Vietnam on Its Way to Replace China as New Manufacturing Hub

Published Date : Oct 28, 2015

According to market experts, growing foreign direct investment (FDI) flows into Vietnam’s manufacturing sector can lead the country to replace China as the new production centre. At a conference organized by the State Bank of Vietnam in partnership with the World Bank, experts pointed out that FDI flows into Vietnam’s manufacturing sector has increased rapidly in the last decade and is expected to rise further. Official data shows that foreign investors registered US$11.36 billion for manufacturing projects that accounted for 66.3% of the total pledges in the first nine months of this year. In 2014, the manufacturing sector in Vietnam attracted 72% of the total registered capital.

Though the FDI proportion of Vietnam’s manufacturing sector is comparatively small with respect to the manufacturing sectors in Indonesia, China, and Thailand, the sector looks more promising. According to Victoria Kwakwa, the World Bank’s country director for Vietnam, the country’s location and cheap labour source, along with a range of free trade agreements will boost its manufacturing sector. However, experts have mentioned that to emerge as the new global manufacturing hub, Vietnam needs more government support and financial aids to the local businesses. Further, adoption of new manufacturing technologies by the local companies will push the sector’s growth.

The Vietnam Chamber of Commerce and Industry (VCCI) has urged the government to offer more support to local companies, including financial assistance. Only 36% of local Vietnamese manufacturers participate in global production network compared to 60% in Malaysia and Thailand. The government also needs to improve its legal system as Japanese investors consider the lack of regulations as their biggest risk. Further, unlike China, while becoming a global manufacturing hub, Vietnam needs to avoid bad consequences such as environmental pollution, labour violations, and economic gap.