It Is Beyond Logic And Above Reason! The Trade War Has Been "Red" In Vietnam, And All The Factories Have Been Rented. Vietnam Becomes Shenzhen!

Recently, the "Securities Daily" reporter drove from Hanoi to Vietnam's northern manufacturing city Haiphong City, rough statistics, in the 1.5 hour journey, there are about 30 industrial parks on both sides of the road.

In the first quarter of this year, Vietnam attracted foreign investment totaling 10 billion 800 million US dollars, an increase of 86.2% over the same period last year, of which China accounted for half of its capital and Chinese capital played an important role. What is the investment situation of Chinese enterprises in Vietnam? Reporters and three people went to 3 municipalities directly under the central government of Hanoi, Haiphong and Hu Zhiming, and Haiyang and Longan provinces.

In the survey of manufacturing industry in North and South Vietnam, China's manufacturing enterprises flocked in last year. After the Spring Festival this year, Chinese enterprises also experienced labor shortage while labor costs increased.

Southward relocation of enterprises

Industrial park two years "full garden"

After reaching the China Vietnam (Shenzhen Haiphong) economic and trade cooperation zone, looking from the Industrial Park building, many naming plates of domestic listed companies are very eye-catching. Here is the leader of China's motor industry -- Wolong electric drive, the largest airbag manufacturer in China, Huamao technology, and China's leading electronic component company, three Hua Zhi control, and the leader of China's micro motor industry.

Sketch map of Haiphong Industrial Zone

"The investment speed in the park is much faster than expected. Almost every day, we are receiving customers from our country, and we are overwhelmed by waves." Song Wenjian, deputy general manager of Associates Investment Company, who is responsible for the construction and development of the cooperation area, said that from the past experience, the industrial park generally needs about 6 years to complete the garden, but in the past 1 years, the Shenzhen Industrial Park has been attracting more than half of its investment. This year, we may complete the investment ahead of schedule. "We plan to expand the industrial park and consult with the local government of Vietnam."

In the park, Zou Rongming, general manager of Huamao technology Vietnam company, said: "after the Spring Festival in 2018, we took the initiative to investigate and find investment opportunities. Because our customers are mainly general motors and Volkswagen, where are the upstream industry chain customers? In May 2018, it formally signed up for the industrial park, and then began piling infrastructure, which was completed half a year ago. At present, the Vietnamese company has recruited more than 50 people, and is in the stage of staff training. "

It is not just Hua Mao technology, but also more enterprises are aiming at Vietnam. According to incomplete statistics, since 2008, a total of more than 60 A share listed companies have announced relevant investments in Vietnam, and nearly 20 enterprises have issued notices from 2017 to 2018. Over the same period, the scale of foreign investment received by Vietnam continued to rise, and Vietnam's total foreign direct investment in 2018 reached US $35 billion 400 million.

1800 kilometers away from Haiphong City, Hu Zhiming is also an important manufacturing base. A senior manager of an accounting firm told reporters: "after May 2018, many Chinese entrepreneurs came to consult with them, hoping to complete the registration and landing of Vietnamese companies within 4 months as soon as possible. But in such a short time, it is very difficult to complete. "

Around the city of Hu Zhiming, textile enterprises from China are also increasing investment. They even use the "golden year of Vietnam's textile industry for ten years" to describe this process. Huafu fashion, Tianhong textile, Ru Tai and Bailong Eastern large textile enterprises have expanded their capacity in Vietnam.

Low tariff and low tax rate

Into the biggest competitive advantage

What is the most important thing to invest in Vietnam? In the process of Vietnam's investigation, the zero tariff and low tax rate have become the focus of investment by Chinese enterprises. "Vietnam's exports to Europe and the United States, textiles, many are zero tariffs, the provincial tariffs are profits." Jian Sheng group, general manager of Vietnam company Lv Jianjun said.

From a tariff point of view, Vietnam has formed a relatively large and mature free trade system, and Chinese enterprises have become more and more popular in order to avoid trade barriers and increase investment. Especially after 2019, Vietnam's new foreign trade agreements came into effect, and Vietnam's export tariff advantage is further highlighted.

In January 2019, the comprehensive and progressive trans Pacific Partnership Agreement (CPTPP) came into effect in Vietnam. At the end of 2019, the European Union and Vietnam are expected to formally sign the EU - Vietnam free trade agreement. The two big agreement is great for Vietnam's manufacturing exports. According to the agreement, Vietnam's export tariffs will be greatly reduced, while the EU will cut 99% of its tariff duties.

Compared with the tariff level of Europe and the United States, the tariffs imposed by the United States and Europe on most of Vietnam's products are much lower. For export oriented manufacturing enterprises, only one tariff reduction can bring huge profits.

In addition to low tariffs, Vietnam's local preferential tax policies should not be underestimated. Located in southern Vietnam, Longan Province, Huafu (Vietnam) Industrial Co., Ltd. is enjoying Vietnam's "four exemption, nine reduction and half" tax preference. In accordance with the Vietnamese policy, a special preferential policy of "four exemption and nine reduction" should be implemented for enterprises with an investment of 300 million US dollars, or annual sales of US $500 million, or more than 3000 jobs.

Obviously, under the double incentive, the enthusiasm of industrial transnational transfer has been greatly enhanced, especially in the export oriented American market. From Vietnam's export statistics, the United States is Vietnam's largest commodity exporter in the first quarter of this year, and its total exports amounted to US $13 billion, up 26% over the same period last year.

The analysis report from Panjiva, a trade data company, shows that from the industry perspective, the transfer of orders from us to furniture, household appliances and tires in China is more obvious. Retailers such as home depot, IKEA and other retailers imported 13.5% less furniture from China and 37.2% from Vietnam, while the United States imported 28.6% from China and 141.7% from Vietnam.

Another side of investment boom

Land speculation and labor shortage

With the acceleration of foreign investment and construction in Vietnam, Vietnam's labor costs, land and factory rent are rising rapidly. Song Wenjian said, "the rent price basically differs from that of the first tier industrial parks in the country, basically maintained at 4 US dollars per square metre."

Two years ago, Vietnam's outdoors Limited by Share Ltd, a Vietnam based subsidiary of Tianyu outdoor (Vietnam) Limited, invested in the relatively remote industrial zone in Jincheng County, Haiyang, Vietnam. "When we came in 2017, the factory rent was 2.2 US dollars per square metre," said Miss Wei, the office director of the company. The rent has risen to $2.8 now. It's going up very fast. " Even so, from the perspective of enterprise feedback, most industrial parks are generally in full load operation.

Rents in northern Vietnam are rising, while land rents in southern Vietnam are also soaring. The reporter learned from several industrial parks in the surrounding provinces of Hu Zhiming that the local rent rose from 30 US dollars per mu in 2015 to 100 US dollars, up 2 times.

Labor costs are rising at a much faster pace. Vietnam's wages are now about 50% higher than in 2014. In 2019, the minimum wage in the first region of Vietnam was equivalent to RMB 1237 yuan per month. What is the actual salary of Vietnamese employees? From the survey of many enterprises visited, the monthly average wage level of factory workers ranged from 2200 yuan to 2400 yuan, and enterprises generally expected that the labor cost of Vietnam would be unchanged from 7 years later.

"Vietnam has begun to show signs of labor shortage." Miss Wei said that many new factories in the site selection, the main consideration is the recruitment problem. People can be recruited by advertising before, but as the number of factories increases, the difficulty of recruitment is also rising. Enterprises will have to go to remote areas to recruit, and the situation of wage rise will continue.

All these seem to be the repetition of China's reform and opening up process in the past 40 years, and the history is often strikingly similar.

Trade wars have led to the shift of multinational supply chains, and all the factories in Vietnam have been rented.

Reuters Hongkong reported: the 33 year old Fred Perrotta has spent four years building a supply network for its company's Tortuga fashion backpack product and a number of Chinese suppliers. However, when the US government announced tariffs on nearly half of China's US goods, he began to look for suppliers in other countries.

He said that the process has so far been close to completion. Even if President Trump and China declared a truce between trade wars between the 20 countries at this week's G20 summit, I am afraid there is no way to change it.

The transformation of Perrotta's participation is called by industry experts the biggest cross-border supply chain shift since China's accession to the World Trade Organization (WTO) in 2001.

This change has led to fierce competition, and everyone is working hard to acquire new facilities in the surrounding countries of China and rebuild the supply chain outside China. China accounts for 1/5 of the global manufacturing industry.

"Everyone is nervous and rushing around. In the long run, we may adjust everything." Perrotta in Oakland, California, said by telephone. Perrotta recently received the first sample of a potential new supplier from Vietnam in Oakland.

This hastily situation is due to the possibility that the United States may impose more and higher tariffs on Chinese goods. Another reason is that American enterprises are worried that the emerging economies around China can only provide new businesses based on the "first come first served" principle.

Vietnam and Thailand are becoming the preferred destinations, but the two countries still face capacity constraints, including bureaucratic inefficiency, lack of skilled workers and infrastructure bottlenecks.

"The whole Asia is in a rush."

Reuters interviewed more than ten executives, trade lawyers and lobbying groups from various industries, showing a bustle in Asia in recent months: executives urged samples, visited industrial parks, hired lawyers and met officials.

Hongkong furniture maker min Hua holdings bought a factory in Vietnam in June for $68 million. Earlier this month, min Hua Holdings said it plans to expand its total plant area by nearly two times to 373 thousand square meters by the end of 2019.

Min Hua Holdings said in a statement that the acquisition is aimed at reducing the risk posed by tariffs.

BW Industrial, an industrial property developer in Vietnam, said that since October, all its factories have been rented out.

"Manufacturers come from all over the world, and they have production plants in China, and they need to start production as soon as possible." BW Industrial Sales Manager Chris Truong told Reuters.

Thailand SVI Pcl, which provides electronic products and manufacturing solutions, says that it has just selected four new transactions with existing customers, worth about $100 million. These customers also have business in China.

"Trade war is good for us." Its executive director, Pongsak Lothongkam, said. "There are so many companies that we have to contact, so we have to prioritize them."

Pitharn Ongkosit, chief executive of KCE Electronics, the largest printed circuit board manufacturer in Southeast Asia, told Reuters that American companies have approached their company in the hope of finding a new supplier to replace one of China's suppliers.

"This is a good opportunity. Many customers contact us to consult products and prices. But there is no deal yet, it will take time, "he said.

Another Thailand electronics manufacturing service provider, Stars Microelectronics Pcl, has also harvested new businesses.

"Soon two or three enterprises will begin to transfer their production base (from China) to us," said CEO Peerapol Wilaiwongstien of the company.

Kampuchea has also attracted the attention of overseas enterprises. Kent International, a bicycle manufacturer based in New Jersey, will transfer its Chinese production business to Kampuchea.

"We have a lot of business in the US," ArnoldKamler, the majority shareholder and CEO of the company, told Reuters. "Now we have no choice but to shift production from China as soon as possible."

The most serious procurement interruption

As China's economy turns to services, consumption and high technology production, the move to replace suppliers and companies marks the accelerated trend.

"We are about to enter the most serious procurement interruption in a generation," said Stephen Lamar, executive vice president of American Apparel & Footwear Association. The association has more than 1000 members, contributing more than $400 billion annually to retail sales in the US.

"The biggest thing I hear about these companies is:" we have been talking about the supply of China for many years, and now we really need to do that.

Transfer production may take several years to complete: enterprises need to get funds, find the right suppliers and choose new logistics - while dealing with these problems, they also have to deal with new legal and accounting problems in countries they do not know very well.

"The process of transferring factories from China to other places will be very slow and full of variables," said Yao Yuan, an emerging Asia senior economist at axon investment management.

Earlier this month, UBS said in a report that products with low technological content and low value-added manufacturing industry would transfer fastest, while exports of high value-added goods in the fields of machinery, transportation and IT could take decades to move away, because the cost of R & D is high and the cost of labor in China is competitive.

However, a regional customer survey conducted by Citigroup last month showed that more than half of the respondents had been adjusting the supply chain to limit their impact on their businesses.

Sally Peng, a trade lawyer at the US trading company, said that China's advancement in automation and other fields means that no country can replace China.

"So everyone is looking for China's +1, +2 and +3 strategy, which has been to Africa," she said.

Japan and South Korea are also victims.

Of course, the smaller emerging Asian economies should not expect the worsening prospects of us China trade wars to bring them benefits.

Southeast Asia, along with Taiwan, Japan and South Korea, has slowed down in the third quarter, and officials blame it partly on trade wars.

Vietnam's manufacturing confidence index ranks first in Asia, but it is also far from the peak.

For those countries seeking to improve their business, the lack of infrastructure is also a problem.

Thailand ranks forty-first in the world bank infrastructure rankings, Vietnam is forty-seventh, and China is twentieth.

Thailand is seeking to solve the above problem with the US $45 billion Eastern Economic Corridor (EEC) plan. The development project aims to improve deep-water ports, airports and railways.

In addition to infrastructure bottlenecks, bureaucracy, especially in Vietnam, is still hard to improve, and skilled workers are not easy to find.

The unemployment rate in Vietnam is 2.2%. Thailand is even lower.

"The proportion of unskilled workers in Vietnam is still quite large, and this problem has not been effectively improved, and I do not think there will be much change in five years or even 10 years," said Nguyen Phuoc Hai, vice chairman of the Vietnam Electronics Association.

"It is hard to say whether the cheap labor will still be Vietnam's advantage under the fourth industrial revolution."