Vietnam’s industrial transformation offers new opportunity for China’s technology exports

Vietnam exported about $3.7 billion worth of goods to China in January, up 106 percent year-on-year, according to Vietnamese customs data, slashing China’s trade surplus with the emerging manufacturing nation. This trend is a good thing for both Vietnam and China.

Years ago, we saw a wave of migration by textile and garment enterprises from China to Vietnam, and now it’s the turn of the electronics industry. The Southeast Asian nation has become a new favorite destination for investment by smartphone makers such as Samsung and their suppliers.

In January, Vietnam exported nearly $895 million worth of phones and their components to China, a 19-fold rise compared with the same period last year, the Xinhua News Agency reported, citing data from the General Department of Vietnam Customs.

As China climbs up the value chain, labor-intensive manufacturing industries are moving out. Given Vietnam’s relatively low labor costs, it comes as no surprise that smartphone vendors are scrambling to invest there to set up assembly plants. However, a considerable part of the core components for madein-Vietnam handset are imported from China.

So Vietnam is a beneficiary of the industrial transfer, but China isn’t experiencing the serious losses that some observers had expected.

In January, China’s exports to Vietnam jumped 49.8 percent year-on-year, according to Chinese customs data. High value-added products such as advanced components accounted for a considerable proportion of the total.

Industrial migration to Vietnam may put pressure on China’s labor-intensive sectors, but there’s no need for concern in China as long as it can achieve its industrial upgrading goals to rely more on high-tech industries, including the production of key parts and components. If Vietnam can transform itself into a new world factory using the advantage of its low labor costs, the integrated industrial chain connecting China and Vietnam will turn the emerging manufacturing nation into a new transshipment point for China’s high value-added products such as parts and components.

Efforts to push forward the Belt and Road initiative will help China expand its industrial chains to other economies along the route, Vietnam included.

As China moves away from its reliance on low-cost manufacturing and focuses more on innovation, it is likely to lead to an overall upgrading of the country’s manufacturing sector.