Vietnam sustains FDI growth amid US-China trade war

Realised FDI capital into Vietnam increased to $19.1bn in 2018, up 9.1% compared with 2017, according to a brief released on the Ministry of Planning and Investment (MPI) website on December 26, 2018.

Strong FDI figures in 2018 mark the sixth straight record year, following a string of strong realised FDI capital figures, estimated at $17.5bn in 2016, $15.8bn in 2015 and $14.5bn in 2014.

Growing FDI inflows have buttressed strong economic growth in Vietnam, which was reported as 7.08% in 2018 by the MPI, following 6.8% growth in 2017, 6.2% in 2016 and 6.7% in 2015, as reported by Bloomberg.

Japan was the largest source country, with 429 newly granted FDI projects totalling $8.5bn, MPI figures show. South Korea came second from a capital expenditure perspective with 1043 projects totalling $7.2bn, followed by Singapore, Hong Kong and mainland China.

Companies from mainland China undertook 389 FDI projects in Vietnam in 2018, as manufacturing industries shift their production from China to Vietnam looking for cheaper labour cost, but also trying to escape higher US tariffs on Chinese goods. Before the 90-day truce signed by Donald Trump and President Xi in December 2018, US sanctions applied on Chinese goods totalled $250bn.

“We are seeing a number of companies moving from China to Vietnam, including British companies. The model in China is becoming more expensive, so Vietnam is offering a cheaper model, especially in clothing and manufacturing,” says Peter Rimmer, head of the British Chamber of Commerce in Vietnam.

Processing and manufacturing industries accounted for 46.7% of all registered FDI capital in 2018, with $16.5bn capital invested across 1065 newly granted projects, MPI figures show. Real estate activities, wholesale and retail [including repairing automobiles, motorcycles and motorbikes], and professional, scientific and technological activities,  respectively accounted for 18.65%, 10.36% and 6.05% of all registered FDI capital.

“When foreign investors come to Vietnam, they can’t make losses,” says Hoang Quoc Vuong, vice minister for Industry and Trade.

“To make foreign investment more effective we need more transparent and comprehensive framework. There should be very concrete incentive policy so that such investment can be efficient.”

The government is now introducing new incentives to stir investment into the upgrade of the national infrastructure also through a  public-private partnership (PPP) programme, although it remains in a learning phase with regards to the latter.

“It’s been a difficult time politically around the world, like America pulling out of the Trans-Pacific Partnership for instance. Therefore, the stable government of Vietnam can offer an opportunity … but there is a long way to go with PPPs, and getting those built in Vietnam,” Mr Rimmer said.