnam’s rising manufacturing capability, China will keep its title as the so-called world’s factory for at least 30 years.

An editor with the Global Times said in May that “for the foreseeable future, Vietnam will continue to remain an attractive market for foreign investment and a destination for supply chain diversification, but its ability to bite into China’s share of manufacturing is limited.”