Vietnam, the little dragon who dreams of becoming an economic alternative to China
Ruled with an iron fist by the Communist Party, Vietnam, a country of 99 million inhabitants with the goal of becoming a high-income economy by 2045, has understood the potential of the rift between China and the West, and here's how he is taking advantage. Le Monde article
"I sign a new lease and I'm all yours." Bruno Jaspaert, Belgian managing director of Deep C, the largest industrial zone in the Haifong region of Vietnam, signs one contract after another. Its tenants are new factories – on this day in late March, Chinese battery makers. Coming in 1997 with his polder experience, the business park manager has doubled his turnover in the past two years.
As far as the eye can see, excavators are shaping the banks of future artificial islands. More than one hundred and fifty companies, most of them foreign, have settled in the 30 square kilometers built on the sea. The Japanese Bridgestone, which arrived in 2011, produces all its winter tires here. China's Flat produces glass for solar panels. The Italian Piaggio produces Vespa motorcycles for all of Asia. In a nearby economic zone, VinFast, a pioneer of the Vietnamese automotive industry, produces electric cars. The correspondent of Le Monde writes it in his article.
Haifong is the largest port in northeastern Vietnam – Hanoi is 120 kilometers away. It was founded by the French in 1874 and linked by rail to Kunming in the Chinese province of Yunnan in the early 20th century in the illusory hope of gaining access to the Middle Kingdom. Today, a new deep-water port, also built on water as an extension of the polders, has put the former “Venice of Tonkin” on the map of global value-added chains between Asia and the rest of the world.
A GROWTH BASED ON FOREIGN INVESTMENT
The first two container terminals took just four years to reach saturation point and two more are under construction. Instead of renovating the railway line that connects Haifong to Hanoi and continues on to China, the Vietnamese authorities have connected it, via a newly opened highway, to Shenzhen, the economic crossroads of southern China, now twelve hours away by truck.
Haifong and its old colonial buildings, still on the threshold of the urban transformation that Hanoi and Ho Chi Minh City, the economic capital of the South, have already undergone, are the symbol of this Vietnamese economy in full transformation. Even more than China, communist Vietnam, which joined the World Trade Organization in 2007, has built its spectacular growth (6% since 2006) on foreign investment, which is subject to fewer restrictions than China. Between 65% and 70% of its exports are made by foreign-owned companies.
Vietnam is so enthusiastic about globalization that it has signed fifteen free trade agreements, including one with the European Union. Together with Singapore, it is the only Southeast Asian country to have done so. Hanoi is a member of China's 'New Silk Roads', the Japan-led CPTPP Trans-Pacific Partnership Agreement, and the China Regional Comprehensive Economic Partnership.
With the goal of energy neutrality to 2050, Hanoi is the second country in Southeast Asia, after Indonesia, to create a partnership for a just energy transition with the West to support it in this transition.
BENEFIT FROM THE US OFFENSIVE AGAINST CHINA
Above all, the country is the first beneficiary of the consequences of the US trade offensive against China, launched under Donald Trump and continued by his successor Joe Biden in the form of technological warfare. But if the Vietnamese economy experienced some turbulence in the first quarter (+3.3% growth despite the target of 6.5% in 2023), in a context of rampant real estate crisis, it will have to optimize its constraints to reach the new Holy Grail promised by the Communist Party: becoming a high-income economy by 2045.
At Deep C, the primary tenant lives in a giant, brand-new light gray building. The Taiwanese company Pegatron, one of the world's giants in the subcontracting of consumer electronics – including some of Apple's iPhones – has invested 1.5 billion dollars (1.37 billion euros) in a "hyperfactory" that will employ 10,000 people. This move confirms a key trend led by South Korean groups: Samsung has invested $18 billion in Vietnam since 2008, with another $2 billion to be added by 2023, according to the Vietnamese government.
The group also opened an R&D center in Hanoi in 2022. Vietnam is the second largest exporter of smartphones in the world, after China. South Korea, Singapore and Japan are the top three foreign investors in Vietnam. "The high-tech industries of Northeast Asia have decided to leave China for their exports to the United States, or at least to keep there only what is destined for the Chinese market," explains Bruno Jaspaert.
Vietnam offers electricity at about 25% less than China, lower wages and very favorable taxation in its special economic zones (0% for four years, then 5% for nine years, 10% for the next two years and finally 20%). The only handicap is the logistics costs: “They represent about 20% of the product, against 8% for China. Just-in-time isn't working yet and stocks need to be kept”, continues the Belgian manager.
“A COMPLEMENTARY ELEMENT TO CHINA”
“None of this makes Vietnam a new China. Vietnam can be seen as a complement to China, not as a substitute for it,” says Filippo Bortoletti, director of the legal consultancy firm Dezan Shira in Hanoi. China's industrial ecosystems are too large and Vietnam cannot function without Chinese supplies. For Vietnam, this dependence translates into a growing trade deficit with China, set to rise to $60 billion by 2022.
In contrast, the surplus with the United States, its main customer, reached $95 billion in the same year. The powerful neighbor made sure to participate in the economy of his client and competitor: “Many Chinese companies have set up during the Covid. Some to follow their customers, who no longer want the 'made in China' label, but also to reduce the risks related to regulatory or tax changes that affect them in China or abroad”, adds the consultant.
In Vietnam, the Chinese are investing in energy production through power plants or components for wind and solar energy, but still lag behind other Asian countries. Some of their choices have been judged too polluting, while others have been criticized for covering up re-exports of Chinese furniture to the United States with the “made in Vietnam” label.
China, the only successful Communist country in business, is a model for Vietnam, but Hanoi is wary of its excessive weight and still has territorial disputes with Beijing in the South China Sea. “The solution for Vietnam is never to go against China. And make sure you have lots of friends,” sums up Professor Dao Gia Phuc, director of the Institute of International and Comparative Law of the National University of Vietnam in Ho Chi Minh City.
ATTRACT THE “EAGLES”
The proliferation of partnerships, in the form of framework agreements or free trade treaties, serves this profession of faith of the communist government, which reigns supreme over a population of 99 million inhabitants. “It's a way for Vietnam to be multilateral. There is a clear strategy on the part of the Vietnamese Communist Party to join forces with the more advanced economies to develop,” adds Dao.
In April, Hanoi rolled out the red carpet for a mega-delegation of fifty-two major American companies, including Boeing and SpaceX. Vietnam wants to attract these "eagles", i.e. global champions, by preparing a good "nest" for them, in the jargon of communist decision-makers. “The government wants to carry out reforms to attract more added value. Today it is clear that he wants more Europeans and Americans,” confirms Nguyen Van Toan, vice president of the Vietnamese Association of Foreign-Owned Enterprises (Vafie).
The communist government has stepped up its reform plans since the "new development period" announced at the last Party Congress in 2021. But it has its work cut out: some major infrastructure projects are behind schedule, such as French and Japanese subway projects in Hanoi. The Vietnamese media euphemistically denounce "a lack of administrative cohesion".
In the midst of this great upheaval, Vietnam is facing another great challenge: how to cultivate the national industrial champions – the local "eagles"? “Foreign-owned companies are the first to benefit from the new regulatory frameworks imposed by all these treaties and agreements. Vietnam did not have the time to set limits on joint ventures, as China did, to create its own champions,” Professor Dao points out. It is very difficult for the government to decide subsidies for Vietnamese companies without being accused of discrimination."
The new generation of Vietnamese private entrepreneurs essentially got rich in the real estate sector, obtaining licenses to market land to foreign investors and betting in time on the great urbanization boom. “These new Vietnamese billionaires, who come from the real estate sector, are now in a phase where they want to do something for their country and are investing in other sectors,” continues the lawyer.
VINGROUP, A CONGLOMERATE CONQUERING THE MARKETS
No industrial company better symbolizes the challenges and hopes of this transition than the Vingroup conglomerate: born from the real estate sector, the main private group in the country is the parent company of VinFast, the car manufacturer which since 2022, after only five years of life, has decided to produce only electric cars. In the absence of a sufficiently developed domestic market (500,000 cars sold in Vietnam in 2022), it aimed at the American and European markets, where different models are starting to be distributed.
Growth remains rather chaotic and uncoordinated. Only 111 of the 999 cars delivered to the US in December 2022 were sold. But since the end of May they have been under a recall due to a software problem. VinFast has opened showrooms in France and Germany, where the first vehicles are expected by the end of 2023.
Its owner, Pham Nhat Vuong, Vietnam's richest man, 54, made his fortune in the 1990s producing noodles in Ukraine (where he studied) which were then sold on the Vietnamese market.
To get the measure of this Vietnamese Elon Musk, you have to see the new neighborhoods that the developer has built in the eastern part of Hanoi, across the Red River, where his offices are located. Vinhomes Ocean Park features long rows of neo-Haussmannian style buildings around several salt lakes with sandy beaches planted with coconut palms. Further on, sixty twenty-five-storey buildings are intended for the "middle class", as one of the group's communications managers tells us, who assures us that, despite appearances, 40,000 people already live in Vinhomes Ocean Park. The neighborhood also boasts a mega-mall Vincom and, at the center of a sprawling campus, the first VinUniversity, due to open in 2020. The country's half-dozen international hospitals and Vinmec clinics promise to take on graduates of its medical school. And VinFast, its engineers.
Vingroup launched VinFast enlisting the best: the Italian Pininfarina for the design, BMW for the chassis of its petrol cars (abandoned in favor of a collaboration with the Chinese CATL for electric cars).
But VinFast is burning through billions of dollars, despite the takeoff of sales in Vietnam. The group has already reneged on its commitment to build a mega plant in the United States. Its attempts to go public are sowing doubts. To reassure the markets, at the end of May the head of Vingroup announced a personal donation of 1 billion dollars to his automotive subsidiary, which will be matched by 500 million dollars from Vingroup and another billion dollars in the form of a loan. Time is running out. Like Vietnam, VinFast will also have to make the most of this opportunity while there is still time.
(Excerpt from the foreign press review by eprcomunicazione )
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vietnam-il-piccolo-drago-che-sogna-di-diventare-unalternativa-economica-alla-cina/ on Sun, 09 Jul 2023 05:26:39 +0000.