“China + 1”: A Golden Opportunity for Vietnam to Attract Historic FDI Flows
Amidst global geopolitical shifts, the “China + 1” strategy has become an inevitable trend. Multinational corporations are actively diversifying their supply chains to reduce dependency on China, and Vietnam has emerged as a leading bright spot.
Why is Vietnam a Prime Candidate?
Impressive FDI Growth: Disbursed FDI capital in 2024 was estimated at US$25.35 billion, a 9.4% year-on-year increase, signaling strong investor confidence.
Strategic Geographic Location: Its proximity to China facilitates seamless integration into existing supply chains.
Abundant Labor Force: A high labor force participation rate meets the demands of large-scale manufacturing.
Extensive FTA Network: Membership in 18 Free Trade Agreements (including the EVFTA, CPTPP, and RCEP) opens export gateways to major markets with preferential tariffs.
Industry giants like LEGO, Foxconn, Goertek, and Pegatron have already chosen Vietnam as their new manufacturing hub. However, to fully realize this potential and capture the full wave of FDI, Vietnam must decisively resolve the bottlenecks within its investment legal framework.
4 Legal Hurdles Causing Vietnam to Potentially Miss the “China + 1” FDI Wave
Although the Law on Investment 2020 introduced many reforms, its practical implementation still faces significant shortcomings, creating major obstacles for investors considering the move.
1. Complex and Protracted Procedures for Investment, Land, and Construction
This is the biggest bottleneck. Overlapping approval processes across multiple agencies, prolonged timelines, and informal costs remain a challenge for many investors.
Investment Procedures (Timeline: 6-12 months):
Land Procedures (Timeline: 3-6 months):
Construction Procedures (Timeline: 2-4 months):
The total time for a project to move from concept to groundbreaking can easily exceed one year—far too long in the fierce competition for FDI.
2. Ambiguous M&A Mechanisms That Create Difficulties for Investors
Mergers and Acquisitions (M&A) are a critical channel for FDI. However, in Vietnam, this process is fraught with complications:
Issues with Land Use Rights Transfers: The law lacks clear guidance on transferring land use rights during M&A deals, especially for land within industrial parks, creating significant legal uncertainty and risk.
Investment in Conditional Sectors: Regulations on Foreign Ownership Limits (FOL) in sectors like banking, real estate, and logistics remain complex, with lengthy and cumbersome approval processes.
3. Uncompetitive Investment Incentives Compared to the Region
While countries like Indonesia and Thailand are rolling out flexible and comprehensive “red carpet” incentive packages, Vietnam’s policies remain fragmented and less attractive. Incentives related to tax, support for labor training, and infrastructure development have not yet been consolidated into a sufficiently powerful and competitive package.
4. Lack of a “Red Carpet” Mechanism for Strategic Mega-Projects
Vietnam lacks a bespoke, preferential legal mechanism to proactively attract “anchor” FDI projects that can lead industries of the future, such as semiconductors, AI, biotechnology, and green energy. We are still applying a general legal framework that lacks the flexibility needed to attract these tech “eagles.”
Opening the Gates: 4 Key Recommendations to Reform the Investment Framework
To seize the golden opportunity from the “China + 1” wave, Vietnam must take decisive action to reform its investment environment.
1. Implement a True “One-Stop-Shop” Mechanism
Objective: Significantly shorten licensing times, bringing the total timeline for Investment-Land-Construction procedures to under 6 months.
Action: Establish a single-window agency or a unified online portal to receive and process all investor documents, rather than requiring them to work with each department separately.
2. Enact a Bespoke Legal Framework for Strategic FDI Projects
Objective: Attract high-tech projects that can create entire ecosystems and have widespread spillover effects.
Action: Develop a specific decree or law that allows for “exceptional, preferential mechanisms” regarding land, taxes, and procedures for projects in semiconductors, AI, green manufacturing, etc. Grant greater authority to the Prime Minister or a specialized task force for swift decision-making.
3. Modernize Investment Incentives in Line with Global Trends
Objective: Adapt to the Global Minimum Tax (OECD’s Pillar Two) and increase attractiveness.
Action: Shift the focus from CIT-based incentives (which will become less effective) to direct and non-financial support, such as grants for R&D, support for high-skilled labor training, upgrading industrial park infrastructure, and providing cleared “clean land” sites.
4. Enhance Transparency and Improve Investor Protection Mechanisms
Objective: Bolster investor confidence and legal security.
Action: Ensure transparency in investment dispute resolution processes. Make strong, clear commitments in Public-Private Partnership (PPP) contracts with strategic investors.
Conclusion
The “China + 1” strategy is a once-in-a-generation opportunity for Vietnam to elevate its position in the global supply chain. However, opportunity waits for no one. To turn potential into multi-billion dollar projects, Vietnam needs strong, substantive, and swift legal reforms. An open, transparent, flexible, and investor-friendly legal framework is the most effective magnet to attract these global eagles to build their nests.
