The wave of FDI shifting from China and Opportunities for supporting industry companies in Vietnam

After the Covid-19 epidemic crippled world supply chains, causing great damage to global businesses, investors determined to withdraw from Chinese " The World’s Factory" and this was a great opportunity for Vietnam. Mr. Nguyen Bich Lam, General Director of the General Statistics Office, said: “This is an opportunity for Vietnam to have policies to attract investors who are intending to narrow production in neighboring countries and invest in Vietnam”. And this is an opportunity for Vietnamese companies to participate in the production of raw materials as well as supporting industries for businesses.

FDI enterprises hustle shift from China

Wistron, one of Apple's production partners, recently said they would move 50% of their production capacity out of China within a year. The Covid-19 pandemic has shown a huge risk for investors following the strategy of "putting all eggs in one basket" and the Wistron statement is a good example of this correction.

Last year, a Commerce Department’s report said about one-third of American companies in China will cancel or suspend investment in China. 40% of businesses say they will move part or all of their production lines from China, expected to Southeast Asia or Mexico.

One of the reasons FDI enterprises, especially in supporting industries, want to move away from China is because China is focusing on developing high value-added industries and reducing low value manufacturing industries, and industries which cause environmental pollution. Therefore, policy trends as well as operating costs will no longer be suitable for many FDI companies.

A research report published by the San Francisco Fed in early April said the consequences of the pandemic had positive implications for Vietnam, with wages in countries tending to increase after the pandemic. This will encourage manufacturing companies to relocate their factories from China to Vietnam and Southeast Asia instead of moving to the United States.

Opportunities for Vienamese supporting industry enterprises

According to the forecast of the General Statistics Office at the beginning of the year, if there is no Covid-19 epidemic, Vietnam is expected to attract 39.6 billion USD of foreign investment in the whole year. But when there is an epidemic, the story is different. If the epidemic ends in the first quarter, the number is expected to decline to $ 38.6 billion. If the epidemic ends in the second quarter, the year will only attract 38.2 billion USD of foreign investment. The positive point is that in both scenarios, foreign investment attraction still increased compared to the figure of 38.02 billion USD achieved in 2019. In the first quarter, Vietnam also attracted over 5.3 billion USD of Foreign investment capital.

In the long term, according to analysis of KB Vietnam Securities Company (KBSV), Vietnam will still maintain FDI attraction thanks to its abundant labor force, low cost, stable, good macro economy and the business environment is increasingly being improved. In terms of operating costs, it can be seen that the operating costs in Vietnam compared to other ASEAN countries can be found to be much more attractive. In contrast, when it comes to the parent company's profits, they also want to receive dollars so foreign investors are very interested in exchange rate risks, especially in the environment of strong USD appreciation as today, the emerging money is classified as high-risk of depreciation.

Meanwhile, the currency of Vietnam is also one of the rare currencies to keep prices stable against the USD. This has been proven by the two times the USD rose, causing the emerging-market currencies to depreciate heavily, which is the trade war in 2018 and when the COVID-19 epidemic spread from the beginning of the year to now on. According to analysts, the support tools still have plenty of room to keep the exchange rate stable. This reassures large corporations when they decide to invest in Vietnam.

In addition, Vietnam has many years participated in successful negotiations and signed many free trade agreements (FTAs) with other countries and regions. This is a great condition for businesses established in Vietnam to conduct international trade activities, especially for supporting industry enterprises.

According to Nhipcaudautu

(https://nhipcaudautu.vn/magazine/tap-chi-so-ra-677-3334582)