Vietnam’s Mixed Reactions to China and the BRI

Abstract

Vietnam is China’s largest neighbour in Southeast Asia and has historically been deeply influenced by Chinese culture. Vietnam has been implementing the policy of “innovation and opening up” since 1986, opening up the market, vigorously attracting foreign investment and developing an export-oriented economy.

4.1 Overview of the China-Vietnam Economic Relations

Vietnam is China’s largest neighbour in Southeast Asia and has historically been deeply influenced by Chinese culture. Vietnam has been implementing the policy of “innovation and opening up” since 1986, opening up the market, vigorously attracting foreign investment and developing an export-oriented economy. Vietnam’s economic growth rate has exceeded 7% since the outbreak of the global financial crisis in 2008, and among Southeast Asian countries its economic performance is outstanding.

Vietnam is also one of the most successful countries in Asia in terms of attracting foreign investment. Significantly, Vietnam is the only ASEAN economy to continue to achieve positive economic growth under the impact of the COVID-19 pandemic. Vietnam’s economic growth rates in 2020 and 2021 were 2.91% and 2.58%, respectively. In 2021, while the coronavirus pandemic was raging through the country, Vietnam imposed massive lockdowns and factory shutdowns as infection containment measures. However, Vietnam’s economy still grew by more than 8% in 2022, the fastest growth rate in a decade and the highest economic growth rate among ASEAN countries.

The growth of foreign trade has been the main contributor to Vietnam’s maintenance of overall economic growth. Vietnam’s foreign trade exports reached US$371.8 billion in 2022, representing a 10.6% year-on-year increase, while the value of imports rose by 26%. Vietnam attracted US$31.1 billion in foreign investment in 2021, an increase of 9.2%, whereas in 2022, its actual utilisation of foreign capital amounted to US$22.4 billion, a year-on-year increase of 13.5%. These data show that foreign investors and multinational companies remain optimistic about Vietnam’s development potential.

Vietnam has become an investment hotspot. The Republic of Korea is Vietnam’s largest source of foreign direct investment. By 2022, Korean accumulated investment to Vietnam was US$81 billion. To date, 9000 Korean firms are operating in Vietnam, including Samsung Electronics, LG and Hyundai. There are currently about 180,000 Koreans residing in Vietnam, which has the largest South Korean community in Southeast Asia (Kang 2023).

These Korean firms account for 30% of Vietnam’s total exports and offer 0.7 million jobs in Vietnam. Vietnam is emerging as a crucial export-oriented production base for the Republic of Korea. In light of the Sino-US strategic competition, restructuring of the global supply chain, and its increasing trade deficit with China, the Republic of Korea has been keen in recent years to reduce its trade and economic dependence on China and to pursue trade and economic diversification strategy.

As part of their “China + 1” strategy, Korean companies view Vietnam as a primary destination to diversify their supply chains outside China and to reduce the dependence on China. This has helped to create a boom in Vietnam’s export-driven manufacturing industries and presents many opportunities for Korean companies. Although China is less competitive than before, it still has well-developed infrastructure, efficient logistics and high-quality labour force.

China has been Vietnam’s largest trading partner since 2004. Moreover, Vietnam’s importance in terms of China’s economic and trade relations with Southeast Asia continues to rise. Vietnam has surpassed Malaysia as China’s largest trading partner in Southeast Asia and become China’s eighth-largest trading partner worldwide. The trade volume between the two countries increased by more than 10 times, from US$21.4 billion in 2009 to US$230.1 billion in 2021 (Fig. 4.1).

Fig. 4.1

Bilateral merchandised trade between China and Vietnam. Sources China Customs; Ministry of Commerce of People’s Republic of China

Vietnam is also an important destination for Chinese enterprises’ investment abroad. According to the Chinese official statistics, China’s direct investment to Vietnam jumped to US$2.21 billion in 2021 from US$0.31 billion in 2010 (Fig. 4.2). Stock of China’s accumulated investment in Vietnam exceeded US$11 billion between 2010 and 2021, representing the fourth-largest source of foreign investment in Vietnam.

Fig. 4.2

Source Ministry of Commerce of People’s Republic of China

China’s outbound investment to Vietnam.

China and Vietnam are immediate neighbours and share a long land border of over 1200 km. The two countries also share the same political system and ideology, both being socialist countries led by Communist parties. Vietnam has been able to learn from China’s development experience while pursuing its own development path.

4.2 The Belt and Road Initiative in Vietnam

Vietnam knows it needs Chinese investment in its domestic infrastructure in order to achieve industrial take-off and sustained economic growth. According to the World Bank’s 2019 study, The Economics of the Belt and Road: Opportunities and Risks in Transport Corridors, BRI transport projects can expand trade, increase foreign investment, and reduce poverty by reducing trade costs. If fully implemented, the project could increase global trade by 1.7–6.2% and global real income by 0.7–2.9%.

From the domestic infrastructure perspective, there is huge demand for investment in Vietnam’s infrastructure sector. Due to its lack of financial and technological strength, Vietnam needs to attract foreign capital and foreign infrastructure enterprises, including Chinese capital and construction firms, to develop the domestic infrastructure required to achieve sustainable economic growth. Against this backdrop, Vietnam has endorsed and supported the BRI since 2017. In November 2015, Chinese President Xi Jinping visited Vietnam for signing of the MOU on promoting collaboration and forging synergy between China’s BRI and Vietnam’s “Two Corridors, One Belt” strategy. Both leaders are intent on strengthening economic and trade cooperation between local provinces of the two countries.

For the Chinese, Vietnam is an important node for promotion of China’s Belt and Road Initiative. Participation in the BRI will not only help Vietnam attract more Chinese investment in the infrastructure sector, but also provide a platform for its products to enter the Chinese market more conveniently. Vietnam generally welcomes China’s Belt and Road Initiative and is one of the founding members of the China-led Asian Infrastructure Investment Bank.

Nevertheless, Vietnam’s approach on the ground to seeking investment from China for domestic infrastructure development has been more cautious than that adopted by many other Southeast Asian countries, such as Laos and Cambodia. Although the two countries have signed a memorandum of cooperation on the Belt and Road Initiative, Vietnam has made no significant progress on advancing the initiative on the ground. Except for the Hanoi Metro Line (Cat Linh-Ha Dong) project, no new infrastructure projects under the BRI framework are currently under construction.

The 13 km-long Hanoi Metro Line project was commenced in 2008, but was only completed in 2020, with a substantial cost overrun. The considerable length of time taken by the China Railway Sixth Group, the Chinese contractor tasked with the construction of the Hanoi metro line, to complete the project was due to issues such as land reclamation and compensation, construction safety, installation of dispute mechanism, funding and the impacts of the COVID-19 pandemic. The case of the Hanoi Metro Line project indicates that Vietnam has adopted a cautious, wait-and-see attitude towards implementing the Belt and Road Initiative.

Vietnam’s caution has historical origins as, in the late 1970s, the two countries were engaged in a border war. Moreover, China and Vietnam have long had disputes over maritime rights and sovereignty in the South China Sea, resulting in mutual distrust. Hence, Vietnam has a very defensive attitude towards China, its giant neighbour in the North.

While Vietnam and China enjoy close bilateral economic and trade cooperation, there is a trust deficit between the two sides. Given the perceived aggressive behaviour of its giant neighbour, Vietnam is constantly reminded of its asymmetric relations with China, and that the power imbalance between China and Vietnam could pose a threat to its national security and sovereignty. In his book titled “China and Vietnam: The Politics of Asymmetry”, Womack (2006) claims:

One thing that has remained constant in China's relationship with Vietnam since the unification of the Chinese Empire in 221 BC is that China has been that much larger partner. Whether a relationship is hostile, good, or somewhere in between, it is asymmetrical. China is a far more important force for Vietnam than Vietnam is for China, and Vietnam has a keener understanding of the risks and opportunities presented by Sino-Vietnamese relations.

Many Vietnamese have a particularly deep memory of China’s ancient tributary system. In addition, the dispute between China and Vietnam over sovereignty in the South China Sea and China’s very presence in the South China Sea are sensitive topics in Vietnam that tend to stir up nationalist sentiment in Vietnam. According to the 2020 survey report by the ISEAS-Yusof Ishak Institute (2020) in Singapore, 43.4% of Vietnamese respondents have no confidence in the fairness or transparency of BRI projects, compared to just 1.3% of Vietnamese respondents who are confident about their fairness. According to the 2022 survey by the ISEAS-Yusof Ishak Institute (2022), 72.8% of Vietnamese respondents are concerned about China’s expanding economic influence in the region, and only 27.2% of respondents from Vietnam welcomed China’s rising economic influence.

The case of Vietnam is not unique. In fact, negative perceptions over the rise in Chinese economic influence are increasing and can be seen in the Philippines and Cambodia. Seizing the opportunities presented by the Chinese market and Chinese investment is indeed important to promote ASEAN’s economic growth. Nevertheless, the coronavirus pandemic has been a wake-up call for ASEAN. From the perspective of many people in Southeast Asia, there is a huge risk of transitioning to dependence on China and China-centric industrial chains in the pursuit of regional economic growth. Attitudes of Southeast Asian countries towards China have hence become increasingly complex and cautious.

Although the BRI will accelerate infrastructure development in Vietnam and bring improvements to the economy and people’s livelihoods, some Chinese enterprises’ investment projects have caused local environmental pollution and ecological damage. Chinese enterprises, rather than paying due attention to environmental factors, take advantage of loopholes in the laws and regulations of Vietnam. This has led to a negative perception of Chinese enterprises and investment among the elites and many ordinary Vietnamese people, which has also affected the development of bilateral relations. For example, China’s coal-fired power projects use relatively energy-efficient technologies that bring considerable environmental benefits to the host countries that they might not otherwise be able to afford. While China has introduced new stringent environmental monitoring standards for domestic power plants, these do not apply to projects in overseas countries such as Vietnam.

Many Vietnamese are concerned that the BRI will also pull Vietnam into China’s orbit of development, which will eventually cause the country to lose autonomy over its development and foreign policy. There is also strongly voiced concern in Vietnam that China will use the BRI to gain geostrategic advantages and strengthen its influence in the region. In June 2018, the National Assembly of Vietnam deliberated on the Law proposed by the government on Special Administrative and Economic Units of Phu Quoc, which is intended to attract foreign investment to Vietnam and promote domestic economic growth and industrial development. According to the draft bill, the Vietnamese government plans to set up three special economic zones in the north and south of Phu Quoc Island to attract foreign investors through preferential policies such as allowing investors to rent land for 99 years.

People in several Vietnamese cities have protested against the bill and pointed the finger at China. Many people in Vietnam believe that the introduction of this bill will facilitate Chinese enterprises to seize Vietnamese land and infringe on Vietnam’s territorial sovereignty and internal affairs. Due to strong domestic opposition, the Vietnamese government was forced to postpone the vote on the bill. Domestic demonstrations over the bill reflect deep-seated suspicion and rejection of China among Vietnamese citizens. This poses potential risks to the local investment and business activities of Chinese enterprises.

In exchanges and discussion with Vietnamese scholars, the author formed the impression that Vietnamese academia generally believe that China’s Belt and Road Initiative has strong geostrategic and military significance, and is not merely an economic and trade cooperation initiative. Vietnam’s biggest concern about the Belt and Road Initiative is that the advancement of the Belt and Road Initiative will strengthen China’s sovereignty claims in the South China Sea and strengthen its presence in the region. This is a scenario that Vietnam is desperate to avoid. Meanwhile, many Vietnamese scholars believe that China’s actual operation of the BRI lacks transparency, and countries along the route are not clear about whether or how to participate.

There are several acute issues and challenges in the economic and trade cooperation between China and Vietnam. First, both countries have similar industrial structures and similar export destinations in the West, so they compete fiercely in overseas export markets. Chinese and Vietnamese firms compete in medium and high value-added industries such as the electronics industry and office equipment and smartphone manufacturing, while also competing in many low value-added industries, ranging from toys and textiles to clothing and furniture manufacturing.

China, Vietnam and some other ASEAN countries are fast-developing emerging economies, dependent on export trade, and at the middle and low ends of the value chain/supply chain under economic globalisation, so there is a high degree of similarity between the two places in terms of export commodities and export markets, and competition in the structure of export commodities and export destinations is inevitable. However, amid China’s rising production costs and consequent transfer of labour-intensive industry, ASEAN countries, such as Vietnam, have been increasingly competitive in low-end labour-intensive manufacturing based on their lower production costs (e.g. land and labour).

Another outstanding issue between China and Vietnam is the huge bilateral trade deficit, which is not conducive to the sustainable development of bilateral economic and trade cooperation in the long run. Since the launch of the CAFTA, Chinese-made goods have had a greater impact on the original markets of ASEAN countries with relatively low cost and scale advantages, especially Vietnam, the Philippines and Indonesia. In 2022, ASEAN countries ran up a record US$150 billion in goods trade with China. Among the Southeast Asian countries, Vietnam has the largest trade deficit with China.

Vietnam’s trade deficit accounts for more than one-third of ASEAN’s total trade deficit with China. There are strong voices of dissatisfaction in Vietnam, claiming that it has benefited too little from the economic and trade exchanges with China, and China is an unfair and unilateral winner. Vietnam’s trade deficit with China reached a record high of US$45.67 billion in 2021, compared to the corresponding figure of US$11.61 billion in 2009.

China is Vietnam’s largest source of imports. Vietnam is reliant on China for imports of electronic machinery, industrial equipment, high-tech products and ordinary consumer goods. Relatively speaking, Vietnam’s exports to China still mainly comprise agricultural products, timber and other resource products. China is the largest export market for Vietnamese fruits (accounting for about 45% of the export share) and the third-largest export market for Vietnamese aquatic products.

Vietnam has encountered difficulties in gaining access to the Chinese market for many of its agricultural and aquatic products, due to the existence of non-tariff barriers, including quality inspection. The Chinese market lacks openness regarding institutional factors, and strict market access thresholds restrict Vietnamese products from entering the Chinese market.

Meanwhile, Vietnam has huge demand for machinery and electronic information goods produced in China, and intermediate products exported from China to Vietnam are processed and assembled and then sold to developed markets in the European countries and the United States.

The trade in goods between China and Vietnam was affected by the outbreak of the COVID-19 pandemic in Vietnam in 2021. At that time, China adopted strict inspection and isolation measures for cargo trucks and drivers from Vietnam based on its policy to prevent import of the COVID-19 virus from overseas. All goods imported from Vietnam were subjected to strict testing. These strict measures led to cumbersome or even stagnant customs clearance of goods, obstruction of customs clearance of goods and personnel, and serious traffic congestion.

China is one of the most important foreign trade markets for Vietnam, and the obstruction of customs clearance at China-Vietnam border ports has had a great impact on Vietnam’s export enterprises and foreign trade. According to statistics from the General Administration of Customs of Vietnam, for example, from January to April 2022, the total value of import and export goods handled at China-Vietnam land ports was US$4.15 billion, down 64.5% compared with the same period in 2021. In addition, Vietnam’s exports to China amounted to US$510 million, down 87.3% compared to the same period in 2021.

Trucks transporting large quantities of Vietnamese fruits and agricultural products were stranded on the Vietnamese side of the China-Vietnam border crossing, waiting for the completion of Chinese customs quarantine and customs clearance. Agricultural products are very time-sensitive, and long waiting time can cause deterioration and rot. In December 2021, hundreds of Vietnamese trucks were stranded at the Youyi, Puzhai-Tan Thanh and Aidian-Chi Ma crossings in northern Vietnam’s Lang Son province on the border with Guangxi, China. However, since China’s ending of its zero-COVID-19 policy on 8 January 2023, import and export trade and personnel clearance have begun to resume at many border ports.

Vietnam faces dual challenges in the field of foreign economic cooperation and trade. On the one hand, it has a huge trade deficit with China, While, on the other hand, there is the issue of how to achieve diversification of its export market and upgrading of its export structure. Some Vietnamese scholars believe that in the short term, the CPTPP can play only a limited role in reforming Vietnam's foreign trade structure and boosting the national economy. Trade with China has always played an important role in Vietnam’s foreign trade and factors relating to the Chinese economy will continue to influence Vietnam’s economic development.

For many years, China has been Vietnam’s largest trading partner and largest source of imports. Trade with China accounts for nearly 20% of Vietnam’s total foreign trade. In 2019, imports from China accounted for more than 28% of Vietnam’s total imports, which included intermediate products mainly used for assembly and foundry in domestic manufacturing. Textile and garments and electronic information equipment are two major export industries for Vietnam, but 60% and 50%, respectively, of the raw materials and intermediate products of these two industries come from China.

In the face of escalating competition between the United States and China, Vietnam, like other countries in the region, has adopted a strategy of “balance of great powers” and does not openly steer to any side. Vietnam hopes to retain space to manoeuvre and further its national interests through diplomacy based on maintaining friendly relations with various major powers. On the one hand, Vietnam supports and participates in the BRI to attract Chinese investment, accelerate domestic industrial development and economic growth. On the other hand, in the long run, Vietnam believes that it is necessary to gradually reduce its economic dependence on China in order to avoid being diplomatically and strategically constrained by its northern neighbours.

The Vietnamese government has been trying to counteract China’s economic influence in Vietnam by expanding bilateral economic and trade ties with other countries (European Union, United Kingdom, Japan, India, South Korea and the United States). The Vietnam-EU Free Trade Agreement (came into force in 2020) and the Vietnam-UK Free Trade Agreement (2021) have been signed and implemented. As of January 2022, Vietnam had signed a total of 15 free trade agreements. In addition, Vietnam has been actively participating in regional multilateral organisations, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and adopting a market diversification strategy.

Vietnam officially joined the CPTPP in November 2018. Vietnam hopes to use the CPTPP and the Vietnam-EU Free Trade Agreement to broaden its export channels and channels, as well as to balance China’s geoeconomic influence, accelerate diversification of the trade market and reduce over-dependence on the Chinese market. According to the forecast of Vietnam’s Ministry of Industry and Trade, the CPTPP agreement will help to increase exports from Vietnam by 4% and GDP by 1.3% by 2030 and by 1.32% and 4.04%, respectively, by 2035. In the long run, the CPTPP will help Vietnam develop an export-oriented economy and accelerate its industrialisation.

The CPTPP has been in force since January 2019, and its member states have pledged to eliminate tariffs on Vietnamese products, especially textiles, footwear, agricultural products and seafood. Of course, in order to fulfil its commitments and meet the CPTPP accession criteria, Vietnam must also significantly reform its existing domestic laws and regulations on foreign trade, customs, state-owned enterprises, competition rules, trade unions, intellectual property rights and domestic procurement. Implementing these reforms will be challenging and painful, but in the long run, they are expected to enhance Vietnam’s overall competitiveness.

4.3 The Impacts of the China-US Trade War on Vietnam

In the context of the escalation of the Sino-US trade dispute and the high tariffs imposed by the United States on Chinese imports, many multinational corporations and local Chinese companies with factories in China seek to avoid tariffs on their products, so consider moving production lines to regions with lower production costs outside China, with Vietnam receiving particular global interest regarding industrial transfer. The International Monetary Fund predicts that if the United States imposes a 25% tariff on all exports from China, Vietnam will be the Asian country that benefits the most by providing a new base for Chinese exports to the United States.

According to official United States statistics, bilateral trade between Vietnam and the United States reached US$60 billion in 2018, making Vietnam the United States’ 16th-largest trading partner. US imports from Vietnam accounted for US$49.2 billion of this amount, with Vietnam ranking 12th among the major sources of US imports. In 2020, Vietnam rose to become tenth-largest trading partner of the United States, with bilateral trade volume of US$89.6 billion, with the United States’ imports from Vietnam accounting for US$79.6 billion, and Vietnam ranking 6th among the major sources of US imports.

In the past several years, the rising production costs in China, domestic economic transformation and tariffs imposed under the Sino-US trade war have led a considerable number of multinational enterprises to transfer part of their production capacity and supply chain support out of China in pursuit of “China + 1” supply chain diversification strategy. The COVID-19 pandemic has only reinforced the necessity and urgency of restructuring the global supply chains.

Vietnam is aspiring to become the next emerging “factory of the world” after China. According to the Global Competitiveness Report 2019 released by the World Economic Forum, Vietnam’s ranking on global competitiveness had risen by ten places compared to 2018, making it one of the fastest-rising economies. Vietnam’s geographical proximity to China and its relatively low labour costs, relatively young population and relatively abundant workforce make it attractive to foreign companies as a replacement production base for Chinese exports to the United States.

Vietnam’s total population is close to 100 million, of which a quarter are under the age of 25, and 70% of the total working-age population are under the age of 25. Vietnam has an abundant labour supply, able to meet the demand of labour-intensive manufacturing. Its other advantages include a long coastline, deep-sea ports, in good condition, and superior geographical location.

Based on its low production costs (e.g. Vietnam’s labour costs are about half of those in China’s Pearl River Delta region), Vietnam is highly successful in attracting foreign investment and is becoming one of the most competitive manufacturing bases in the Asia–Pacific region. In addition, Vietnam and some other Southeast Asian countries receive preferential treatment in terms of low tariffs on export products from Western countries due to their low level of economic development.

As China’s rising labour costs and the U.S. tariffs on Chinese goods have led to the gradual relocation of some U.S. factories from China, shifting capacity to Southeast Asia has become the preferred option. Taking the Korean firms as an example, after closing production plants in Shenzhen and Tianjin in 2018 and Huizhou, Guangdong province in October 2019, South Korea’s Samsung Electronics completed the transfer of its supply chain out of China. At present, Samsung has two large-scale manufacturing and assembly plants in Vietnam.

Vietnam hopes to take advantage of the Sino-US trade war and the restructuring of the global industrial chain through the transfer of manufacturing industry from China. Industrial chain transfers from China to Vietnam have included not only Western multinational companies, but also local Chinese enterprises. There has been a concentrated shift of electronic equipment manufacturing, textiles, garments and furniture industries from China to Vietnam. In order to circumvent the punitive tariffs on Chinese exports to the United States, Chinese companies have increased their investment in Vietnam and set up new production bases and assembly plants (order transfer effect).

Before the outbreak of the trade war between China and the United States, many labour-intensive, low-value-added industries and factories in China’s coastal areas had already moved to Vietnam. In the case of the sports products company Adidas, 40% of its footwear is produced by foundries based in Vietnam. Taking the international sportswear company LULULEMON as an example, in 2009, 75% of LULULEMON’s products were OEM products from China, and 8% of its products were OEM products from Southeast Asian countries. By 2020, Only 9% of LULULEMON products were made in China, compared to 53% made in Southeast Asia (33% in Vietnam and 20% in Cambodia) and 38% in South Asia and elsewhere. Vietnam is Nike’s number one producer. In 2010, Vietnam surpassed China on Nike footwear production, and in 2020, Vietnam surpassed China on clothing production. According to Nike’s 2021 annual report, Vietnam’s Nike shoe production accounted for 51% of output in 2021, while China’s production accounted for 21%. In 2020, Vietnam surpassed China to become the largest producer of Nike clothing products, accounting for about 30% of production.

As a result of rising costs of various manufacturing elements, China’s position as an “assembly foundry” in the global production chain has been challenged by Southeast Asian countries such as Vietnam. Many Chinese and multinational companies have moved low-end labour-intensive production to Vietnam. The growth of foreign trade has led to industrialisation in Vietnam, increasing its participation and market share in the global supply chain/production chain.

A common view of the international community and China’s domestic media is that, first, Vietnam is the biggest beneficiary of the Sino-US trade war, and second, Vietnam is able to cope with the transfer of China’s manufacturing against the dual background of Sino-US power competition and global supply chain restructuring and transfer. It could become the next “global manufacturing base” after China; however, some Vietnamese scholars are sceptical about Vietnam’s ability to seize this opportunity to attract sufficient numbers of foreign manufacturers to set up factories in Vietnam.

On the one hand, Vietnam will face competition from countries such as Bangladesh, Indonesia and Cambodia with lower production costs. On the other hand, although Vietnam is similar to China in terms of economic structure and political system, its economy is only small to medium-sized, and it has problems such as backward infrastructure development, low urbanisation rate, and insufficient skilled labour and land resources. Therefore, it will be difficult for Vietnam to cope with large-scale transfer of production lines from China.

The wide media report that “Vietnam has become the biggest winner in the Sino-US trade war” is exaggerated. The trade war between China and the United States, the world’s two largest economies, has had a negative impact on global economic growth, investment and trade exchanges. Since Vietnam’s economic development is dependent on foreign trade, it cannot help but be affected by the Sino-U.S. trade war.

In addition, many media outlets and academics ignore or underestimate China’s important role in Vietnam’s exports to the United States. “Made in Vietnam” products are largely reassembled and repackaged as “Made in China” products, for eventual export to the United States and other Western markets under the “Made in Vietnam” label. Since 2018, Vietnam’s exports to the United States, especially electronic products, have increased significantly, while most of the production equipment, intermediate goods and raw materials needed by Vietnam are imported from China, and China’s export trade volume to Vietnam has more than doubled since 2017. This also explains the rapid rise in Vietnam’s trade deficit with China in recent years.

In terms of the skilled labour required to develop its manufacturing industry, at most, Vietnam has only 15 million people available to participate in manufacturing development. Meanwhile, despite its ageing population, China still has more than 200 million skilled workers, its industrial chain/supply chain is well established and resilient, with sufficient supplies of domestic spare parts and other intermediate goods, and it has low dependence on foreign enterprises. Vietnam will find it difficult to emulate, let alone replace, China as the “world’s factory”.

China has obvious advantages regarding its production capacity, and absolute competitive advantages regarding its manufacturing capacity. Since joining the World Trade Organization in 2001, China has established strong comparative advantages in the global industrial chain that include its large number of skilled and hardworking industrial workers, its transportation and power infrastructure, upstream and downstream supporting supply chains, stable domestic political situation and huge domestic consumption market.

In contrast, Vietnam does not have the domestic transportation, power and other infrastructure required to become the world’s factory. According to the “Global Competitiveness Report 2018” by the World Economic Forum, Vietnam ranked 75th among 142 countries/economies on infrastructure development (Table 4.1). With the influx of foreign capital and the completion of processing and assembly bases, the reality of the labour shortage in Vietnam has begun to emerge. Industrial land resources in Vietnam are becoming increasingly scarce, and local land prices are also rising.

Table 4.1 Comparison of competitiveness between China and ASEAN countries

Although labour costs in Vietnam and other Southeast Asian countries are cheaper than in China, productivity and technical proficiency are lower than in China. This factor will largely offset the cost advantage. China still retains its industrial advantages of complete industrial chain, high maturity and good resilience. Meanwhile, China’s strong logistics and transportation capacity enhances the international competitiveness of its import and export trade. In terms of port handling capacity, the total container throughput in Southeast Asia’s ports is less than one-third of that of Chinese ports.

It is not an easy task for multinational enterprises with long industrial chains to rearrange and set up new processing and assembly plants, involving the training and employment of industrial workers, complete support facilities for the plant, completeness of the supply chain and procurement costs. Based on ASEAN’s imperfect supply chain, infrastructure bottlenecks and insufficient labour, it will be difficult in the short term for Southeast Asia to fully handle the production capacity transferred by China. Meanwhile, China is making every effort to achieve domestic industrial upgrading and economic transformation, from low-end value chains, reliant on labour, to medium and high-end value production chains, based on technological innovation and productivity.

4.4 The Case of Vietnam’s Electronics Industry

Since joining the World Trade Organization in 2007, Vietnam has gradually integrated into the regional and global industrial chain, and its electronic information industry has developed rapidly. Vietnam has now become the third-largest exporter of electronic products in ASEAN and one of the world’s important exporters of electronic information products. Nevertheless, most of Vietnam’s exports of electronics and related spare parts come from the production plants of multinational companies (such as Japanese and Korean electronics companies) located in their countries. Foreign electronics enterprises enjoy special tax exemption or low tax rates from the Vietnamese government (Pham et al. 2020).

However, Vietnam’s domestic electronics industry has developed slowly, has limited interaction and cooperation with foreign enterprises, a low degree of participation in the global industrial chain, and is at the low end of the industrial chain. Taking South Korea’s Samsung as an example, only seven of the 93 suppliers providing intermediate goods and related professional services to its Vietnam-based production plants are local Vietnamese companies. These small, limited-capacity Vietnamese companies are struggling to integrate into the global electronics value chain led by large multinational companies. Greater participation of Vietnam’s local electronics industry in the industrial chain is impeded by the difficulty in obtaining advanced technology from multinational electronics companies’ investment and production centres in Vietnam.

Essentially, the rapid growth of Vietnam’s electronics industry can be attributed to the establishment of production facilities of multinational enterprises in Vietnam. The emergence of these foreign-owned production facilities in Vietnam has created isolation between foreign players in the electronics industry and Vietnam’s domestically owned firms.

Backward and forward linkages represent the ways in which economies participate in global value chains (GVCs). The proportion of total output outside China in terms of value-added is called backward participation. Backward participation represents the role of buyer (demander) in a global value chain and the relationship between a country and an upstream supplier. The share of domestic value-added exported to third countries is called forward participation. Forward participation represents a country’s role as a seller (supplier) in the global value chain, through linkages with downstream producers.

According to the empirical research by Lin and Ye (2022), Vietnam’s electronic communication industry is reliant on low value-added links for integration into the global industrial chain, and despite gradually strengthening its position, it is currently in a “low-end lock-in” situation. Vietnam’s industry has far less forward than backward participation in the global electronic communication industry, so it is in a weak position overall, and it derives limited added value from the assembly and foundry links.

At present, Vietnam is mainly reliant on the small profits derived from electronic communication product assembly foundry, importing intermediate goods and raw materials from China, Japan and South Korea and other countries, and then, after simple assembly, selling on the goods to European and American sellers and customers.

4.5 Conclusion

While Vietnam may welcome the vision of the BRI, like many Southeast Asian countries it is unclear about key elements such as specific plans and details, or how to participate in the initiative. Vietnam is worried that the benefits from the Belt and Road Initiative unilaterally favour China. In order for Chinese enterprises to successfully go global and go forward, they need to have international operation capabilities and must at the same time be recognised and supported by the different countries’ governments, society and people. Chinese enterprises need to pay equal attention to the three goals of economic efficiency, local society and environment, in order to achieve balance and win–win results in the four aspects of business operation, government, local community and environmental protection.

Moreover, Chinese enterprises need to accept and adapt to global standards and international rules, to establish sustainable development principles and take on the role of “responsible investors” in order to go global. Chinese President Xi Jinping said: “The Belt and Road should benefit the local people”; therefore, China needs to better share the benefits of the initiative with Southeast Asian countries, rather than overemphasising its own interests. The joint communiqué reached at the Second Belt and Road Summit clearly stated: “High-quality infrastructure should ensure that it is feasible, affordable, inclusive and widely beneficial throughout the cycle, contributing to the sustainable development of participating countries and the industrialization of developing countries”.

The unilateral benefit model is not sustainable and will not be supported by countries along the route. The Chinese project development model of “Chinese design, Chinese equipment, Chinese construction, Chinese operation, and Chinese maintenance” needs to be adjusted. China could considerably allay regional countries’ concerns about the “China centricity” of the Belt and Road Initiative by expanding the participation of host countries and deepening the “localisation” of its projects.

A rising China must understand that, as a major power, it has to shoulder international obligations in terms of maintaining regional stability and promoting multilateralism. Only in this way can China truly win the trust and respect of the international community, especially neighbouring countries like Vietnam. The depth of cooperation achieved between China, Vietnam and other Southeast Asian countries under the BRI will be a litmus test of the smooth implementation and even the success of the Belt and Road Initiative.