FDI capital into the wood industry: not being for temporary difficulties loses the permanent significant opportunities

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In the future, changing the mechanisms and policies to create links between FDI enterprises, domestic enterprises and other stakeholders in the supply chain is extremely necessary. Photo: Nguyen Thanh.

China leads FDI in Vietnam

According to statistics of the Foreign Investment Agency (Ministry of Planning and Investment): By the end of 2019, the total number of FDI enterprises operating in the wood industry was 966, an increase of 11.4 percent compared to the number of FDI enterprises in 2018. The total registered investment capital of enterprises in this sector reached US$6.3 billion, up 13.2 percent compared to 2018.

With great interest in the content of FDI in the wood industry, recently the research team of Forest Trends Organization, Vietnam Association of Wood and Forest Products (VIFOREST), Ho Chi Minh City Association of Fine Arts and Wood Processing (HAWA), Wood Processing Association of Binh Duong Province (BIFA) and BinhDinh Timber and Forest Products Association (FPA BinhDinh) have released the report "Foreign investment in Vietnam's timber industry 2019: Current situation and some aspects of policy".

The report showed that most of FDI projects in the wood industry have relatively small registered investment capital, at an average of US$4-6 million / a project. Specifically, of the 99 newly registered FDI projects in the wood industry in 2019, there are 27 projects with a scale of less than US$1 million under the registered capital, accounting for about 27% of the total registered projects. Of these 27 projects, 17 projects, equivalent to nearly 63%, have a scale of US$0.5 million or less each.

To Xuan Phuc, an expert at Forest Trends, said China's investment in the timber industry is the leader in all investment sources, on all three aspects of the new project, capital increase as well as merger and acquisition. Specifically, for the category of new FDI projects from China, the number of projects increased 2.3 times and the total investment capital of these projects increased 3.4 times compared to 2018. The number of capital contributions,the share of Chinese enterprises is 117, an increase of 1.46 times compared to 2018. The value of capital contribution increased 2.3 times, reaching over US$96 million in 2019 compared to US$41.4 million in 2018.

"New FDI projects have increased rapidly, focusing on wood processing and manufacturing artificial boards. New investment sources are mainly from Asian countries, especially from China, capital expansion as well as activities of mergers and acquisitions took place vibrantly, of which China is the leading country," Mr. To Xuan Phuc said.

Notably, exports from FDI enterprises increased sharply, especially to the US market. The products are boards and chairs with large export turnover, high turnover expansion rate, mainly from Asian enterprises, led by Chinese FDI. Meanwhile, the import of wooden raw materials from the FDI sector, especially for items of artificial boards and seats originating from China, has increased sharply.

"This information, when put together, shows that some signals of trade fraud may occur in some Chinese FDI enterprises. This form of trade fraud may also occur in some enterprises related to investment capital from China,"Mr. To Xuan Phuc said.

Joining hands to reject disadvantages

Ms. Nguyen Thi Thu Trang, Director of the Center for WTO and Integration (VCCI) saidin 2019, FDI attraction in the wood industry increased by more than 13%in total capital, double the average growth rate of FDI in the country in all industries. This is a good thing, but the wood industry has the most potential risks. While all export growth sectors are quite hard, the wood industry has a large export growth, focusing on the US market. In particular, the group with the strongest growth going to the US was also the group with the strongest growth from China. The group of FDI growing enterprises into Vietnam is also the group of enterprises growing exports to America.

"In 2020, I think the wood industry needs to pay more attention. The Comprehensive and Strategic Partnership for Trans-Pacific Strategy (CPTPP) has been in force for more than a year. The Vietnam-EU FTA is expected to take effect in July2020. The risk of origin fraud to take advantage of opportunities from these FTAs will increase. The timber industry needs to be very attentive and have policy recommendations in FDI selection and FDI control,"said Ms. Trang.

From the perspective of business representatives, Mr. Nguyen Liem, Vice Chairman of Binh Duong Wood Association expressed his opinion: In Binh Duong, many FDIs invest in wood industry mainly from Taiwan and China. Visiting a number of Chinese factories saw that they are real Chinese manufacturers, after the US imposed transfer tax;some Chineseenterprises want to enter into joint ventures with Vietnamese enterprises.

"In the same category, I feel that the labor productivity of Chinese factories is 30-40 percent higher than Vietnam. They have built a long-standing supply chain from the US, EU, Russia.With FDI screening again, not being difficultgives up potential opportunities.Bad FDI must be dealt with by industries businesses and associations. Not because of unclear FDI that prevents potential FDI in Vietnam from any country,”Mr. Liemsaid.

Recognizing that FDI enterprises have continued to play an important role for the wood processing industry, according to Mr. To Xuan Phuc, in the future, changing the mechanism and policies creates connections between FDI enterprises, domestic enterprises and other stakeholders in the supply chain are essential. The current policy mechanism should facilitate the formation of connections in a way that encourages FDI enterprises to make links with domestic enterprises and other stakeholders such as households supplying raw timber.Policy mechanisms can be set up to encourage FDI enterprises to combine with domestic enterprisesin charge of certain stages in the supply chain of FDI enterprises.

"The government has made an effort to call for quality investment, eliminating the risks of irresponsible investment, shadowing investments, trade frauds. There are some signals that the timber industry has limitations, eliminating the risk of irresponsible investment, making investments is a very necessary issue for the industry, authorities associations, and research institutions to identify risksrelated to this aspect, thereby providing timely and effective measures not only eliminates unequal activities in investment and trade, but also plays an important role in improving the image of Vietnamese timber industry in the international arena," said Mr. To Xuan Phuc.