VIETNAM CAN REPLACE CHINA TO BECOME A MANUFACTURING POWERHOUSE. THE COMMUNIST GOVERNMENT HAS TAKEN THE RIGHT STEPS SO FAR BUT WHAT ABOUT ITS FUTURE PROSPECTS. HERE'S WHATS NEXT.
The current global pandemic has emerged as a blessing in disguise for Vietnam. Due to American propaganda and China's own actions , sinophobia has gained a foothold in the global psyche. Hence, many major brands (refer table below) are relocating their manufacturing & assembling from China.
We notice that a majority of these companies are shifting to Vietnam and Southeast Asia. This does not bode well for China who will not only lose exports but other important growth boosters like FDI, employment, technological innovation, infra-development incentive(eg: factories) and even a weakened balance of payment which can enhance either debt or foreign dependence.
WHY IS VIETNAM A FAVORABLE DESTINATION?
Strong manufacturing and processing industry
Moderately developed infrastructure
Availability of vast semi-skilled workforce (56 million as in 2019)
High FDI
Good domestic demand
Reform friendly government
STEPS TAKEN BY THE VIETNAM GOVERNMENT
SPECIAL ECONOMIC ZONES
Special Economic Zones are designated areas of a country where restrictions on foreign investment are marginalized.. Basically the trade policies are more liberal encouraging trade. SEZ act as a base for industrial development in an economy as multinational corporations are more likely to set up headquarters & factories in these regions. The Vietnam government is setting up SEZ in 3 regions inviting new foreign companies.
.(source the asean post)
TAX CUTS
In an effort to make Vietnam more regionally competitive, Prime Minister Nguyen Xuan Phuc revealed that the country will cut corporate income tax rates from between 20 to 22 percent to 15 to 17 percent. Obviously,This will attract many new foreign companies.
TRADE AGREEMENTS
Another notable step Vietnam has taken to open up its economy is by signing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which the World Bank has estimated will increase Vietnam’s GDP by 3.5 percent.Its also a part of Asia Pacific Economic Forum (APEF) bolstering regional trade. Ironically, Vietnam's biggest export partner is USA which engaged in a military conflict in Vietnam for 19 years. This trade relation can intensify due to the recent anti-China narrative.
FUN FACT
Vietnam is a one party communist regime & one of the most oppressive in Asia having strict censorship on media & the internet. Its also a export oriented economy. The situation is eerily similar to China's as during the early 1980's.
CONCLUSION
I believe Vietnam is in a promising position to take advantage of the current situation. However, it will face competition in terms of attracting foreign companies from nations like Indonesia, Mexico, Poland, Bangladesh, Mexico and India. Even China will not easily lose its dominant position. Much depends on how well Hanoi grasps this opportunity.
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