Reap­ing the ben­e­fits of re­forms is in­dis­pens­able for Viet­nam’s econ­omy to progress

Viet­nam has ag­gres­sively en­gaged in eco­nomic re­forms and lib­er­al­iza­tion to pre­pare for its mem­ber­ship in the Trans-Pa­cific Part­ner­ship and move its econ­omy up the value chain. What new op­por­tu­ni­ties does that of­fer Tai­wanese busi­nesses?


Tai­wanese yarn maker Tainan Spin­ning Co., Ltd. has a man­u­fac­tur­ing fa­cil­ity in the Bien Hoa In­dus­trial Park in Dong Nai province north­east of Ho Chi Minh City. One Au­gust morn­ing, ev­ery­body in Tainan Spin­ning’s fa­cil­ity, from top man­agers to pro­duc­tion line work­ers, was on their best be­hav­ior wait­ing for a very im­por­tant guest from Hong Kong.

This VIP cus­tomer, based in Guangzhou, is one of Asia’s big­gest textile ven­dors with an­nual sales of US$500 mil­lion, and it pur­chases more than US$5 mil­lion of yarn a year from Tainan Spin­ning. In the fa­cil­ity’s VIP meet­ing room, this thin CEO with a shiny head of hair ap­pears anx­ious as he sits across from Tainan Spin­ning’s gen­eral man­ager in Viet­nam, Wang Tun-cheng.

“Viet­nam will soon join the TPP, with a bright fu­ture ly­ing ahead. Tainan Spin­ning had the fore­sight to come here 20 years ago. We have no choice but to do the same now,” the CEO said in Man­darin with a Hong Kong ac­cent. The CEO was in Viet­nam rep­re­sent­ing his con­glom­er­ate to study the fea­si­bil­ity of build­ing a plant there. His pres­ence was, in fact, a sign of help­less­ness. “No mat­ter how much you im­prove ef­fi­ciency and au­to­mate, it still can­not over­come the power of im­port du­ties,” he says with a frown.

Viet­nam ac­tu­ally emerged as a key bat­tle­ground for the global textile in­dus­try long ago, and it will likely re­main so once the Trans Pa­cific Part­ner­ship (TPP) comes into be­ing.

The Div­i­dends of Sign­ing FTAs

Be­cause of the TPP’s for­ward” prin­ci­ple, for “yarn textile prod­ucts to be given pref­er­en­tial tar­iff treat­ment within the TPP bloc, ven­dors will have to com­plete all of their pro­cesses — from procur­ing the yarn to knit­ting and dye­ing the fab­ric — in TPP mem­ber coun­tries.

Many Tai­wanese com­pa­nies got an early jump on this and are likely to come out win­ners. The Far Eastern New Cen­tury Group an­nounced at the end of June that it would in­vest NT$10 bil­lion in Binh Duong province north of Ho Chi Minh City in a 100 hectare fac­tory that will do ev­ery­thing from draw­ing and spin­ning yarn to weav­ing and dye­ing fab­ric. Eclat Textile Co. and Makalot In­dus­trial Co. are among other Tai­wanese textile ven­dors who have upped their pres­ences in Viet­nam. In the fu­ture, the im­port du­ties im­posed on tex­tiles and cloth­ing made in Viet­nam and ex­ported to the United States will grad­u­ally fall to zero, while the same items made in non-TPP coun­tries, such as China, will con­tinue to be taxed at a 17 per­cent rate. This stark re­al­ity has textile ven­dors in China rush­ing des­per­ately try­ing to put wings on their fac­to­ries and fly them to Viet­nam.

The in­ten­si­fy­ing ex­pe­di­tions of for­eign in­vestors to Viet­nam are not lim­ited to the textile sec­tor.

Many ma­jor Tai­wanese ven­dors in sev­eral sec­tors — tex­tiles, petro­chem­i­cals, steel and food — that have in­vested in South­east Asia have been con­cen­trated in Viet­nam.

They orig­i­nally in­vested in Viet­nam to take ad­van­tage of the coun­try’s low pro­duc­tion costs but are now pick­ing up dou­ble div­i­dends — they have ac­cess to an As­so­ci­a­tion of South­east Asian Na­tions com­mon mar­ket of 600 mil­lion peo­ple and their ex­ports will get pref­er­en­tial tar­iff treat­ment else­where through Viet­nam’s port­fo­lio of FTAs (free-trade agree­ments).

“All of Viet­nam is push­ing for eco­nomic growth,” says Tai­wan’s rep­re­sen­ta­tive to Viet­nam Huang Chih-peng, who has been sta­tioned in the coun­try for five years af­ter a ca­reer with the Tai­wan Ex­ter­nal Trade De­vel­op­ment Coun­cil.

In an in­ter­view with Com­mon­Wealth Mag­a­zine in his Hanoi of­fice, he de­scribed Viet­nam’s strengths as “po­lit­i­cal sta­bil­ity, so­cial sta­bil­ity and calm and col­lected peo­ple.” One rea­son for the po­lit­i­cal sta­bil­ity: in Viet­namese elec­tions, the Com­mu­nist Party picks 99 per­cent of the can­di­dates. Huang ob­serves that Viet­nam is very skilled diplo­mat­i­cally, clev­erly bal­anc­ing the United States, China, Ja­pan and other big coun­tries as they wres­tle for in­flu­ence in South­east Asia. Like China, Viet­nam is gov­erned by the Com­mu­nist Party, and the two coun­tries have close re­la­tions, but they are also of­ten aloof. Hanoi has got­ten close to Washington, but not overly so, main­tain­ing an ex­tremely smart two-pronged strat­egy.

Viet­nam’s eco­nomic strat­egy has fo­cused on re­forms and lib­er­al­iza­tion and join­ing the U.S.-led TPP process, but it has re­mained pa­tient in pur­su­ing its goals.

The gov­ern­ment has moved ag­gres­sively to open its econ­omy and at­tract for­eign in­vest­ment, pri­mar­ily from South Korea, Ja­pan, Sin­ga­pore and Tai­wan. But be­cause of Viet­nam’s ge­o­graph­i­cal prox­im­ity to China and its strate­gic im­por­tance, it can ef­fec­tively play off the U.S., China and Ja­pan to also ob­tain con­sid­er­able amounts of aid.

Among the 10 ASEAN mem­bers, Viet­nam ranks sec­ond be­hind only Sin­ga­pore in the num­ber of free- trade agree- ments it has signed with eight. If it com­pletes trade pacts with the Euro­pean Union and the Eurasian Eco­nomic Union, and the TPP and China-led Re­gional Com­pre­hen­sive Eco­nomic Part­ner­ship come into be­ing, about 85 per­cent of Viet­nam’s trade will be cov­ered by FTAs, a per­cent­age sim­i­lar to South Korea.

In ad­di­tion, Viet­nam will be able to grab op­por­tu­ni­ties as part of the ASEAN Eco­nomic Com­mu­nity (AEC). At the be­gin­ning of 2016, the im­port du­ties on goods traded within ASEAN will fall to zero (ex­cept for tar­iffs on some agri­cul­tural prod­ucts en­ter­ing Cam­bo­dia, Laos, Viet­nam and Myan­mar), re­sult­ing in the free flow of goods across a 10-coun­try com­mon mar­ket of 600 mil­lion peo­ple with a com­bined GDP of more than US$2 tril­lion. It will be­come the world’s sev­enth largest eco­nomic en­tity, full of new op­por­tu­ni­ties for ex­plo­sive growth.

Lever­ag­ing For­eign


For­eign di­rect in­vest­ment (FDI) of­fers a clear pic­ture of Viet­nam’s pop­u­lar­ity. In 2014, Viet­nam at­tracted US$20.4 bil- lion in FDI, up 30 per­cent from the pre­vi­ous year. Viet­nam also rep­re­sents the per­fect ex­am­ple of lever­age. A re­port in the Fi­nan­cial Times in mid-July com­pared in­bound in­vest­ment in new fac­to­ries and stores (called green­field FDI) in emerg­ing mar­kets rel­a­tive to the size of each coun­try’s econ­omy, and Viet­nam topped the list by a big mar­gin.

Ac­cord­ing to the Fi­nan­cial Times, a score of 1 “in­di­cates that a coun­try’s share of global in­ward green­field FDI matches its rel­a­tive share of global gross do­mes­tic prod­uct.”

Viet­nam had a score of 8.14, mean­ing that it at­tracted more than eight times the amount of green­field FDI than might have been ex­pected given the size of its econ­omy.

Ro­ma­nia was far be­hind in sec­ond with a score of 3.91, fol­lowed by Hungary (3.80), Malaysia (3.55) and Thai­land (2.47).

South Korea, Ja­pan and Sin­ga­pore are the three big­gest sources of in­bound in­vest­ment in Viet­nam, with projects in sev­eral fields in­clud­ing elec­tron­ics, fi­nan­cial ser­vices, con­struc­tion and ser­vices.

Of that, South Korea’s Sam- sung Elec­tron­ics has in­vested US$12 bil­lion in the world’s big­gest smart­phone man­u­fac­tur­ing plant with an an­nual ca­pac­ity of 120 mil­lion hand­sets in BacNinh province north­east of Hanoi. It is also plan­ning another fa­cil­ity in Thai Nguyen province di­rectly north of the Viet­namese cap­i­tal.

Once the big­gest source of FDI in Viet­nam, Tai­wan has now fallen back to fourth.

Another im­por­tant source of for­eign in­vest­ment is “Of­fi­cial De­vel­op­ment As­sis­tance,” un­der which big com­pa­nies, with the sup­port of their gov­ern­ments, head to Viet­nam to build ba­sic in­fra­struc­ture. Ja­pan and South Korea have been es­pe­cially ag­gres­sive in this area. The first sub­way line in Ho Chi Minh City, for ex­am­ple, is be­ing built as an Of­fi­cial De­vel­op­ment As­sis­tance pro­ject, with the Ja­panese gov­ern­ment in­vest­ing US$2.3 bil­lion and Su­mit­omo Cor­po­ra­tion serv­ing as the pro­ject’s de­signer and main con­trac­tor. China has en­gaged in sim­i­lar projects in Viet­nam, but they have sparked con­tro­versy. Hanoi’s el­e­vated light rail sys­tem is be­ing built at a cost of US$8.7 bil­lion by The Sixth En­gi­neer­ing Bureau of China Rail­way En­gi­neer­ing Cor­po­ra­tion and is ex­pected to be­come op­er­a­tional next year, but it has suf­fered a spate of ac­ci­dents dur­ing con­struc­tion, lead­ing to one death and seven peo­ple in­jured.


(Above) A fe­male worker is pic­tured at a shirts’ pro­duc­tion line of a lo­cal gar­ment com­pany in Hanoi, Viet­nam on Oct. 21, 2008. (Right) Work­ers put the fin­ish­ing touches to new Pi­ag­gios in­side the Binh Xuyen in­dus­trial park in Vinh Phuc province, north of Viet­nam, June 24, 2009.

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