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Vietnam Has A Dominant Position In The China + 1 Strategy

Vietnam Has A Dominant Position In The China + 1 Strategy

Monday 31, 08 2020
VNDirect Securities Company report stated that Vietnam is still a place to attract investment flows thanks to low operating costs.

The trade war has accelerated the trend of moving factories from China to other countries in 2019, as evidenced by the sharp increase in FDI inflows from China and Hong Kong in Vietnam in the first nine months of 2019, VNDirect said.

​>>> China, the FDI leader in Vietnam after 8 months of 2019 

Besides, the "China +1" strategy with the aim of expanding the operation of Chinese factories to other countries to diversify risks and reduce labor costs also promotes the movement of companies from China to ASEAN.

"This is a great opportunity for industrial park operators to benefit from FDI inflows over the next few years," the report said.

Low operating costs

Compared to other countries in the region (Philippines, Indonesia, Malaysia, Thailand, and Myanmar) in terms of FDI attraction, Vietnam is still a potential country for the transformation of companies thanks to the low operating costs.

Accordingly, although the industrial park land rent in Vietnam increased sharply in 2019, the price of 103.5 USD / m2 / lease period is still the second-lowest in other countries in the region, only higher than the land rent in Myanmar.

On the other hand, in Vietnam, the wages of workers are only half that of Thailand and Malaysia. Only Indonesia has a lower electricity price than Vietnam, while Vietnam has the lowest factory construction costs compared to Malaysia and Indonesia.

Vietnam Has A Dominant Position In The China + 1 Strategy

Reduced taxes

In addition to low operating costs, VNDirect also pointed out that Vietnam has reduced corporate income tax from 22% to 20% in 2016 for all domestic and foreign companies to increase production attraction.

In addition, companies in industrial zones also enjoy other incentives such as tax exemption/reduction and visa exemption. Common tax incentives for companies in industrial zones include tax exemptions for 2 to 4 years, tax breaks for 3 to 15 years, and import tax exemptions.

VNDirect also said that with the recently signed FTA agreements, especially EVFTA, FDI inflows will also flow more strongly into Vietnam.

Accordingly, Vietnam is increasing the use of advantages from FTAs to promote economic growth. According to the Ministry of Industry and Trade, the export value with FTA preferential treatment in 2018 reached the US $ 46.2 million, equivalent to 39% of the total export value to markets that have signed FTAs with Vietnam, increasing 5% over the same period last year. The Indian market has the highest rate of preferential tariff use, reaching 72% through the AIFTA agreement, followed by Chile and South Korea with the preferential tariff rates of 67% and 35%, respectively.

The export tax on goods from Vietnam to the European Union will be eliminated as soon as EVFTA takes effect or shortly thereafter (maximum 7 years). This is the highest level of commitment that Vietnam has achieved among the signed FTAs.

Currently, only 42% of Vietnam's exports to the European Union enjoy 0% through the global preferential tariff (GSP). The National Center for Socio-Economic Information and Forecast (NCIF) estimates that EVFTA will help Vietnam's GDP increase by 4.3% until 2030.

The total value of exports to the European Union is estimated to increase by 44.4% by 2030. "We believe that the EVFTA agreement will help boost production investment to Vietnam and help maintain FDI inflows in the coming years," VNDirect said.

​>>> Vietnam is suffering from debt overload

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