China poised to become an even bigger investor in Vietnam: KPMG exec

At the Vietnam Industrial Park Forum 2023: Towards Green Growth organized by The Investor last week, you said China will become a top investor in Vietnam. Can you explain the factors behind this statement?

China is the second biggest economy in the world. Following the recent meeting between Chinese President Xi Jinping and his U.S. counterpart Joe Biden, the two nations put out a message of cooperation as well as competition. This will most likely have Chinese businesses searching for ways to fortify their ties with the U.S. through a third country, and Vietnam is a highly viable option. In addition to the local market, such investments will help them cater to the U.S., ASEAN and other international markets.

After reaching out to numerous sizable Chinese companies, we have discovered that they have a strong interest in the Vietnamese market. So these are the main reasons we think China will soon rank among the top investors in Vietnam.

What main areas will the Chinese investment flow into?

The industries that Chinese investors are most interested in in Vietnam are electric vehicle and spare parts production, electric vehicle battery production, and renewable energy. China owns the world's leading enterprises in the production of solar panels and wind turbines. China also has very advanced mineral refining technology, including rare earths. So the two sides have many opportunities to collaborate in these areas.

What about industries like textiles and furniture?

The manufacture of wooden furniture, textiles and clothing has become difficult everywhere, since there aren't enough orders. People don't purchase a lot when the economy is shaky. I don't believe that many international companies will be making investments in this sector in Vietnam very soon.

In the foreseeable future, development will not be concentrated on labor-intensive manufacturing sectors because the Vietnamese government is discouraging this, particular projects based on low-cost labor. Vietnamese localities want to draw investment into sectors like technology, logistics, high-tech manufacturing, and processing.

What do you think about the development of eco-industrial parks in Vietnam?

Eco-industrial parks require very high industry standards, not to mention high national development. In Vietnam today, fully meeting the requirements of an eco-industrial park may still be beyond the reach of many real estate developers.

It is necessary to develop ecological industrial parks, but the level chosen must be consistent with the country's development stage. Currently, eco-industrial park development in Vietnam is in the nascent stage and still in the process of finding a suitable development model.

What are foreign investors looking for most when they choose industrial parks?

Our studies show that location of industrial parks is the first thing investors care about. For example, in the Mekong Delta provinces, although prices are attractive and the government encourages investment there, the infrastructure is not yet developed and the high-quality human resources are not there, which are factors that an investor will consider. This is why they tend to choose places like Binh Duong, Bac Ninh, Ba Ria-Vung Tau, Binh Phuoc, Bac Giang, Hung Yen, and Hai Phong. Infrastructure development and human resources are very important criteria. Investors want a stable supply of high-quality human resources.

How important is the environment as a factor in choosing an industrial park?

Green factors are constantly desired by investors. They prioritize the use of green electricity in general, but many enterprises have higher standards and want wastewater treatment and other service conditions in the industrial park to be environmentally-friendly as well.

What will the FDI flow look like next year?

Registered FDI in Vietnam rose 7.7% year-on-year in the first three quarters of 2023. Short-term FDI flows have continued to rise and this can get even stronger between now and the end of 2023.

2024 could be the year when investors, particularly those from the U.S. and EU, become increasingly interested in the Vietnamese market.

What advantages does Vietnam have compared to other countries in the region in terms of attracting FDI from China?

Vietnam has a huge advantage over other Southeast Asian countries. While other countries are geographically distant from China, Vietnam, particularly in the north, has the advantage of geographical proximity.

Because Vietnam has a fast-developing port system, items from the Chinese mainland can be easily shipped to Vietnam. And rapid, steady development of North-South transportation infrastructure will further boost Vietnam’s attractiveness as an investment destination for Chinese businesses.