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Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

Impact Of The US-China Trade War On Vietnam’s Manufacturing Sector

In 2018, disbursement of FDI projects in Vietnam reached a record high of USD 19.1 billion, showing the high confidence of foreign investors in Vietnam’s business and investment environments. This is an increase of 9.1 percent year-on-year amid global concerns over the tension caused by the US China Trade War. Additionally, the rapid growth of both privately and state run enterprises such as Vingroup or Viettel is an indication of Vietnam’s economy prosperity and the fact that the country’s business environment is capable of nourishing large corporations of global scale.

However, as tensions over the Trade War continue to escalate in 2019, uncertainly over the status of the global manufacturing sector has continued to plague the industry and much attention has been focused on Vietnam due to the country’s status as an emerging manufacturing hub. Currently, the Trump administration has imposed tariffs on USD 250 billion worth of Chinese imports while China has retaliated by imposing tariffs on a cumulative value of USD 110 billion worth of US imports.

In short-term, Vietnam is projected to capture some of China’s global market share in labour-intensive manufacturing, although, in the long-term it is uncertain if Vietnam will continue to benefit from the displacement of manufacturing from China. This is because, Vietnam could face the risk of trade frauds as China looks to route US-bound products through the country to evade existing tariffs at an increasing pace. Furthermore, there is also the risk of Chinese products saturating the Vietnamese market, resulting in increased competition with domestic producers.

Thus, as the trade war drags on, experts have advised Vietnam to develop a new development strategy to evade potential risks. This is also due to the fact that global investors are starting to withdraw their investments from emerging markets, including Vietnam.

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Vietnam’s First Domestic Car To Be Available In August 2019

Vietnam’s First Domestic Car To Be Available In August 2019

VinFast, a unit of Vietnam’s largest conglomerate Vingroup JSC VIC.HM, is set to become the country’s first fully-fledged domestic car manufacturer as the company is projecting to have its first car available commercially in August of 2019.

Currently, the company already has established a new plant in the northern Vietnamese port town of Haiphong, where two models will be built. And for a start, VinFast is looking to manufacture 250,000 cars annually in the next five years of production. This is equivalent to 92 percent of all the cars sold in Vietnam in 2017 according to data collated by the Vietnam Automobile Manufacturers’ Association (VAMA). To add to this, the company has earmarked about USD 3.5 billion for the project and has even debuted two vehicles at the Paris Motor Show in 2018. Commenting on the company’s ambitions, Jim Deluca, CEO of VinFast has said that, “[VinFast is] looking to expand both within ASEAN and outside.”

Beyond these vehicles, VinFast also intends to move forward with a city car through a partnership with General Motors that will also extend to automotive sales, where General Motors has given VinFast exclusive distribution rights for Chevrolet-branded vehicles in Vietnam. Other technology agreements are also underway between VinFast and General Motors and this will add on to VinFast’s expanding portfolio of partnerships such as the company’s current partnership with Siemens for the development of domestic electric buses.

As of now, a majority of the cars sold in Vietnam are foreign brands assembled in the country from kits. However, a series of free trade agreements have reduced import duties and this has opened up the market for domestic manufacturers. For example, a 30 percent import tax on cars from other Association of Southeast Asian Nations (ASEAN) countries was removed in 2018.

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Is Vietnam Asia’s New Tiger?

Is Vietnam Asia’s New Tiger?

Vietnam’s growth has been astronomical. In 2019, the country is set to welcome a new National Innovation Centre, IoT Innovation Hub and produce its own domestic automobiles as VinFast gears up its production plant in Haiphong. This builds upon the country’s strong PMI outlook, which can also be attributed to the rise of Vietnamese steel conglomerates such as Hoa Sen Group and Hoa Phat Group. Regarding the country’s rise, Andrew Harker, Associate Director at IHS Markit has commented that, “The recent success of Vietnamese manufacturing firms in being able to generate strong new order growth continued in December 2018. This meant that 2018 as a whole was the best calendar year for the sector since the PMI survey began in 2011 and leaves the industry well placed to have a positive 2019 despite headwinds elsewhere in the global economy.” Article by Hazel Koh.

According to Li Baodong Secretary General of the Baoao Forum for Asia, Vietnam is recognised by the world’s most prestigious organisations as the new economic tiger of Asia. This is due to the fact that the country’s economy is rapidly emerging as one of the fastest growing globally with increasing international investments. For example, just based on the number of Chinese investments that the country has attracted to date, Nguyen Duc Chung, Chairman of the Hanoi People’s Committee has observed that a total of 425 ​​projects in Hanoi with total registered capital of USD 517 million has been recorded.

While Deputy Minister of Foreign Affairs, Le Hoai Trung, has attributed Vietnam’s success to its huge workforce that amounts to a population of at least 60 million working age adults and the country’s status as a dynamic, fast growing and stable economy. In fact, Vietnam’s Nikkei Purchasing Managers’ Index (PMI) in November 2018 reached 56.5 points which is the highest level that the country has attained in seven years, resulting in the country leading Southeast Asia in terms of its PMI ratings.

Striving Towards Self Sufficiency In Steel Production

Driven by rising steel demands and economic growth, Vietnam is looking to reduce its dependency on Chinese steel and has undertaken active steps towards this goal.This is evidenced as two of the country’s largest steelmakers look set to embark on multibillion-dollar capacity investments within the country.

In fact, Hoa Sen Group intends to spend VND 10 billion on production facilities in southern Vietnam’s Ninh Thuan province in order to capitalise on the area’s deep water ports to import raw materials and export its manufactured steel products. Although the company has yet to reveal the details of its new manufacturing facilities in Ninh Thuan, construction is scheduled to occur in 2019, with operations beginning in 2019. Hoa Sen’s new facility would possess a blast furnace, which is a tool that Vietnam still lacks, and would boost an additional capacity that would more than quadruple total outputs to 16 million tons a year in 2031.

Meanwhile, Hoa Phat Group, intends to build a VND 2.7 billion steelworks in the Dung Quat Economic Zone of Quang Ngai Province and aims to begin operations in 2020. This facility is projected to increase the company’s annual capacity to 4 million tons which would lift the group total by 130 percent. At the same time, the company will be developing a $170 million steel plate mill in Hung Yen Province, which is close to the Dung Quat facility.

Strategies To Overcome Uncertainties Induced By The Trade War

In 2018, disbursement of FDI projects in Vietnam reached a record high of USD 19.1 billion, showing the high confidence of foreign investors in Vietnam’s business and investment environments. This is an increase of 9.1 percent year-on-year amid global concerns over the tension caused by the US China Trade War. Additionally, the rapid growth of both privately and state run enterprises such as Vingroup or Viettel is an indication of Vietnam’s economy prosperity and the fact that the country’s business environment is capable of nourishing large corporations of global scale.

However, as tensions over the Trade War continue to escalate in 2019, uncertainly over the status of the global manufacturing sector has continued to plague the industry and much attention has been focused on Vietnam due to the country’s status as an emerging manufacturing hub. Currently, Vietnam is projected to capture some of China’s global market share in labour-intensive manufacturing, although, in the long-term it is uncertain if Vietnam will continue to benefit from the displacement of manufacturing from China. Thus, as the trade war drags on, experts have advised Vietnam to develop a new development strategy to evade potential risks. And Mai Vu Minh, a Germany-based investor and Chairman of SAPA Thale GmbH, has further commented that Vietnam must not merely react to changing winds but take action to innovate its way up the supply chain. He also added that this means that, “Entrepreneurs need to change to adapt new technologies, management style[s] and [strive towards] the Fourth Industrial Revolution”

Strong IPO Standings

In 2018, proceeds from Southeast Asia’s IPOs plunged 34 percent. This is the first decline in two years. However, despite the overall weakening of the region’s growth, Vietnam has emerged as the region’s fastest-growing economy and witnessed increases in its IPO presences that were significant enough to allow the country to overtake Singapore and Thailand.

In total, the Ho Chi Minh Stock Exchange topped the region’s exchanges in total IPO proceeds for 2018 with a value of USD2.6 billion. This is 3.7 times more than the figure for 2017. This can be attributed to the growth of local enterprises such as the Vietnam Technological and Commercial Joint Stock Bank, which raised USD 923 million in April 2018 alone.

The emergence of Vietnam as Asia’s hot IPO destination “is a synchronized result of government support, market reform, inflow of foreign capital and high pace of economic growth,” said Margaret Yang, a Singapore-based analyst at CMC Markets.

Future Outlook

Vietnamese Prime Minister Nguyễn Xuân Phúc has pledged support for the implementation of Industry 4.0 in Vietnam and this vision looks set to continue to be incorporated into the country’s national development strategies. During the opening ceremony for the Industry 4.0 Summit and Expo in 2018, Prime Minister Nguyễn Xuân Phúc had also said that, “Vietnam has actively researched and transferred new technologies such as the Internet of Things (IoT), big data and robotics in order to improve [the country’s] competitiveness and innovation”.

Thus, as we look towards Vietnam’s future, it is expected that developments in infrastructure systems, especially ICT and digital connection infrastructures, cybersecurity, IoT and foreign collaborations will continue to dominate the country’s manufacturing sector.

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Vietnam’s PMI Looks Set To Grow In 2019

Vietnam’s PMI Looks Set To Grow In 2019

December 2018 rounded off a positive year for Vietnamese manufacturers, with the average Nikkei Vietnam Manufacturing Purchasing Managers’ index (PMI) coming in at 53.8 and reading the highest for any calendar year since the survey began in 2011.

Although this was a decrement from November 2018’s near-record reading of 56.5, the latest figure is in tune with 2018’s overall average. Furthermore, output and new market orders continued to increase in December 2018 with firms responding to the increased demand by taking on extra staff for the 33th consecutive month. A softening of inflation for input costs was also observed and this resulted in a fall in input prices in December 2018, which last occurred in February 2016.

Thus, it is projected that output growth will continue in 2019 and new orders and business expansion plans are expected to proceed. Additionally, firms have been observed to increase their purchasing activity, inventories and production of finished goods following the positive growth in December 2018.

Regarding this trend, Andrew Harker, Associate Director at IHS Markit has commented that, “The recent success of Vietnamese manufacturing firms in being able to generate strong new order growth continued in December. This meant that 2018 as a whole was the best calendar year for the sector since the PMI survey began in 2011 and leaves the industry well placed to have a positive 2019 despite headwinds elsewhere in the global economy.”

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2018 Recap: Vietnam’s Key Sci-Tech Events

2018 Recap: Vietnam’s Key Sci-Tech Events

This is the 13th year in a row that the Vietnam Science and Technology Journalists Club has announced the list of outstanding science and technology events in 2018 and the key areas covering policy development, digital knowledge systems, entrepreneurship, international breakthroughs and pivotal investments are as shown below.

Implementation Of The Digital Vietnamese Knowledge System  

On 1 January 2018, the “Digital Vietnamese knowledge system” project was launched in Hanoi with the aim of spurring knowledge exchanges, creativity and connectivity among the local community.

Through this project, comprehensive knowledge system in all fields will be developed so as to facilitate learning, enhance creative research and bolster the application of scientific and technological advances.

Ultimately, it is expected that the “Digital Vietnamese knowledge system” will provide a foundation to kickstart Vietnam’s entrepreneurial innovation movement.

Launch Of The Support Fund for Science And Technology Applications By Vingroup

On 21 August 2018, Vingroup launched the Support Fund for Science and Technology Applications. Through this fund, research projects in computer science, artificial intelligence (AI), robotics, automation, nanotechnology, renewable energy and next-generation materials will be supported through a combined investment value of approximately USD 86 million.

Development Of The A Chau Hi-tech Electrical Equipment Factory Project

On 1 November 2018, the Hoa Lac Hi-tech Park Management Board granted an investment license to A Chau Industrial Technology Joint Stock Company to build the A Chau Hi-tech Electrical Equipment Factory.

This was a pivotal moment in the field of manufacturing, integrated development, operational management, monitoring of energy system automation as Vietnam is among the first two countries to receive high technology transfers from Schneider Electric Group.

International integration: International activities on Industry 4.0 showcased in Vietnam

On 13 July 2018, the Industry 4.0 Summit occurred in Hanoi. The event attracted 2,000 delegates, including 11 ambassadors and representatives of international organisations and over 50 leading experts globally as well as domestic and international enterprises. Chaired by Prime Minister Nguyen Xuan Phuc, the forum strove to build policies for Vietnam to participate in the Fourth Industrial Revolution in a proactive and effective manner.

To add to this, between 11 to 13 September 2018, the World Economic Forum on ASEAN in 2018 (WEF ASEAN 2018) with the theme “ASEAN 4.0: The spirit of enterprise and the Industrial Revolution 4.0” was held in Hanoi. With an attendance that included General Secretary of the Communist Party of Vietnam Nguyen Phu Trong and Prime Minister Nguyen Xuen Phu, the conference was rated as the most successful regional conference and boosted over 1,000 delegates in total.

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Vietnam And South Korea To Increase Bilateral Trade To US$100 Billion By 2020

Vietnam And South Korea To Increase Bilateral Trade To US$100 Billion By 2020

Vietnam’s Minister of Industry and Trade, Tran Tuan Anh, has signed a memorandum of understanding (MoU) with South Korea’s Minister of Trade, Industry and Energy, Sung Yunmo. Under this MoU, both countries will embark on an action plan to increase bilateral trade to US$100 billion by 2020. Additionally, this document will function as an added legal documentation between both leaders with regards to the broad agreements that were discussed at the Asia-Pacific Economic Cooperation (APEC) meetings in Da Nang in November 2017.

Based on the MoU, from now on till 2020, South Korea would support Vietnamese enterprises by enhancing their competitiveness in areas that include accessories and parts, automobile and electronics.

Bilateral trade between Vietnam and South Korea reached US$61.5 billion in 2017 which is an increment of 41.3 percent year-on-year. Within this figure, Vietnam’s exports to South Korea made up US$14.8 billion, which was an increment of 30 percent while the country’s imports to South Korea was worth US$46.7 billion. This was an increment of 45.3 percent year-on-year.

In the January – November period, South Korea remained Vietnam’s second largest import market with turnover of US$43.5 billion. This was an increment of 1.7 percent year-on-year and South Korea was only behind China by US$ 59.7 billion.

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Vietnam To Welcome More South Korean Investments

Vietnam To Welcome More South Korean Investments

South Korea has emerged as the top investor in Vietnam with US$60 billion worth of investments in the country as of 2018. This can be attributed to investments from mega companies such as Samsung, LG, Hyundai Motor, SK, Lotte, POSCO, CJ, Hanwha, LH Corp, Shinhan, Kumho, and Hyosung. To top this off, South Korean firms are continually seeking to expand investments in Vietnam due to the improvement in business conditions and implementation of effective policies over the past years.
In fact, during a meeting between South Korea officials and executives and the Vietnamese Deputy Prime Minister Trinh Dinh Dung, it has been elaborated that conducive business policies, have translated into better macroeconomic indicators which in turn allow for other sectors and FDI to grow. Kim Tae Soo, Head of the Economic Development Cooperation Fund (EDCF) has also added that, South Korean investors are interested in the infrastructure, logistics, manufacturing, automobile, agriculture, and food processing sectors within Vietnam. And the EDCF will work to speed up the disbursement of soft loans to help Vietnamese firms conduct projects under a public-private partnership (PPP).
To add to this, the South Korean government also considers Vietnam as the key pillar in its “Look South” policy and South Korea’s linkage to Southeast Asia, Europe, and the Americas.

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Vietnam’s First Aircraft Engine Component Factory Has Began Operations

Vietnam’s First Aircraft Engine Component Factory Has Began Operations

Vietnam’s first aircraft engine parts factory has began operations. The factory which is an the investment of South Korea’s Hanwha Aerospace company is located at the Hoa Lac Hi-tech Park in Hanoi and will reach its full scale operation capabilities in January 2019.

Currently, Hanwha is the only aircraft engine maker in South Korea and is recognised as one of the world’s top 10 most technologically advanced aerospace companies. Thus, it is expected that the company’s investment in Vietnam will facilitate the development of Vietnam’s aviation and precision mechanical industries. Additionally, it is projected that by 2024, the factory in the Hoa Lac Hi-tech Park would have around 900 employees with an investment capital of US$370 million, symbolising a strong technological transfer between South Korean and Vietnamese enterprises and enabling an advancement towards the development of high technology capabilities within Vietnam.

In addition to its main facility currently in Changwon, South Korea, Hanwha Aero Engines is the second production base of Hanwha Aerospace.  Therefore, this factory is a major part of the South Korean engine marker’s plans in terms of increasing its market share of civil aircraft engine parts to about US$ 879 million and leading the aircraft parts processing industry by 2025.

According to Minister of Science and Technology, Chu Ngoc Anh, the Hoa Lac Hi-tech Park has 87 investment projects as of now and possesses a registered capital of US$3.34 billion. However, the Hanwha brand name would lay the foundation for Hoa Lac to attract more hi-technology companies from other countries which would contribute significantly to Vietnam’s science-technology capabilities.

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Vietnam To Eliminate At Least 50 Percent Of Business Conditions By 2019

Vietnam To Eliminate At Least 50 Percent Of Business Conditions By 2019

VIETNAM: Vietnam’s Prime Minister, Nguyen Xuan Phuc, has requested for ministries and government agencies to remove and simplify at least 50 percent of business and investment conditions by 2019.

This follows the government’s resolution No. 19 which is aimed at improving Vietnam’s business environment and enhancing national competitiveness. To add to this, the Vietnamese government has also recently issued resolution No.139 which acts to approve the action plan on reducing financial expenses for enterprises, meaning that enterprises can now save up to a minimum of 10 percent of financial costs when investing in Vietnam.

According to the Minister Nguyen’s new directive, ministries and ministry-level agencies are required to report to the Prime Minister on a quarterly basis on the remaining number of business conditions and goods subject to specialised control. Clear justifications are also required in the event that there are changes to the number of  business conditions and goods required for specialised inspection. Additionally, proposals on removing business conditions must also be substantial in order to produce new conditions that would be viable for businesses.

Based on Minister Nguyen’s vision, the lessening of business conditions will function as a key for economic growth and efficiency and the successful execution of this vision mandates strong collaboration from government leaders and ministers.  Minister Nguyen has also strictly prohibited government agencies and ministries from establishing new business conditions or abusing specialised inspections.

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IoT Innovation Hub To Be Built In Hanoi’s Hoa Lac Hi-Tech Park

IoT Innovation Hub To Be Built In Hanoi’s Hoa Lac Hi-Tech Park

Ericsson and Vietnam’s Ministry of Science and Technology (MoST) have signed a memorandum of understanding (MoU) to establish an Internet of Things (IoT) Innovation Hub in the Hoa Lac Hi-Tech Park in Hanoi. The hub is scheduled to open in the first half of 2019 and aims to encourage IoT innovation among local start-ups by providing them with a platform to trial and test IoT applications as well as commercialise developed applications.

Addressing the signing ceremony, Chu Ngoc Anh, Minister of Science and Technology in Vietnam has said, “In the context of globalisation and the rapid development of new technologies in the Industrial Revolution 4.0, Vietnam needs to quickly develop a national strategy to catch up with the trend. With more than 140 years of experience in technology development and innovation, Ericsson will be one of Vietnam’s most trusted partners for this strategy.”

Reinforcing Minister Chu’s comments, Denis Brunetti, Head of Ericsson Vietnam and Myanmar and Co-Chairman of the European Chamber of Commerce in Vietnam (EuroCham) has said, “At Ericsson, we support the Vietnamese government’s vision of stimulating inclusive socioeconomic development through the application of science and technology innovation.” He also added that, “Ericsson fully supports the government’s National Innovation Network Program[me], which recognises the need for enhancing Vietnam’s innovation capability to meet the challenges and capture the opportunities associated with Industry 4.0, enabled by ICT.”

Overall, this MoU illustrates Ericsson’s commitment as a strategic partner to the Vietnamese government’s vision of fully harnessing Vietnam’s potential in the Fourth Industrial Revolution.

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