The influx of Chinese FDI has been bustling into northern provinces since the beginning of the year. On April 4th, Geleximco Group and the new energy vehicle brand Omoda & Jaecoo (under Chery Group) signed a joint venture contract to build a factory in Thai Binh with a capital of over $800 million, with a capacity of 200,000 vehicles per year. Meanwhile, the electric scooter manufacturer Yadea is urgently constructing its second factory in Bac Giang province with a capacity of 2 million motorcycles per year, four times that of the first factory which began operations in 2019 in this locality. It is anticipated that 30% of the output from the new factory will be exported to the Philippines, Thailand, Malaysia, and Laos. In Bac Ninh province, out of 105 FDI projects licensed in the first quarter of 2024, over half (60 projects) are from investors from this populous country.

Looking at the national overview, statistics from the Ministry of Planning and Investment show that China has surpassed countries with significant investments such as South Korea, Japan, and Singapore to lead the number of new FDI projects in Vietnam. Specifically, China accounts for 27.8% of the 644 newly licensed projects in the first quarter of 2024.

Rushing into Vietnam alongside international giants

According to experts, the US-China trade tensions have led to an increasing number of large corporations shifting their production away from China. Consequently, Chinese small and medium-sized enterprises (SMEs) within the supply chains of these corporations are also relocating.

On the other hand, many foreign investors with manufacturing plants in China, due to caution regarding supply chains, have sought alternative sources outside the territory of this country. In this wave, Vietnam is being viewed as an attractive destination in the Southeast Asian region.

As a result, a series of Chinese companies are swiftly bringing investment projects for manufacturing plants following the footsteps of international giants to Vietnam. These new projects are primarily to serve the big names that have previously established a presence.

In addition to international enterprises, companies at both ends of Chinese industrial supply chains are also enticing each other to Vietnam to establish production links, creating a closed-loop supply chain in production and business.

With its strategically important location bordering China, a large supplier of goods and materials, and being a large market, Vietnam has the conditions for investors to reduce transportation costs and establish stable supply chains in China. Therefore, Vietnam is evaluated as the top choice in the ASEAN region in this trend.

Major challenges for domestic manufacturing

In addition to the positive impacts of attracting FDI, the massive shift of Chinese enterprises also becomes a major concern for Vietnam.

Competitive pressure: Domestic enterprises, especially those in supporting industries, may face significant competitive pressure from Chinese enterprises due to their advantages in technology, finance, and experience.

Risk of “exploitation”: Vietnam may become a “staging ground” for Chinese enterprises to counterfeit the origin of goods, thereby affecting the reputation of Vietnamese goods in the international market.

Environmental risks: Some Chinese investment projects may cause environmental pollution if not managed tightly.

Dependency risk: Overreliance on FDI from China may make Vietnam vulnerable to economic fluctuations in the Chinese economy.

Forecasting an increasing influx of Chinese capital, analysts recommend the need for selective FDI attraction, where the responsibility of project appraisal units should be enhanced, screening and monitoring processes tightened. Projects with outdated technology, excessive labor exploitation, and environmental pollution should be absolutely prevented.

According to experts, efforts to attract investment should involve additional legal provisions to address gaps and balance between attracting FDI and avoiding economic and national security risks.