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Chinese FDI in Vietnam: Trends, Status and Challenges
Date: 6/10/2021 5:57:59 PM
China proved the second biggest investor in Vietnam, consequently investing in Vietnamese domestic market. Accounting for 12% of China’s total registered FDI in 2017 in Vietnam.

Vietnam is one of Asia’s largest economies and is quickly hub the 2nd largest industrialized hub on the landmass after China. Over the past decade, the great dispute for constructors has been whether to transfer fabrication from China to Vietnam. 

Foreign Direct Investment Inflow (FDII) is playing a very decisive role in the economic development of the country. It may be defined as a speculation that is made to advance long term interest in association running its process in an economy other than its own. The FDI relationship is formed between parent company and an affiliate (at least one) operating in any foreign country and prevailing as the key for the upgradement of new policies as well as promoting the economy.

This escort will enlighten how to massage your factory from China to Vietnam, including the pros and cons. Vietnam is open for speculation with little red tape, which earnings factories are presently moving to the country, especially after the US-China trade war intensification.

Innovation of Vietnam:

Vietnam started to reform in 1986 with the primary aim of transmuting the economy from a communalist model into a market-oriented one which then enhanced the marketing of goods as well as improve more private ownership and foreign ownership. It also adopted open door policies pursuing hands-on incorporation into both the regional and global economies. As a to this it has taken various measures for attracting more foreign direct investment in Vietnam there by increasing the commodity of buying and retailing. At the same time the country also faced some problems related to foreign exchange with the local buyers who found it difficult to market their own product and retain its commodity value in the market .

The country uplifted the foreign investment there by offering more space to foreign direct investments and took more institutional efforts to create a field for foreign and domestic enterprises. They relaxed restrictions on foreign trade, free access to land, capital and foreign investments. This eventually mind washed the people of Vietnam to invest directly on foreign trades. 

Manufacturing Ethics in Vietnam:

The world’s chief brands are foundational factories in Vietnam: Apple, Samsung, Nike, Adidas, LG, Foxconn, and others are examples of companies that have shut down Chinese factories in favor of Vietnamese factories. This created a huge outcome in Vietnam and increased the trading aspects. Many of the world’s leading conglomerates are emerging tactics to travel their all-inclusive subcontracting manoeuvres to Vietnam. The US-China trade war put momentous tariffs on Chinese goods, while Vietnamese merchandise are still laidback to import. Annual exports from Vietnam to the US surged, and they’re growing at a rate of 20-30% per year.

Current trends of Vietnam at Pandemic:

Vietnam has fared a remarkable feat in superintending the coronavirus, with zero deaths and imperfect lockdown measures. Its airing, taxing, and therapeutic supply industrialization also elucidate how the country kept torrent shackles distressing with circumscribed intervention. As of June 6, springiness tendencies in abundant key sectors had already recommenced to or surpassed their pre pandemic baselines, assembling Vietnam’s restoration of economic activity among the best in the world.

While this success does not inoculate Vietnam from an economic slowdown, it nurtures the country’s brand as the top terminus for diversifying beyond or away from China. Vietnam has many gorgeous features: cheap input costs, stable politics, and progressively slackened trade and investment policies, especially after its free trade contract with the EU. But two factors limit Vietnam’s ability to enthral ominously more manufacturing from China and move up the value chain: its high dependence on foreign input for production and its much smaller population size.

The pandemic certainly had a weakening influence on Vietnam’s previously record-breaking FDI growth rates. As of September 2020, foreign investment projects expanded US$13.76 billion, which is equivalent to 96.8 percent over the same period last year.

As of September 2020, the whole country consumed US$21.20 billion or 81.1 percent likened to the same period last year of total newly registered capital, practiced capital, and capital involvement or share acquisitions from foreign investors. As with last year, Asian countries epitomize the lion’s share of FDI into Vietnam. Thus Chinese trade affairs increased Vietnam’s economy to a great extent. 

In the first nine months of the year, Singapore, South Korea, China, Japan, and Thailand were the top five investors by revenue. In terms of the number of projects, South Korea, China, Japan, and Singapore were the leading contributors.

Foreign direct investment in Vietnam by China:

The chief of impartial market oriented FDI is to sell goods and services to the host country’s market. Market oriented FDI may be intended to make good use of new markets. The prospect of future growth in market, size of the market, and range to which the host country is creating progress are the prime factors for interesting market oriented FDI. The host country with these characteristics offers openings to MNEs to make the best use of their ownership benefits. A large market in the host country is positively related with commercial hoards. It is empirically revealed by previous studies that market size positively affects FDI inflow in China.

The foreign investors are bequeathed with greater investment opportunities and are conveyed to a number of markets in the host country due to the advent of local economies thus building their self-confidence. The size of the market is imperative for market oriented FDI, it also aims to attract more opportunities for increasing the economy. 

FDI and Development:

The main acquaintances between FDI and development are the possessions on capital amassing and the balance of payments, the probability of technology allocation and the effect on antagonism. The countries developing usually thrive for capital and domestic saving capacities are very weak. Moreover, FDI is often claimed to be an important source of capital which is vital for industrialization, health and wellbeing and advantageous in various sectors. The capital amount in FDI is as volatile as other forms of capital inflows. 

How to increase FDI in a country:

Foreign direct investment (FDI) is considered as an important source for accomplishing bigger and faster economic growth in many evolving countries. Despite the fact that altered models or methodologies are pragmatic, most studies agree that the influence of FDI on a host economy is mainly reliant on the country’s policies in place.

  1. Policies towards attracting FDI

  2. Policies towards upgrading FDI

  3. Policies enhancing linkages between MNCs and domestic firms.

  4. Policies reducing FDI side effects.

These policies are important in a host country and depends mainly upon how they fit with the development strategy and the contemporary absorptive capacity level. 

When a country realizes that policies towards attracting FDI are not only enough to boost up the economic growth. They will also fashion a set of radical policies towards elevation FDI in order to orientate FDI inflows to serve their enlargement strategy. Moreover, the magnitude of FDI inflows is so imperative for developing countries that some of them loosen their necessities of inward FDI in terms of registration procedure, quality and performance of FDI projects to attract more FDI. As a consequence, FDI may have negative effects for the host economy such as environment pollution, transfer pricing in MNCs for tax evasion, dependence of the local economy on FDI.

About Us - VIIPIP

VIIPIP is a boutique consulting organization led by a main consultant with more than 20 years of practical expertise aiding international firms in practical business possibilities in Vietnam. Our mission is to help businesses overcome challenges and conduct business in Vietnam. We assist our customers in navigating international investment initiatives through our network of well-established local partners.

Contact us for any queries related to foriegn investment in Vietnam

Email: [email protected]

Phone number: +84 9824 191 63



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