Vietnam’s exports of garment-textile products in the first nine months of 2019 were up 9.2 per cent. The sector’s trade surplus was up 16.8 per cent. The income surge has been attributed to a shift of manufacturing units from China to Vietnam.

Once the free trade agreement with the EU comes into force, investments in Vietnam’s textile and garment industry are expected to increase further. There are over 2,000 textile and garment projects in the country. Vietnam’s supply chain diversification has been happening for a few years already, mainly driven by rising labor costs in China. Even before the trade war, Vietnam was getting attention because of the proximity to China and because of the existing infrastructure in the country. The full supply chain has been set up in the country for the past decade already.

But customers are avoiding long-term orders and trying to reduce prices, eating into firms’ profits. The yarn market witnessed a sharp decline in both demand and prices between the end of 2018 and the first quarter of 2019. Vietnam’s yarn producers, particularly those exporting products to China, have been hit the hardest by continuous price decreases. The situation is getting worse as these companies are facing fierce competition for orders from FDI-funded firms and those from Thailand, Indonesia, and Pakistan.