Foreign firm exodus from China targets Vietnam

China-based foreign investors have deemed Vietnam their top alternative destination, as China’s investment climate becomes less attractive.

With labour shortages and production costs rising in China, many foreign companies are relocating to Vietnam

Standard Chartered Bank recently released its global research on investments shifting from China to ASEAN bloc members. The study highlighted the fact that increasingly-competitive Vietnam is now the “best choice” for China-based investors who want to relocate their production bases. A series of investment-related impediments over the past three years has precipitated this dip in China’s fortunes.

The research was conducted between February and March 2015, with more than 290 responses from Hong Kong- and Taiwan-based manufacturers operating in China’s Pearl River Delta (PRD), which includes nine cities in Guangdong province.

According to the research, in 2015, 36 per cent of respondents who wanted to move their manufacturing facilities out of China said they would move to Vietnam. Up to 44 per cent of respondents said Vietnam had a large domestic market, lower operational costs (29 per cent), and an ample labour supply (18 per cent).

Vietnam’s geographical proximity to China would allow them to continue to use their existing supply-chain network, enabling a seamless transition out of China.

Vietnam is poised to benefit from two major trade pacts, including the Regional Comprehensive Economic Partnership, and the Trans-Pacific Partnership (TPP), which are both currently under negotiation.

Roughly 68 per cent of respondents said Vietnam’s participation in the agreements would cause them to increase their investment in Vietnam, and over 80 per cent expected that Vietnam would benefit from the TPP.

Meanwhile, China’s rising wages and land prices, coupled with persistent labour shortages over the past five years, have frustrated foreign investors looking to cut costs in China.

Specifically, experts estimated that a Chinese manufacturing worker in the PRD region earns around $700 a month, while a similar worker in Vietnam earns only about $250 a month.

Meanwhile, according to the research, nearly 30 per cent of respondents said labour shortages have worsened over the past 12 months, and 26 per cent planned to raise wages in 2015 more than they did last year. Deputy Minister of Planning and Investment Dang Huy Dong said nearly 200 Japanese enterprises were planning to relocate from China to ASEAN, with Vietnam being one of the most popular choices thanks to its low-cost manufacturing. “Investors in China are being burdened by this market’s investment cost rise and labour shortages,” Dong said.

As a notable indicator of the production exodus from China, Microsoft has shut down its two Nokia mobile phone making plants there in favor of a new location in Vietnam. It will expand its existing $200 million mobile phone factory in Bac Ninh province’s Vietnam-Singapore Industrial Park, and will triple its employees from 5,000 to 15,000 in the near future.

Source: Vietnam Investment Review