Is Vietnam going to become the next world factory? Will it replace China as the go-to place for manufacturing?

There has been news recently that Vietnam’s exports have overtaken Shenzhen’s. This is in addition to the fact that the rapidly rising prices of homes in Ho Chi Minh City, Vietnam are now greater than many well-known Chinese cities such as Guangzhou.  This seems to confirm that the world is starting to see potential in Vietnam. Will Vietnam replace China as the next world factory? How does this affect competition between China and Vietnam? What kind of pressure does this put on both countries? 

First of all, it is certain that Vietnam has brought competition pressure to China, but it will not be suppressed by China in the short term. 

Data shows that, as Vietnam’s exports first overtook those of Shenzhen, this may not be a precise indicator. In 2019, Vietnam’s exports first surpassed those of Shenzhen. Over the past two years, the value of Vietnamese exports has continued to exceed those of Shenzhen.. In 2019, Vietnam has already surpassed Shenzhen for the first time. The past two years have seen Vietnamese exports continually exceed Shenzhen’s. However, is Vietnam’s development a cause for concern for China? Does Vietnam’s development threaten China? This is another question. The Chinese government has big plans to upgrade its industry. You can see this by looking at their plans for high-tech industries. Vietnam is only a minor competitor compared to China. The main competition for China is in high-end industries where they compete with developed countries like the United States, Japan, and Europe. The biggest competitor for China is the United States. China’s secondary competition comes from other developing countries, even India is a bigger threat than Vietnam in this respect.

Second, back to Vietnam, it is still far away for Vietnam to have development ceilings.

If we look at different pieces of news about Vietnam’s development, we might think that Vietnam is doing well. However, if we compare Vietnam to other countries, we can see that there is still a lot of work to be done. Let’s not compare Vietnam to Japan yet; it would be difficult for Vietnam to reach the same level as South Korea or Taiwan. For example, if we look at population size, Vietnam’s population is almost double that of South Korea and quadruple that of Taiwan.  In 2021, there will be 15 Korean companies and 8 Taiwanese companies on the Fortune 500 list, but no Vietnamese companies. To compare with China, Guangdong province has about 127 million people while Vietnam has about 100 million people. There are many world-renowned companies in Guangdong Province, such as Huawei, ZTE, BYD, DJI, OPPO and vivo. However, as of now I am not aware of any Vietnamese high-tech companies. We looked into the top 200 suppliers that Apple plans to work with in 2021 and found that not a single Vietnamese company is among them. From 2018 to 2020, all the Apple suppliers who set up factories in Vietnam are foreign-owned businesses.

Let’s talk about Vietnam in terms of economic aggregates. Or do you compare South Korea to Vietnam, how long will it take for Vietnam to catch up with South Korea’s total economy? The April 2022 edition of the World Economic Outlook released by the International Monetary Fund has made a forecast for the total economic volume of countries and regions in 2022, and it is estimated that Vietnam will be 408.947 billion US dollars in 2022, Taiwan will be 841.209 billion US dollars, South Korea will be 1.8047 trillion US dollars, Vietnam’s total economic volume will only be 1/2 of Taiwan’s, and only South Korea’s 1/4 will be less than 1.4. Vietnam’s ability to catch up with Taiwan’s economy by 2030 is already good. If Vietnam and China are compared, the total gap is even greater.

Third, China will not be able to keep all of its low-end industries. It will not lose all of its low-end industries either.

We believe that utilizing the low-end labor force in Southeast Asia is an inevitable choice for the development of Chinese factories. China can retain a considerable part of low-end industries by virtue of its huge domestic market and imported tariffs and transportation. However, there must be some low-end export industries that cannot be retained. For example, American, South Korean and Japanese brands will transfer part of the industrial chain to Southeast Asia and India because of the changes in Sino-US relations and the consideration of risk diversification. This is to avoid No.

Next, with the development of China, it is inevitable that jobs with low wages will be transferred from China to Southeast Asia. Vietnam’s low-end labor force coupled with China’s model of mid-to-high-level management and engineers can help maintain or even expand China’s mid-to-high-end jobs. More and more factories will move to Vietnam. However, this is a long process that will take time, especially in light of the recent economic slowdown in China.

In conclusion, Vietnam is likely to become an industrial powerhouse like China and replace some Chinese industries, but it is not very likely to completely replace China.