Growing Chinese investment in Vietnam: time to worry?

Workers at China's AKA Homewares Company in southern Long An province (Photo: VNA)

Foreign investment hit a four-year high of 16.7 billion USD in the first five months of this year, up 69 percent compared to the same period in 2018.

Chinese investment made up 42.5 percent of the total according to data released by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.

If including Taiwan’s investment, Chinese investors poured nearly 7.7 billion USD in Vietnam, surpassing the Republic of Korea, Singapore and Japan to become the biggest foreign investor.

In its recent report, the FIA said the trade tensions between China and the US has a significant impact on the shift of Chinese investment. Investments from mainland China and Hong Kong increased from 3.7 billion USD in 2017 to 5.8 billion USD in 2018 and 7.1 billion USD in the last five months.

Previously, Chinese investors were mainly small businesses with out-dated technology but now many large corporations have funded large-scale projects.

Five of the seven biggest foreign-invested projects in the last five months came from Chinese backers, including the ACRT’s all steel Radian tire manufacturing project worth 280 million USD, a 260 million USD electronic equipment and multimedia audio products manufacturing project invested by Hong Kong-based Goertek Co Ltd, and the 214.4 million USD tires, rubber manufacturing project invested by Guizhou Advance Type Investment Co Ltd.

However, FIA said increased technological pressure would drive Chinese companies to move their low-quality and old-fashioned technology investment to other developing countries, including Vietnam, which would potentially pose risks of environmental pollution and create pressure on infrastructure and society.

Chinese investors are also increasing merger and acquisition (M&A) activities, raising the concerns Vietnamese enterprises would be acquired and annexed.

According to Nguyen Mai, Chairman of the Association of Foreign Invested Enterprises, Vietnam needs to fine tune its policies to ensure high-quality foreign investment.

“China is a country that exports a lot of raw materials to Vietnam,” Mai told tienphong.vn. “Therefore, it is not excluded that they invest in manufacturing in Vietnam to get the origin of goods to take advantage of tax benefits from the free trade agreements Vietnam has signed with other countries.”

Regarding the rapid increase in Chinese investment in the last five months, Mai said Hong Kong topped foreign investors in Vietnam with 5.08 billion USD but three quarters of the amount was spent on buying shares of local companies, of which 3.8 billion USD was for the purchase of Vietnam Beverage Co Ltd in Saigon Beer-Alcohol-Beverage Corp (Sabeco).

He said China was looking for investment opportunities but was not rushing into purchases.

At a recent press conference in Hanoi this month, commercial counsellor of Chinese Embassy in Vietnam Hu Suo Jin said Chinese investment had increased since 2017 and the value of this year would be higher than last.

However, he did not see solid evidence for the connection between the investment increases with the trade friction with the US so far. A more detailed report must be conducted in the next few months.

Another representative of the Chinese Embassy said China had adopted many measures to mitigate the effect of the trade tension with the US and confirmed China's socio-economy was still doing well.