Exciting developments in Southeast Asian have create a manufacturing shift trend, Chinese companies are increasingly choosing Vietnam as their preferred production hub, according to recent SCMP reports.
China to Vietnam Investment Trend
China leads foreign investment in Vietnam with US$1.97 billion in new projects (29.7% of total investment) during Q1- 2024. Vietnam’s strategic advantages include a growing economy with pro-manufacturer policies. These include: strategic location along the Chinese border, competitive labor costs and superior infrastructure compared to other emerging manufacturing hubs in Asia.
The country has established 17 free trading agreements with 50 countries and notably maintains an absence of US trade war tensions.
A New Manufacturing Shift in S.E Asian
As TCL Smart Device Vietnam’s GM Ding Wei notes, “Vietnam’s development momentum has been really strong in the past decade,” with advantages expected to continue improving over the next five years.
What’s particularly interesting is how manufacturers can leverage Vietnam’s 30% localization rate requirement, allowing companies to maintain partial production in China while accessing US markets without trade war tariffs. This lead to the trend Manufacturing Shift China to Vietnam
Reasons for the Shift from China to Vietnam
Improved Infrastructure: Vietnam has invested heavily in improving its infrastructure, including transportation, ports, and logistics. As the result, the country becomes attractive for foreign investment, with manufacturers able to set up efficient supply chains and distribution networks.
Labor Costs: One of the most significant reasons companies are chosing Vietnam is the rising labor costs in China. Over the years, wages in China have been steadily increasing, making Vietnam an attractive alternative with its relatively lower wages and skilled workforce.
Trade Tensions and Tariffs: The ongoing trade war between China and the United States, especially the tariff hikes on Chinese goods, has prompted companies to reconsider their manufacturing bases. On the contrary, moving production to Vietnam allows businesses to avoid higher tariffs on goods exported from China to the U.S., as Vietnam has a favorable trade relationship with the U.S. through agreements like the U.S.-Vietnam Bilateral Trade Agreement.
Supply Chain Diversification: Many companies are looking to diversify their supply chains to mitigate risks like natural disasters, political instability, and even the pandemic. Having production in multiple countries, such as China and Vietnam, can help companies remain resilient if one region faces disruptions.
Vietnam’s Trade Agreements: Vietnam has signed a series of free trade agreements (FTAs), such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the European Union-Vietnam Free Trade Agreement (EVFTA). These agreements provide access to international markets with lower tariffs, making Vietnam an appealing hub for global trade.
Proximity to China: Vietnam’s geographical location next to China makes it easy for companies to move production without facing major logistical challenges. Businesses can often still access the Chinese supply chain while taking advantage of lower labor costs and fewer regulatory hurdles in Vietnam.
Source: VoV Vietnam
