China is likely to become the largest investor in a number of industries in Vietnam in the coming years given U.S.-Sino trade tensions and a slowdown of the world’s second-largest economy, an executive of consultant KPMG has said.
Chinese corporations are upbeat about Vietnam’s growth potential and plan to expand investments in the fields of energy, automotive, supply chain research & development in the latter, said Nguyen Cong Ai, deputy general director of KPMG, at the Vietnam Industrial Park Forum 2023: Towards Green Growth held by The Investor Thursday.
Ai, however, warned Vietnam of challenges from Chinese investments and the need to avoid labor-intensive and environment-polluting projects.
Investment flows from China have increased substantially in recent years. The Northeast Asian country was the fourth largest investor in Vietnam in the 10 months through October, with $3.38 billion committed, up 159% year-on-year, according to Vietnam government data.
Besides traditional leading investors such as South Korea, Japan, and Singapore, the executive forecast more robust investment inflows from America after Vietnam and the U.S. upgraded bilateral ties to a comprehensive strategic partnership.
U.S. firms are expected to focus their investments in backbone sectors such as semiconductors, electronics, and renewable energy.
Challenges to Vietnam include a manpower shortage, particularly of chip engineers, and setbacks in infrastructure and renewable energy supply, Ai noted.
Looking ahead, he pointed out sectors in Vietnam that are appealing to foreign direct investment, such as automotive, electronics manufacturing, semiconductors, logistics, food & beverages, and retail.
A series of corporations like OPPO, HP, and Brose are considering plans to open or move their factories to Vietnam. Meanwhile, Xiaomi, Bosch, Panasonic, Amkor, and Sharp have plans to increase operations here.
Ai predicted that large-ticket projects worth at least $1 billion each will be seen in Vietnam.
High demand for industrial real estate
KPMG noted that the northern and southern regions are the main two FDI magnets in Vietnam, accounting for 44% and 46% of the outlay between 2017 and September 2023. Since 2021, FDI has tended to land in the North that has more developed infrastructure and high-tech manufacturing hubs.
FDI is poised to rise in the long-term given high economic growth and stable politics. This will lead to higher demand for industrial real estate and logistical infrastructure in Hanoi and Ho Chi Minh City, which has an ample land bank in its surroundings.
Determinants for foreign investors to choose an industrial park are a favorable location with good transport connectivity; skilled workforce; stable power supply and concentrated water supply and wastewater treatment systems; sound relations with local governments, and preferential policies.
Other factors include diverse industrial real estate options, affordable rentals, and management services, Ai added.