China’s direct investment in Vietnam has surged more than 60 per cent this year. Increasing production costs in China have pushed manufacturers to relocate their factories to Southeast Asian countries which have lower costs. Vietnam is also seen as a country with a better labor supply. 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 relies on China to propel its rapidly growing economy. China is Vietnam’s biggest trading partner. Vietnam has capitalised on the fallout of the US-China trade war to become a top destination for manufacturers looking to avoid tariffs. China now is the third biggest FDI investor to Vietnam, climbing up from fifth in 2018. Another reason for the Chinese shift to Vietnam is the trade dispute with the US. 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.