The diversification of Vietnamese trade and the China plus one strategy

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Vietnam Briefing examines Vietnam’s position in the China plus strategy emerging as a favorable investment destination due to its proximity to China, its coastline and the lower export tariffs implemented by free-trade agreements. exchange.

We also examine the complementary relationship between Vietnam and China due to close trade ties.

Recent media reports have highlighted Vietnam as an export destination, with exports surpassing those of Shenzhen in March. Several analysts said this was due to Vietnam benefiting from a shift in global supply chains. While this is true, we need to look at which products are exported at what cost and which industries have shifted their supply chain ecosystem to the country.

China plus one strategy

We have discussed the China plus one strategy in several articles on Vietnam Briefing, but we will take a deeper look given the current scenario in the aftermath of the pandemic.

Vietnam’s exports fell 48.2% in March from the previous month and 14.8% a year earlier to $34.7 billion, while Shenzhen’s exports contracted 14% in year-over-year to hit $18.3 billion due to pandemic-related lockdowns according to customs data.

Since the US-China trade war, and even before that, companies have been considering Vietnam as a China plus one destination due to lower labor costs, especially in manufacturing industries. electronics and supply chain.

But rather than competing, the two countries complement each other. Vietnam still imports a significant amount of raw materials from China, South Korea, Japan and others and has a less developed supply chain network.

The products are then processed and completed before being shipped to the US, EU, etc. It is important to note that the current trajectory of Vietnam corresponds to what the Chinese coastal areas were several years ago.

Bilateral trade between Vietnam and China jumped to $230.2 billion, and China is Vietnam’s biggest trading partner and second largest export destination.

It is also important to note that Shenzhen is only one city in China compared to Vietnam as a whole. And while Vietnam’s success should be applauded, Shenzhen has moved from low-end to high-end manufacturing, something even Vietnam wants to mature into. Several major technology companies such as Huawei and ZTE are headquartered in Shenzhen.

Vietnam, on the other hand, benefited from lower land and labor costs and a younger population. This is especially seen in labor-intensive industries such as textiles and apparel, footwear, and electronics. Vietnam hopes to emulate a similar path to Shenzhen in attracting high-tech industries.

Although Vietnam is not yet on par with China in terms of developed supply chains, infrastructure and business environment, there are signs of change.

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This article was first published by VietnamBriefing which is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from its offices worldwideincluding in in China, hong kong, Vietnam, Singapore, Indiaand Russia. Readers can write to [email protected]

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