Vietnam on track to replace China as new manufacturing hub: experts
Oct 30, 2015
With increasing foreign direct investment (FDI) flows into its manufacturing sector, Vietnam stands a great chance of leaping ahead and replace China as the new production center, experts have said.
They were speaking at a conference recently organized by the State Bank of Vietnam in collaboration with the World Bank.
Victoria Kwakwa, the World Bank’s Country Director for Vietnam, said FDI flows into Vietnam’s manufacturing sector has rapidly increased over the past 10 years and will possibly rise more.
Official figures showed that foreign investorsregistered US$11.36 billion for manufacturing projects, accounting for 66.3 percent of the total pledges in the first nine months.
Last year the sector attracted 72 percent of the totalregistered capital, compared to 50 percent in 2011.
Although the FDI proportion of Vietnam’s manufacturing sector was small compared to those of countries such as China, Indonesia and Thailand, the Vietnamese sector has more potential, Kwakwa said.
Vietnam has a good location and boasts a source of labor which is plentiful and cheap, she said, adding that the country is also benefiting from a range of free trade agreements.
Tran Bac Ha, chairman of the Bank for Investment and Development of Vietnam (BIDV), saw Vietnam’s opportunity coming from international producers’ recent shifts to Southeast Asian countries from China, which is losing its appeal with slowing economic growth and surging labor costs.
South Korean investment into China dropped by 32.1 percent in the first half of the year, Ha said, quoting Korean finance ministry’s figures. Last year, only 700 South Korean businesses were established in China, compared to 2,300 in 2006.
Not without sweat
In order to become the world’s new manufacturing center, experts said, Vietnam has a lot of things to do.
Pham Thi Thu Hang, general secretary of the Vietnam Chamber of Commerce and Industry (VCCI), urged the government to give local businesses more support, including financial aids and measures to help local companies acquire new technologies.
Just about 36 percent of local manufacturers take part in the global production network, compared to nearly 60 percent in Thailand and Malaysia, Hang said.
Vietnam needs to develop its supporting industries, a representative of Japan External Trade Organization said, pointing out that there was almost no considerable increase in the use of locally-produced spare parts and raw materials in foreign products.
The representative also called for Vietnam’s government to improve its legal system, as many Japanese investors consider the lack of regulatory transparency as the biggest risk to their business.
BIDV Chairman Tran Bac Ha said Vietnam actually learns from China, not only to become the world’s manufacturing center, but also to avoid bad consequences during the process such as environmental pollution, growing income gap and labor violations.