Competition from Chinese investors a concern for domestic supporting industries

At the Ministry of Industry and Trade’s year-end meeting held on Dec. 20, he raised concerns about the wave of supporting industry firms from China crashing into Vietnam to avoid the tariffs the U.S. has imposed on their country.

2023 has been a tough year for Vietnam’s manufacturing sector, including supporting industries, which supply raw materials and parts and components to it, he said.

Lower order volumes from major markets like Europe resulted in a 40% drop in revenues for businesses in supporting industries, according to Tuat.

Meanwhile, Chinese supporting industry businesses are flocking to Vietnam, rapidly forming large-scale components and parts production chains to export to Europe and North America.

“This is a huge concern for domestic supporting industry businesses,” Tuat said.

Domestic firms are struggling with expensive capital and high production costs due to the lack of economies of scale and could hardly cope with Chinese competition, he said.

The current bank loan interest rate for supporting industry companies is 10-12%, five times the rate in South Korea, he said.

At the same time, the costs of imported raw materials are high due to businesses’ small scale of operations.

Agreeing with Tuat, Deputy Prime Minister Tran Hong Ha said Vietnam’s industries are heavily dependent on the foreign sector.

“We should not celebrate just yet, especially when domestic firms are still stuck manufacturing low-value products. This is a huge issue facing the Ministry of Industry and Trade and other relevant agencies.”

Competition would be more intense next year and Vietnamese businesses need to be proactive to avoid becoming obsolete, he said, noting that the mechanical manufacturing industry should be based on market demand, core technology and platforms.

“To catch up with other countries, we must achieve breakthroughs, exploit opportunities and leverage our advantages to overcome challenges.”

Deputy Prime Minister Tran Hong Ha at the Ministry of Industry and Trade’s year-end meeting on Dec 20, 2023. Photo by Dung Nguyen

Pham Van Tai, CEO of car manufacturer THACO, called on the ministry to provide more incentives and policy assistance to promote the production and use of environment-friendly vehicles.

It should also complete and seek approval for the Law on Key Industries, which will create a legal framework to attract investments and move toward industrial self-sufficiency, he said.

Dr Tuat concurred with Tai, saying the ministry should consider supporting industries as “the nucleus of the country’s industrialization process,” meaning it needs a separate legal code and dedicated assistance policies.

To capitalize on the opportunities afforded by semiconductor investors shifting their focus to Vietnam, the ministry and other relevant agencies should issue accurate forecasts so that businesses could better plan their investments, loans and collaborations, he said.

The ministry should also continue to promote trade and establish large-scale cooperation to establish manufacturing clusters to help local businesses participate more in the global supply chains.