China’s investments to Vietnam boom as Xi visits Hanoi, US spending down
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Chinese President Xi Jinping will travel to Vietnam next week with the aim of further deepening ties.
PHOTO: REUTERS
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HANOI – Chinese investments in Vietnam have boomed in 2023 in contrast to a slowdown in US spending and trade, official data shows, as the world’s two largest economies vie for influence in the strategic South-east Asian country.
The manufacturing hub stretching along the South China Sea is increasingly a key assembling link in global supply chains that often rely on Chinese components and US consumers.
US President Joe Biden achieved an upgrade of diplomatic relations with the former foe in a visit to Hanoi in September, after a year of intense diplomatic efforts to elevate the United States to the same tier as China in Vietnam’s ranking.
Chinese President Xi Jinping will travel to Vietnam next week
It is unclear which symbolic upgrade carries more weight, but in economic terms China appears to have had the upper hand so far, partly as a consequence of US trade policy. Tensions between Washington and Beijing and various US-led sanctions on China in recent years have encouraged Chinese investment in Vietnam.
Registered investment from China and Hong Kong combined rose to US$8.2 billion (S$11 billion) in the first 11 months of 2023, according to Vietnam’s official statistics, twice as much as in the same period in 2022 when China had pandemic restrictions, making them the biggest investors in Vietnam.
US-registered investment instead has fallen to US$500 million in 2023 from US$700 million in 2022, making it the 10th-largest investor after Pacific island nation Samoa and the Netherlands.
Bilateral trade also dropped as US consumers grappled with a cost-of-living crisis in 2023 and no tariff cuts were agreed during Mr Biden’s visit.
Exports from Vietnam to the United States plunged 15 per cent to US$79.25 billion in the first 10 months of the year, Vietnam data shows, and US imports fell as well.
In the same period, Vietnam’s exports to China increased by 5 per cent to nearly US$50 billion, although imports fell as Vietnam largely buys from Beijing components that are assembled for export to Western countries.
Despite strong economic exchanges, relations with China are complicated by disputes over boundaries in the South China Sea. Anti-Chinese sentiment is also common among Vietnamese people, and it leads to frequent protests, including one in 2018 against the creation of special economic zones that could have benefited Chinese companies.
De-risking
The US diplomatic upgrade came with the White House’s pledges of more investments and easier trade.
“Despite the fanfare during Biden’s visit we have not seen so far a lot materialise,” said Dr Zachary Abuza, a professor on South-east Asian politics at the National War College in Washington DC, noting that foreign businesses face significant challenges when investing in Vietnam.
Several Vietnam-based business consultants signalled an increase in US investors’ interest and noted that investment decisions take time to be made.
The parallel boom in Chinese investment, which excluding Hong Kong has nearly doubled in 2023 above pre-pandemic levels to US$3.9 billion, is partly explained by companies’ de-risking strategies amid US-China trade tensions, said Mr Kyle Freeman, partner at business consultancy Dezan Shira.
China’s slowdown has also been a factor in investment decisions, said Mr Chad Ovel, partner at Vietnam-focused private equity firm Mekong Capital. “(The) poor short- to moderate-term macro outlook in China is motivating Chinese to find investment opportunities outside of their own country.” REUTERS
