Vietnam's economy suffers from China row

[beijingwalker]

Vietnam's economy suffers from China row
MANABU ITO, Nikkei staff writer

HANOI -- Vietnam's continued struggle with China over territorial claims in the South China Sea is beginning to take a toll on the Southeast Asian nation's economy, threatening to push its robust growth lower.

Economic repercussions from the latest flare-up of the long-standing territorial dispute are now being felt. Some infrastructure development projects involving Chinese companies have stalled, while the number of Chinese visitors to Vietnam has begun to drop. The government and the nation's business sector are taking steps to reduce Vietnam's heavy economic dependence on China. But it is not an easy thing to achieve.

Heavy outcomes

Signs of the maritime spat's impact are clearly visible at a construction site of an urban train line in southwestern Hanoi. The construction of Line 2A, a 13km rail line that runs on viaducts across the city center, has been on hold since mid-May. Chinese companies are involved in the project's construction, which is mostly funded by China. Construction machinery has been left idle and exposed to the weather.

After a wave of anti-China demonstrations swept through Vietnam, Chinese workers disappeared from the site, said a person who knows about the project. China is providing nearly 80% of some $530 million needed to build the train line. With the construction of bridge piers and girders left in advanced stages, the line was expected to be completed by the end of the year.

In the central Vietnamese Ha Tinh Province, an anti-Chinese riot has caused problems for the construction of a new integrated steelmaking plant for Taiwan's Formosa Plastics. In mid-May, workers for a Chinese subcontractor were attacked by a mob at the construction site, and several people were killed. Most of the 4,000 Chinese workers at the site have returned home, causing serious construction delays.

The inaugural kindling of a furnace at the plant, originally scheduled for the end of May 2015, will be delayed by several months.

The Vietnamese tourist industry is also taking a big hit from the deterioration of relations with China. There have been a large number of cancellations of tours and hotel reservations by Chinese tourists. The number of Chinese tourists who visited Vietnam in June plunged 29.5% from the previous month.

Economic dependence

The extent of Vietnam's economic reliance on China has come to the fore since early May, when the current maritime confrontation started with sea vessels from the two countries ramming each other near China's deep-sea oil rig stationed in disputed waters.

There have been a total of 20 engineering, procurement and construction contracts for infrastructure projects such as power generation plants planned in Vietnam recently. Of that total, 15 contracts have been won by Chinese companies, according to local media.

Some Vietnamese are warning that the construction of power plants will stop if Chinese companies leave the country.

The Vietnam Center for Economics and Policy Research at the VNU University of Economics and Business revised down economic forecasts at the end of May. The territorial row will lower the country's real economic growth rate in 2014 to 4.15-4.88%, down by more than 1 point from its original prediction of 5.4-5.5%, the center said.

Mizuho Research Institute has also slashed its growth forecast for Vietnam, from 6% to 5.6%, citing the effects of anti-China protests.

These revised forecasts are below the Vietnamese government's annual growth target of 5.8% for this year.

Leading economic indicators have yet to show any serious damage from the territorial row. Vietnam's real gross domestic product grew at a healthy rate of 5.18% in the first six months of 2014 from a year earlier.

But other economic data are already showing troubling signs of a possible economic slowdown. New or additional direct foreign investment in Vietnam during the first half of this year, for instance, drooped 35.3% from the same period last year. The rate of export growth during the same period was lower than the year before.

Dwindling foreign investment is bound to deliver a heavy blow to the Vietnamese economy, which has been powered mainly by exports of foreign manufacturers.

In an article published earlier this month in an official government newspaper, Vietnamese President Truong Tan Sang stressed the need to correct the country's heavy economic dependence on China. The Vietnam Textile and Apparel Association called on its member companies to submit information about their purchases of yarn, fabric and dye from China. The association is seeking to promote purchases from alternative sources such as Thailand and India.

Vietnam's economy suffers from China row- Nikkei Asian Review

 

[AgentOrange]

LMAO. That's what they get for attacking every factory in sight like a bunch of primitive savages. Instead, they should have attacked their own government for fleeing like cowards before an unarmed Chinese oil rig.

 

[ChineseTiger1986]

Nice, a good Vietnam for China must remain poor.

 

[AgentOrange]

Nice, a good Vietnam for China must remain poor.

Vietnam will keep itself poor. They can't even feed their children - each generation of Viets is shorter than the previous due to malnourishment. Like North Korea. It's obvious their IQ's will drop as well. This coupled with a deluded mentality and a poor work ethic means Vietnam will be a muddy hole in the ground for decades to come.

 

[Beidou2020]

Vietnam will keep itself poor. They can't even feed their children - each generation of Viets is shorter than the previous due to malnourishment. Like North Korea. It's obvious their IQ's will drop as well. This coupled with a deluded mentality and a poor work ethic means Vietnam will be a muddy hole in the ground for decades to come.

The backward Viets can only pretend to be American (like @gambit) or use America to talk down China because VietNam itself is a complete joke

 

[xunzi]

No more freebie for our little Viet in the South who is not only ungrateful but always leeching off our goodwill.

 

[key-CN]

I think that since the founding of China has a huge investment in Vietnam，Huge Chinese investment losses.China 's investment in the lack of vision.

 

[dichoi]

LMAO. That's what they get for attacking every factory in sight like a bunch of primitive savages. Instead, they should have attacked their own government for fleeing like cowards before an unarmed Chinese oil rig.

Nice, a good Vietnam for China must remain poor.

The backward Viets can only pretend to be American (like @gambit) or use America to talk down China because VietNam itself is a complete joke

No more freebie for our little Viet in the South who is not only ungrateful but always leeching off our goodwill.

I think that since the founding of China has a huge investment in Vietnam，Huge Chinese investment losses.China 's investment in the lack of vision.

typical chinese Ah Q victory spirit mentality' trolls.

 

[Nice_guy]

This article has been written in 30/6/2014, and @Mr beijingwalker have just read this "recent news" and show his well-educated understanding about Vietnam.

Come on, grow up Chinese netizens.

 

[bobsm]

This article has been written in 30/6/2014, and @Mr beijingwalker have just read this "recent news" and show his well-educated understanding about Vietnam.

Come on, grow up Chinese netizens.

So in a matter of 3 plus months, Vietnam has magically rectified those problems? If true, it would be one hell of a turnaround in such a short time.

 

[Nice_guy]

So in a matter of 3 plus months, Vietnam has magically rectified those problems? If true, it would be one hell of a turnaround in such a short time.

No, the economic condition is improving at the moment, the factories has been restarted normally and investors remain confident about Vietnam's bright growth. Here you are, the more recent news on Nikkei website (1/10/2014)

Foreign investors shrug off Vietnam's anti-China riots
ELISABETH ROSEN, Contributing writer

Construction of a giant steel plant in Vietnam's central Ha Tinh Province has resumed after an anti-Chinese riot broke out at the site in May.

HANOI -- Riots that killed four Chinese workers and damaged hundreds of factories in May have slowed Vietnam's economic growth and shaken Chinese and Taiwanese businesses. But overall, foreign investors remain confident in the country's growth potential, despite concerns about corruption, red tape and the slow pace of legal reform.

The violence was triggered by China's decision to build an oil rig in waters it claims off the coast of central Vietnam, although Taiwanese companies were the hardest hit.

Riots at factories and industrial parks in southern and central provinces affected 425 Taiwanese companies, causing losses estimated at up to $500 million, according to local reports in Taiwan. Damage was also reported by 55 South Korean and 10 Japanese companies. Many halted production, including Formosa Plastics Group, the Taiwanese owner of a construction site in Ha Tinh's Vung Ang Economic Zone, where four Chinese workers were killed. Others that stopped work include Hon Hai Precision Industry, owned by Taiwan's Foxconn Technology Group, which manufactures parts for Apple devices, and footwear maker Yue Yuen Industrial (Holdings), also Taiwanese.

Taiwanese bicycle manufacturer Asama Yuh Jiun Industrial threatened to leave the country unless adequate compensation was paid for a factory in Binh Duong that was almost completely destroyed by fire. The company later received $3.3 million in compensation but has not said whether this has affected its future investment plans.

Sticking around

The riots in Vietnam were a major factor behind the Asian Development Bank's decision in July to cut its 2014 economic growth outlook in Southeast Asia by 0.3 of a percentage point, to 4.7%; the bank did not quantify the precise impact on Vietnam. Some foreign business experts said the damage would be significant: Serena Liu, chairwoman of a Taiwanese business association, said 10% of investors from Taiwan had fled Vietnam.

However, concerns about a wider exodus seem to be largely unwarranted. More than 90% of damaged Taiwanese businesses have resumed operations, including Hon Hai and Yue Yuen, the Taipei Times recently reported. In July, Formosa Plastics resumed construction of a $10 billion integrated steel mill in Ha Tinh, with $1.4 million in compensation from the local government, in addition to insurance reimbursements.

Other major foreign-invested projects are also in the works. A $1 billion factory complex in Bac Ninh for South Korean conglomerate Samsung was approved in July, and Tai Yuen, a subsidiary of Taiwan's Yun Lon Group, received permission in July to build a $150 million textile mill in Ha Nam. Microsoft said July 17 that it would concentrate production of Nokia mobile phones in Hanoi, while cutting back in China and making other changes.

The U.S. tech giant is one of several global manufacturers that are shifting operations between neighboring countries as labor and environmental costs in China increase and businesses begin to anticipate the impact of trade negotiations, such as the Trans-Pacific Partnership. If signed, the TPP would likely include Vietnam but not China.

According to the Vietnam Leather, Footwear and Handbag Association, major shoemakers like Nike, Adidas and Puma have directed 25% more production into Vietnam so far in 2014 than in the comparable period of last year. Luxury handbag makers Lancaster and Sequoia Paris have also begun investing in the country.

"Some investors from Taiwan and mainland China are still deliberating what to do next," said Fred Burke, head of the Vietnam Business Forum's investment and trade working group and managing partner at law firm Baker & McKenzie (Vietnam). "However, for others, the whole episode seems to have driven them closer than ever to Vietnam as an alternative business development opportunity to China. Manufacturers, particularly those from Japan and South Korea, looking to keep their production costs competitive, have been searching for supplements to their China production capacity for some time.

"Recently, this trend has been accelerating, due not just to the cost differentials but also regional geopolitical tensions and Vietnam's aggressive negotiation of a network of trade agreements."

According to Baker & McKenzie, Samsung is sourcing around 40% of its global smartphone capacity from Vietnam, and "actively encouraging" suppliers to relocate near its factory in Bac Ninh, aided by a trade pact currently being negotiated between Vietnam and South Korea.

South Korea's Lotte Group reportedly invested $400 million to build the Lotte Center Hanoi, which opened on Sept. 2. Vietnam's second-tallest building, it includes a hotel, mall, apartments and offices. Photo by Elisabeth Rosen

In another sign of the confidence of some foreign investors, Thai distributor Berli Jucker recently bought German retailer Metro's 19 Vietnam grocery stores for $876 million, a deal it had been pursuing since last year.

Lingering frustrations

Foreign investors have come to play an increasingly significant role in Vietnam's economy. Foreign investors surpassed domestic companies in terms of exports last year, accounting for 67% of total export turnover and contributing to a trade surplus of nearly $900 million. While the foreign direct investment sector's exports grew an average of 27.5% in 2012 and 2013, the comparable figure for domestic companies was 2.3%.

Moreover, manufactured goods are quickly replacing commodities as Vietnam's export base.

Pledges of new foreign investment tumbled 35% on the year to $6.85 billion in the first half of 2014, according to the Ministry of Planning and Investment, suggesting that some investors might be rethinking their plans for Vietnam. However, the ministry also said the actual inflow of investment for the same period rose 0.9%, to $5.75 billion over the previous year, and most experts are taking a more sanguine view of the country's long-term prospects.

Nhan Nguyen, managing partner at BDG Asia, a business and management consultancy, said the riots had not changed the investment plans of the group's international clients, neither delaying manufacturing projects they had already committed to nor bringing new projects into question. "Most new investors are tracking the issue but not paying too much attention to it," he said.

Much of this somewhat positive sentiment springs from the government's decisive response to the riots. The authorities reassured foreign investors that they would be fully compensated for damages, and President Truong Tan Sang visited the Vietnam Singapore Industrial Park in Binh Duong, where nearly one-third of the 326 factories were damaged, to convey the government's commitment to maintaining order. Speaking to business representatives, Prime Minister Nguyen Tan Dung vowed that similar "incidents" would never happen again.

Even so, while most investors are not ready to abandon Vietnam, many say they are frustrated by the country's business environment, notably the corruption, red tape, and the tortuous legal system. "Laws tend to be unclear and contradict each other, which is one of the obstacles to doing business in Vietnam," said Chris Freund, a partner in Mekong Capital, a Vietnam-focused private equity firm. "Reforms are moving more slowly than foreign investors would like."

Overall, the government seems to have succeeded in reassuring foreign investors that the riots were an isolated incident. But keeping them happy in the longer term may require displaying the same commitment to economic and legal reforms.

"The fundamentals of Vietnam's business climate have not changed, especially since the government acted quickly to restore confidence," said Adam Sitkoff, executive director of the American Chamber of Commerce in Hanoi. "But for most companies, Vietnam remains a difficult place to be successful.

"The government needs to move forward on necessary reforms to create a more competitive environment where decisions are made faster, procedures are less complicated, rules are fairly enforced and companies compete on their merits."



PS: Sorry but I laugh when seeing Chinese-made comment about their so-called recent news

 

[Viet]

Nice, a good Vietnam for China must remain poor.

why? what is good for you if we remain poor?

 

[key-CN]

Vietnam is giving yourself a big trouble.Changed all Chinese people 's impression of Vietnam.Chinese investment will shift.For China, this is an unsafe place.Tremendous impact!

 

[Viet]

Vietnam is giving yourself a big trouble.Changed all Chinese people 's impression of Vietnam.Chinese investment will shift.For China, this is an unsafe place.Tremendous impact!

it is you who seeks trouble. we are always ready for a peaceful solution.
unfair to play with your economic and military weight.

 

[key-CN]

There is no compensation for Vietnam 's sincerity，Plants are burned.I also think that it is asking for trouble.I also think that this is China's own investment failure.I see him as a lesson.