Chinese sanctions may be pushing CJ Group’s expansion in Vietnam

Expanding the business in Vietnam

Over the past few years, CJ Group has many times raised its ownership in local food firms. For instance, the Korean firms raised its ownership rate in Cau Tre from 51.6 to 71.4 per cent and its subsidiary CJ Cheiljedand Corporation last year bought 64.9 per cent of Minh Dat Food's capital. In 2016, the Korean firm also bought 4.18 per cent of Vissan JSC’s stocks.

Last year, its food distribution subsidiary CJ Fressway and Golden Gate also signed a Memorandum of Understanding (MoU) to supply $8.82-million worth of meat per annum to the latter’s restaurant chains. The Korean firm also supplies Korean fruits and vegetables to domestic Saigon Trading Group (SATRA).

Vietnambiz.vn quoted CJ Freshway’s leader as saying, “With the MoU, we will be able to establish our food distribution network in Hanoi and expand the scale of business in other sectors of Vietnam.”

Previously, according to Korean newswire The Investor, CJ Fressway was also considering buying a Vietnamese food retailer to broaden its business in the country. However, the name of the local firm has not been revealed.

Chinese sanctions redirecting investment to Vietnam

The Chinese government has applied economic sanctions on Korea after the Korean government in July 2016 participated in the US' Terminal High Altitude Area Defense (THAAD). The move affected many Korean firms. Specifically, 90 per cent of Lotte Mart stores in China were forced to halt business in May last year, causing the firm a loss of billions of wons.

In late October last year, the Chinese government lifted the sanctions on Korea by allowing Korean tourists to travel to China, but one month later, it once again started applying sanctions on Korea, according to Reuters.

The move has also contributed to Korean investment shifting from China to Vietnam. Between January and May this year,  the ROK led the foreign direct investment (FDI) charts in Vietnam with the registered investment capital of $2.625 billion, occupying 26.5 per cent of total registered FDI in the country.

Korean newswire The Investor quoted Moon Jong Suk, CJ Freshway’s managing director, as saying: “The business climate in Vietnam is better than in China.”

In July 2017, CJ Group also announced its plan to develop a $63 million food complex on a land site of 66,000 square metres in Ho Chi Minh City. Once officially put into operation, the complex’s production capacity will be at 60,000 tonnes of frozen food per year.

With the huge investment in the food industry, CJ Group set the revenue target of $700 million in Vietnam by 2020. Besides, along with its ownership of CJ Cau Tre (formerly Cau Tre) and CJ Minh Dat (formerly Minh Dat Food), the group also set the goal of exporting food from its production facilities in Vietnam.