The leader of Vietnam’s northern neighbor has been in Hanoi for two days to discuss a range of issues including trade and investment. In this article, Vietnam Briefing provides an overview of what trade looks like between these two countries.
The President of the People’s Republic of China, Xi Jinping, arrived in Hanoi yesterday for the first time in six years. His visit is part of ongoing moves to shore up the relationship between the two countries in issues of trade, investment, and security, among many others.
Of note, Vietnamese state media reported that a total of 36 agreements have been signed. This includes:
Local media has also reported that in a meeting with Vietnamese Party General Secretary Nguyen Phu Trong, the two leaders agreed to bolster security and defense cooperation as well as to boost cooperation in trade and investment.
Vietnam Briefing looks at the current state of trade and investment between these two Asian manufacturing powerhouses.
Vietnam and China engage in a huge amount of bilateral trade, which is governed by two key agreements. These are:
Signed in 2003, the ACFTA governs trade between China and the 10 Southeast Asian nations that make up the Association of Southeast Asian Nations (ASEAN).
The RCEP agreement officially came into force on January 1, 2022, for Vietnam. This regional agreement promises to build on already existing agreements between its members to further enhance trade in Asia and Oceania. Countries party to the agreement are Australia, Brunei, Cambodia, China, Indonesia, Japan, South Korea, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, Thailand, and Vietnam.
As of the end of 2022, China was the second biggest source of foreign direct investment (FDI) in Vietnam with 3,567 registered projects since Vietnam started keeping records, worth US$23.5 billion, and spread across multiple sectors.
China’s Innovation Precision has plans to build an aluminum plant in central Vietnam’s Nghe An province. The plant will have the capacity to produce 100,000 tonnes of aluminum annually and to create 1,500 high-skilled jobs. Nghe An is a popular investment destination, with the Dong Nam Economic Zone and the WHA Industrial Zone- being two well-established manufacturing centers here.
Chinese firm Luxshare-ICT is set to expand its operations in Vietnam’s Bac Giang province by US$330 million. This will bring its investment in Vietnam to US$504 million. Luxshare-ICT makes cables for various electronic devices.
China’s Sunny Optical is reportedly considering an investment of US$2.5 billion in the development of facilities in Vietnam. While specific details about the lines of production in Vietnam have not been disclosed, the company manufactures a variety of optical goods, including lenses, camera components, and headlights, to name just a few.
In 2022, China exported nearly US$90 billion worth of goods to Vietnam. This reflects increasing integration in supply chains between the two countries. It is common for parts of different products to be made in China but shipped to Vietnam to be assembled. Notably, computers, electrical products, spare-parts, and components thereof were Vietnam’s biggest imports from China in 2022.
89,338,454,185
Source: Vietnam General Department of Customs
In 2022, Vietnam exported goods totaling nearly US$49.6 billion to China, resulting in a trade deficit of US$50.4 billion with its northern neighbor. This trade imbalance aligns with the nature of integrated supply chains, wherein Vietnam primarily plays a role in the assembly and testing of products, while the advanced manufacturing is carried out in China.
49,584,069,601
Source: Vietnam General Department of Customs
Xi Jinping’s visit to Hanoi is in line with the close political and economic ties shared between China and Vietnam. These two nations and their economies are becoming increasingly integrated with huge volumes of trade crossing their border every day.
Furthermore, as firms seek to mitigate supply chain risks by diversifying out of China, cross-border investment is becoming more common. That said, effectively managing the reworking of supply chains to ensure they are as efficient as possible and produce real value for a company takes a thorough understanding of both the Vietnam and China markets.
Firms looking to make the shift should contact the experts at Dezan Shira and Associates, which has offices throughout both China and Vietnam and over a decade of experience in both markets.
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