Bloomberg Economics said that no country can succeed in the way that China has achieved in economic reform. Instead, a series of "sub-China" will develop, trying to take advantage of but is hindered by very specific challenges. Vietnam is not so different.
China's network of factories, suppliers, logistics, and transport infrastructure has been around for a long time, supported by money and technology from Japan, Taiwan and Hong Kong. They have a huge, cheap, literate workforce and have nearly unobstructed access to global markets for three decades.
But after more than a year of trade friction with the United States, Bloomberg Economics looked at six measures, from labor to business regulations, across 10 Asian economies, to identifying whether developing economies could get a big chunk of the "manufacturing industry in Asia".
"No economy can afford Chinese shoes alone," Chang Shu and Justin Jimenez wrote in a Bloomberg Economics report. "Many countries have low cost advantages. Except for India, all lack the scale advantage similar to that of China. And all face challenges on many other aspects of competitiveness. India topped the export potential rankings thanks to its large population. Ranked second is Indonesia, followed by Vietnam ".
Take Kuisheng Craft, for example. The company is a manufacturer of garden and home decorations in Quanzhou, Fujian Province. Their sales in the US market have dropped 30% after President Trump's tariffs, but not enough to make them move production abroad.
"Instead, the company chose to pursue other strategies such as patenting in Europe to expand sales there," said Sales Director Will Huang. "Labor is cheaper than in Vietnam, but the working culture is very different," Huang said at a booth at Canton Fair, the world's largest trade show, held last month in Guangzhou.
He said Chinese workers are more skilled and willing to work overtime to complete orders on schedule. Over the years, Huang said he had only heard of two small rival producers in Quanzhou that had moved production to Vietnam.
Chinese factories also have their own competitive advantages that are difficult to replace. They have spent decades competing with each other, cutting costs, rationalizing production and honing the efficiency of logistics. Chinese production prices have been falling since July, with cheaper energy costs. The potential for an agreement between the United States and China could help ease some of the pressure on Chinese manufacturers.
"Even as the trade war continues, China is still the dominant player, because there is a big gap between the level of production of China and other countries," said Joao Barbosa, director of development. Business Development at V-Trust Insp Service Co., a quality inspection company, also has offices in India and Vietnam. He said many manufacturers in China today do not need to check the quality of third parties. However, for products that require high precision made in Vietnam, they still need to double check.
India's attempt to catch up with China's manufacturing capacity began seriously five years ago with the initiative of Prime Minister Narendra Modi. India has nearly surpassed China to become the world's most populous country and the working-age population is expected to reach 1 billion by 2050.
But the advantage of the cheap labor supply is difficult to offset other constraints, such as incomplete, outdated infrastructure, loose labor regulations, bureaucracy, etc.
India has increased by 37 points since 2017 in the World Bank rankings, because it is easy to do business, but it still only ranks at 63.
Indonesia has problems with procedural issues. "Last year they launched an online filing system to make it easier to get a business license. But it didn't help much, because separate licenses are still required from the local government," Utomo said. - Nationwide sales manager at PT Sharp Electronics Indonesia said in a phone interview. "Taxes face the same problem."
Where is Vietnam entangled?
Vietnam, often thought to be a potential winner from the trade war, shows that even that advantage exists only for a short time. The Trump administration has imposed more than 400% tax on steel imported from Vietnam.
Vietnam ranked third in the Bloomberg Economics rankings, the most restrictive in terms of infrastructure. Companies entering Vietnam are putting pressure on the port system, causing congestion.
China has 7 of the 10 busiest container ports in the world - with Shanghai at No. 1. Vietnam has the two largest ports, namely Ho Chi Minh City and Cai Mep, ranked 26th and 50th, according to Bloomberg Intelligence.