Experts warn of sudden increase in Chinese FDI inflows

Concerns have been raised regarding the quality of Chinese FDI in the country as many Chinese-invested projects have been previously blamed for their small scale, the use of out-of-date production technology, and pollution. (Illustrative photo: VOV)

Vietnam lured a total of US$16.74 billion in FDI during the first five months of 2019, representing a year on year surge of 70 per cent, according to the Foreign Investment Agency under the Ministry of Planning and Investment.

Most notably, China, with total investment capital of nearly US$7.1 billion, topped the list of FDI investors in Vietnam. This marks the first time that the neighboring country topped the list of investors, surpassing those from the Republic of Korea, Japan, and Singapore.

Of the figure, US$5.08 billion from Hong Kong (China) went into 201 FDI projects, ranging from newly registered capital, additional capital, and equity purchase, while the rest came from mainland China.

Experts noted the sudden surge in Chinese FDI inflows could be attributed to a fallout from ongoing US-China trade tensions.

Dr. Nguyen Xuan Thanh from Fulbright University Vietnam claimed that the trade tensions, coupled with China’s economic slowdown, are the main factors causing the shift of Chinese FDI to Vietnam. Last year, China’s GDP growth stood at 6.6 per cent, the lowest level seen during the past 28 years.

Moreover, Vietnam has been enjoying the benefits of joining a number of free trade agreements (FTAs), particularly new - generation ones such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This has leveraged overseas investors to seek investment opportunities in the Southeast Asian country with many looking to benefit from lower labour and production costs, zero tax rates, and proper logistics services.

Another facilitating factors in the attraction of FDI include political-social stability and stable exchange rates, Thanh said. “Vietnam has made progress in bettering its business and investment climate in recent years with improved transparency and efficiency.”

Filters needed to boost FDI quality

Concerns have been raised regarding the quality of Chinese FDI in the country as many Chinese-invested projects have been previously blamed for their small scale, the use of out-of-date production technology, and pollution.

Prof. Dr. Nguyen Mai, Chairman of the Vietnam Association of Foreign Invested Enterprises, said that the country needs to make bold amendments to its FDI attraction strategy to keep pace with the FTAs which it has joined, particularly new-generation ones.

The country should consider and issue mechanisms and policies that are aimed at improving the quality of foreign investment. More concerted efforts are needed to thoroughly appraise and select FDI projects. Those consuming huge amounts of energy, demanding large-scale land areas, or using out-of-date technologies, must be rejected.

China is a major source of material for Vietnam. Therefore, Chinese investors might view the Vietnamese market as a good place to establish their production facilities in order to attach the made-in-Vietnam origin to their exports to the countries which have signed FTAs with Vietnam, Mai said.

By shifting their investment to Vietnam, Chinese investors are also looking to avoid the negative impacts from tit-for-tat tariffs triggered by the ongoing US-China trade war, he added.

Other experts have urged the country should incline towards the attraction of high quality FDI projects and give priority to projects which could generate high value products and operate using cutting edge technologies.