Vietnam Can’t Be the Next China

Vietnam Can’t Be the Next China
07/06/2019 , by , in INTERNATIONAL

The good news is in for Vietnam. Last week the Ministry of Planning and Investment announced that foreign direct investment in the country increased by nearly 70 percent year-on-year in the first five months of 2019, the highest such increase since 2015. Much of that is thanks to U.S.-China trade tensions that have left U.S. firms and others much less certain about investing in the mainland. While Vietnam has been steadily poaching investment from its northern neighbour for years, businesspeople themselves have mentioned the discord between Beijing and Washington as a reason for moving south.

But while Vietnam will likely continue to thrive as it attracts a greater share of high-value manufacturing—Foxconn, the Taiwanese manufacturing giant, may even begin producing iPhones in the country—even the most optimistic outcomes come with important caveats. An investment surge comes with numerous short-term impacts, with new factories raising real estate prices while taxing Vietnam’s improving but nonetheless inferior infrastructure. Demand for skilled workers will also outpace supply if growth moves too fast.

These problems will not stop Vietnam’s rise. As one of the world’s fastest-developing countries, its infrastructure will catch up and the quality of its labor force will increase. And while rising land prices may turn away some investors, those least likely to be bothered will be the higher-value industries that Vietnam so desperately wants to attract as part of the so-called Industrial Revolution 4.0. But Vietnam, the world’s 15th-largest country at around 95 million people, simply can never fill China’s gigantic boots in the global supply chain.

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