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U.S.-China trade war likely to shift FDI flows into Vietnam
By Thuy Dung
Thursday,  Oct 4, 2018,18:12 (GMT+7)

U.S.-China trade war likely to shift FDI flows into Vietnam

By Thuy Dung

A laborer is seen working at a foreign invested company in Vietnam. Experts say Vietnam should keep opening its doors to foreign investors to attract more FDI in the future – PHOTO: QUOC HUNG

HANOI - The ongoing trade war between the United States and China is expected to help Vietnam attract more foreign direct investment (FDI) due to the exodus of foreign investors out of the United States, China and the European Union given the increased production costs, stated Minister of Planning and Investment Nguyen Chi Dung.

However, Vietnam has to compete strongly with other regional countries to attract FDI, Dung told a conference to review Vietnam's FDI attraction over the last 30 years in Hanoi today, October 4.

At the conference, Nicolas Audier, co-chairman of the European Chamber of Commerce in Vietnam, stated that the United States and China have imposed taxes on each other’s products, worth hundreds of billions of U.S. dollars.

Protectionist measures will certainly create a negative impact on both enterprises and consumers by increasing production and trade costs, thus making goods and services more expensive.

Therefore, Vietnam should keep opening its doors to foreign investors to attract more FDI in the future.

Free trade agreements (FTAs) have assisted Vietnam in attracting FDI. For instance, the FTA between the European Union and Vietnam, which is expected to be signed next year, will help boost the European Union’s investment in the country, noted Audier.

Kitagawa Hironobu, head of the representative office of the Japan External Trade Organization (JETRO) in Hanoi, agreed with Audier, adding that in the context of increasing protectionism, Vietnam and Japan are striving to finalize procedures to ratify the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which is considered a breakthrough in promoting free trade in the region. Deals of this nature will make Vietnam more attractive to international investors.

However, it is not easy to attract FDI, especially given the strong impact of the Fourth Industrial Revolution on the local economy. Low-cost workers, often touted as Vietnam’s advantage in attracting FDI, are at high risk of losing their jobs to automation.

In addition, Japanese enterprises’ greatest problem is the low contribution of Vietnamese input materials and components, said Hironobu.

A survey by JETRO showed that the localization rate of Japanese-invested manufacturers in Vietnam is only 33%, lower than that in China and Thailand, at 67% and 57%, respectively.

Manufacturers are dependent on imports of materials and components from China, Thailand and adjacent countries, which is a shortcoming of the mechanical engineering sector but also a source of potential growth as the supporting industries have yet to be fully exploited.

Hironobu also suggested enhancing manpower training.

Foreign investors cannot transfer technologies to domestic firms without highly skilled engineers in place, stated Ryu Hang Ha, chairman of the Korea Chamber of Business in Vietnam.

At the conference, Prime Minister Nguyen Xuan Phuc said the number of FDI enterprises applying advanced technologies and investing in research and development remains modest.

Connectivity between FDI and the private sector remains low, and technology transfers for domestic businesses are not as efficient as expected. Moreover, the added value of Vietnamese products in value chains is low, PM Phuc added.

He also pointed to some foreign-invested projects that had led to wastefulness in the use of fuels and natural resources and had created environmental pollution. Many FDI firms have even been caught violating regulations and failing to protect the legitimate rights of their employees.

Huynh The Du, lecturer at Fulbright University Vietnam, proposed developing a comprehensive education system, focusing on tertiary education, together with encouraging innovation and protecting intellectual property rights.

The country should also control incentives for foreign investors. An investor should be offered preferential policies only once, even if it invests in many localities, Du added.

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