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Two factors Vietnams attraction in the shifting wave from China
Date: 12/20/2020 7:40:01 PM
In addition to the advantages of FTAs, labor costs and tariffs continue to help Vietnam become a destination in the shifting wave of foreign enterprises. In particular, the planned industrial zones are expected to attract cash flow from investors.

 Recently, data from the Vietnam Real Estate Market Report 2020 showed that foreign businesses continue to accelerate the move out of China and Vietnam becomes an alternative destination for property facilities. this output.

Commenting on the trend of investment cash flow in the fourth quarter of 2020, Ms. Hoang Nguyet Minh, Deputy Director of Investment Division, Savills Hanoi, said: "With advantages not only from trade agreements with With tariff commitments but also labor costs, infrastructure is ranked second in the region after Indonesia, Vietnam is benefiting to develop industrial real estate in the long term.

Specifically, according to Savills Vietnam data, the attraction of Vietnam’s industrial real estate in the wave of moving away from China lies in two notable factors.

First , Vietnam is one of the countries with the most competitive tax policies in Asia. Companies can benefit from incentives for corporate income tax (CIT), exemption from import tax on fixed assets; and land rent exemption. Notable incentives include a 20% CIT exemption for the first two years and a 50% reduction in the next four years.

Furthermore, CIT incentives apply to government-prioritized industries, such as Industry 4.0 or high-tech manufacturing support industries; as well as projects in special economic zones (SEZ) or in socio-economic regions facing difficulties; and large-scale projects that meet the Government’s minimum requirements for total investment, revenue and number of employees. Projects that meet one of the above conditions can enjoy CIT at 10% for 15 years, CIT exemption for 4 years; and 50% tax reduction in the next 9 years.

According to Turner & Townsend’s "Construction Cost Survey 2019", Vietnam is also one of the markets with the most competitive industrial construction costs. In Ho Chi Minh City, the average construction cost of basic workshops and warehouses is US $ 352 / m2; large factories and distribution centers were 412 USD / m2; and high-tech factories is 618 USD / m2.

Second , multinational companies that manufacture high value products such as electronics, with pressure to cut costs, tend to translate production to Vietnam and other Southeast Asian countries. . This will promote the development of local supply chains.

Wage inflation tends to increase after the global crisis eases. Labor costs in China are already three times higher than Vietnam, which will prompt multinational manufacturers to consider moving to Southeast Asian countries, where labor costs are lower.

During the first outbreak, a number of multinational manufacturers announced plans to expand and move production to Vietnam, typically parts and assemblers to Apple Pegatron and Foxconn. from Taiwan; Sharp, Nintendo and Komatsu from Japan; and Lenovo from Hong Kong.

These 15 enterprises include 9 small and medium enterprises and 6 large ones, of which most are enterprises producing medical equipment, semiconductors, mobile phones and components; and air conditioning. JETRO affirms that this shift is encouraged to improve supply chain efficiency, fill gaps caused by pandemic effects, and strengthen economic and industrial relations with ASEAN countries.

In Vietnam, although the wage of manufacturing workers increased from 237 USD / month in 2018 to 252 USD / month, this is still a relatively low number compared to other countries in the region, compared to China at 968. USD / month, Malaysia is 766 USD / month.

While labor cost does not drive sustainable industrial growth, it is still important for low value industries such as textiles and furniture.

As Vietnam is shifting its focus to attracting higher value-added industries such as high tech or supporting high-tech manufacturing, these companies may be forced to relocate to other locations in the East. South Asia.

As the transition to higher value industries continues, the focus will shift from the supply of the workforce to the quality of the workforce.

To meet the labor quality requirements of higher value projects, it is essential to continue to invest in education, especially in IT, mathematics and science.

However, this issue has been recognized by the Government of Vietnam with its commitment to formulating a national skills development plan as part of the FDI Strategy Recommendation 2020 to 2030.

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