TPP opens door for China and VN closer economic ties

According to Nikkei Asian Review, Hong Tianzhu, founder and chairman of Texhong, the company has been aggressively building up production capabilities in TPP signatory Vietnam to take advantage should the agreement be ratified.

The TPP in a nutshell involves 12 countries: the US, Japan, Malaysia, Vietnam, Singapore, Brunei, Australia, New Zealand, Canada, Mexico, Chile and Peru.

The pact aims to deepen economic ties between these nations, slashing tariffs and fostering trade to boost growth, creating a new single market something along the lines of the EU.

The 12-nation would-be bloc is already responsible for 40% of world trade.

To take effect, the deal has to be ratified by February 2018 by at least six countries that account for 85% of the group's economic output. And this means that Japan and the US would need to be on board.

Execution of the TPP "will pose new challenges to China's textile and apparel enterprises," so the company is building up its Vietnam operation "with respect to the cost advantages" and prospects of the pact, said Mr Tianzhu, in Texhong’s latest annual report last March.

Mr Tianzhu has said one of the main intentions of investing in Vietnam is to deal with the TPP trade agreement, the Nikkei Asian Review has reported.

However, even as uncertainty looms over the free trade pact amid open opposition by both major-party US presidential candidates, the Chinese company remains firmly committed to further expansion in its southern neighbour.

Vietnamese production has at least three advantages besides the TPP, Zhu has pointed out.

One is relatively favourable trade relations with the world vis-a-vis China. Even before the TPP, tariffs on yarns exported from Vietnam to Japan, the Republic of Korea and the EU have been lower compared with exporting them from Chinese factories.

Production costs are another advantage. "Compared to China, its labour, electricity and other costs are lower in Vietnam," said Zhu.

Despite strained political relations between Vietnam and China, the two countries are big trading partners.

In addition, Vietnam’s proximity to China is ‘very good’ for the group's overall operation. Its Vietnamese production complex sits in Quang Ninh Province, which is adjacent to China's Guangxi Zhuang Autonomous Region.

This enables the company to include its Vietnamese factory in a production chain already established in southern China. And being close to the port makes exporting convenient.