Summary:
On 23 September 2024, ISEAS and ACI co-organized a webinar titled “Trade War Catalyst: Understanding Trends in Foreign Direct Investment in Vietnam” to explore how Vietnam has emerged as a strategic destination for foreign investors amidst these global disruptions.
The webinar delved into the impact of recent trade tensions on FDI trends in Vietnam. We discussed how the US-China trade war has accelerated Vietnam’s emergence as a competitive alternative for manufacturing and supply chain activities. The presentation highlighted Vietnam’s economic resilience, its strategic advantages—including its geographical location, favorable trade agreements, and government policies—and the challenges it faces in sustaining its growth trajectory. Additionally, we examined concerns over Vietnam’s reliance on FDI and the potential risks associated with Chinese companies using Vietnam to circumvent U.S. tariffs.
Key Highlights:
1. Vietnam’s Economic Resilience and Growth:
- Sustained Economic Growth: Vietnam has maintained an impressive average growth rate of over 6% per year, showcasing its ability to sustain strong economic development even during global downturns like the financial crisis and the COVID-19 pandemic.
- Shift to Higher-Value Sectors: The country has significantly reduced its dependency on resource-based industries, shifting towards higher-value sectors such as electrical machinery and equipment, which became its top exporting sector post-2010.
2. Robust FDI Inflows:
- Vietnam’s strategic advantages have led to significant FDI inflows, particularly from East Asian countries like Korea, Japan, and Singapore, solidifying Vietnam’s role in global manufacturing and supply chains.
3. Challenges and the Path Forward:
- Infrastructure Limitations: Upgrades are needed in ports, roads, and logistics to handle increasing economic activity and maintain supply chain efficiency.
- Labor Force Issues: Addressing low labor productivity and a shortage of skilled workers is crucial, especially for moving into higher value-added industries like semiconductors and electronics.
- Regulatory Hurdles: Streamlining administrative procedures and reducing bureaucratic complexities can enhance investor confidence.
- Environmental Concerns: Adopting greener manufacturing practices and implementing stricter environmental regulations are essential for sustainable growth and meeting global environmental standards.
4. Risks of Over-Reliance on FDI:
- Potential Middle-Income Trap: An over-emphasis on FDI may constrain the growth of domestic firms, making Vietnam vulnerable if foreign companies relocate, and potentially hindering its goal of becoming a high-income economy by 2045.
- Strengthening Domestic Industries: To mitigate this risk, Vietnam should focus on enhancing the competitiveness of local businesses, integrating them into global supply chains, and investing in human capital development to foster innovation and sustainability.
5. Navigating Trade Risks with the U.S.:
- Concerns Over Trade Practices: Chinese companies using Vietnam as a transit point to circumvent U.S. tariffs pose risks of increased scrutiny and potential sanctions from the United States.
- Proactive Measures Needed: Vietnam can reduce potential exposure by strengthening customs enforcement, improving regulatory frameworks, and engaging in international cooperation to ensure compliance with fair trade practices.
ACI Perspectives 