This is a big year for Vietnam…and China. Happy Tet aka Year of the Dragon

RASHMEE ROSHAN LALL February 8, 2024
Happy lunar new year. Happy Tet. Happy Year of the Dragon. Photo by Quan Tran on Unsplash

Ahead of East Asia’s big holiday (starting February 10) ­– variously to mark Chinese new year (of the dragon) and Vietnamese Tet – there’s lots to indicate that 2024 may be a very consequential year. For both countries.

Whether it’ll be happy for both is not clear, at least not now.

Even so, big changes are underway.

The Chinese economy is less of a sunshine story than pre-2019 and not just because of the pandemic and China’s unexpectedly slow recovery from it.

Under President Xi Jinping, China’s economic policy has been much more unpredictable than in the previous 20 years with question marks over that prized business commodity – rule of law and certainty for investments.

In the past year or so, China has been experiencing sharp drops in exports and foreign direct investment, as many multinational companies move some or all their supply chains out of the country.

Meanwhile, global capital flows have been targeting other emerging Asian markets such as Vietnam (and India), with investors scouting out locations with fewer economic and geopolitical risks than China.

As for Vietnam, it’s been looking to expand into silicon chip design because US-China trade tensions are throwing up new opportunities for China’s smaller neighbour.

But the Chinese are hardly sitting still and watching the world move on without them. They’re making a strategic exit themselves – into Vietnam.

Since 2018, many Chinese companies have moved their production to countries such as Vietnam – all the better to bypass US tariffs.

The ‘Made in Vietnam’ label has become rather a good news story – for Chinese businesses, as well as everyone else – with the US including Vietnam in its “friendshoring” network that seeks to shift supply chains away from rivals to partners.

And Vietnam is starting to worry.

In late December, Vietnamese business leaders warned against complacency about the influx of Chinese investors into Vietnam.

Phan Dang Tuat, who heads the Vietnam Association for Supporting Industries, which is to say suppliers of raw materials and components to manufacturers, said it was worrying that so many Chinese firms were entering Vietnam and that they were doing it so fast, and in a crucial sector. Vietnamese companies may find it hard to compete with Chinese firms, he said. His comments came a week after the Chinese president’s mid-December visit to Vietnam, when both countries agreed to expand trade cooperation.

But a former chairman of the Vietnam Chamber of Commerce and Industry also told Voice of America that the moment was not one for unrestrained enthusiasm but to be on one’s guard and “learn from the lesson in the past where foreign investors chose Chinese suppliers instead of Vietnamese for their production in Vietnam”.

Unsurprisingly, the overweening power of this year of the dragon may be the forces of change.

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