China’s direct investment in Vietnam has surged more than 60 per cent this year. China now is the third-biggest FDI investor to the country, climbing up from fifth in 2018. Vietnam is one of the favored options as the country has witnessed pledges of foreign direct investment from China surge 134 per cent from January to July. Increasing production costs in China has pushed manufacturers to relocate their factories to Southeast Asia countries which have lower costs. Vietnam is also seen as a country with a better labor supply. Another reason for the Chinese shift to Vietnam is the trade dispute with the US.
Manufacturers considering moving out of China are mainly producers engaged in low-end sectors in manufacturing, including textiles and garments, consumer discretionary and electronics packaging and assembly. But high-end industries, such as electronics and machinery, are also showing signs of relocating to Vietnam.
Vietnam is not the only one. The trade war is also benefiting countries like Cambodia, Myanmar and Bangladesh. The massive outflow of production from China is going to them. While outerwear is moving into Myanmar and Vietnam, sportswear and bottoms are moving into Cambodia. There has also been an increased general outflow into Bangladesh.