Business & Economy

Vietnam: a magnet for tech investment over tension between China, US

By Eric San Juan

Ho Chi Minh City, Vietnam, Nov 4 (EFE).- China’s loss of attractiveness for some investors due to trade tensions with the United States and strict Covid-19 containment policies have turned Vietnam in the favorite alternative as a production center for large technology companies such as Apple, Samsung or Google.

The trickle of technology companies moving their production from China to Vietnam, whose economy is growing at a fast pace, has intensified in recent months with moves such as Apple, which has started manufacturing part of its iPad tablets and AirPod headphones in Vietnam. There it plans to produce its smartwatches, AppleWatch and MacBook Pro computers.

Taiwanese firm Foxconn, one of Apple’s main suppliers, has announced a $300 million investment in a 50-hectare plant in northern Vietnam that will create 30,000 jobs.

Google will also start producing its Pixel smartphones in Vietnam for the first time in 2023, in an attempt to reduce its dependence on China, Taiwanese specialized media Digitimes reported in July.

These companies follow the path set by Samsung, which in recent years has been increasing its production in Vietnam, where it already manufactures most of its mobile phones for the global market.

One of the factors that has accelerated this trend has been the strict Covid-19 containment policy in China, which strains supply chains and causes insecurity in manufacturers, but there are less circumstantial reasons.

For Le Hong Hiep, director of Vietnamese studies at the Iseas-Yussof Ishak Institute, based in Singapore, “China’s covid-zero policy is one of the factors, but the deeper reasons include the trade war between China and the US that causes uncertainty and disruptions in the global supply chain.”

“Products exported from China may be subject to higher tariff barriers, especially when they are exported to the US,” Hiep told EFE, adding to these factors related to the situation in China the attractions that Vietnam has been acquiring in recent years to explain its rise as a production center.

The first internal factor he points to is the “boom” of the Vietnamese economy, especially in recent months after the Covid-19 break, with a record growth of 13.67 percent year-on-year in the third quarter of this year thanks to the boost from the manufacturing industry and exports, which increased by 17.3 percent.

“When these (tech) companies set up their factories in Vietnam they also have access to the Vietnamese market, which is becoming more attractive,” Hiep said.

In addition, labor is cheaper in Vietnam (about $3 per hour in manufacturing, compared to $6.50 per hour in China, according to the Vietnam Briefing publication), which adds to the tax incentives Vietnamese authorities try to offer to large companies to invest in the country.

Other advantages that Hiep cites are the proximity of China, which makes it possible to remedy the shortcomings of the Vietnamese supply chain to provide the necessary components, political stability, with a regime similar to that of Beijing, and the opening to international trade in recent years.

“Vietnam is a member of 15 free trade agreements. That means that if companies meet certain conditions, they have lower taxes and would have preferential treatment if they export their products from Vietnam,” he said. EFE


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