Chinese investors made 922 deals in capital contribution or share acquisition of Vietnamese firms

Indirect investment from China to Vietnam is surging sharply, causing concerns as Chinese companies could use the local peers as intermediaries to avoid tariffs imposed by the US.

Reports from the Ministry of Planning and Investment’s Foreign Investment Agency showed that Chinese investors made 922 deals worth US$500 million in capital contribution or share acquisition of Vietnamese firms in the first eleven months of 2018. HanoiTimes reports.

Besides China, indirect investment inflow of Hong Kong and Taiwanese investors to Vietnam also poured sharply in the period, with 105 deals worth US$220 million of Hong Kong investors and 460 deals worth more than US$365 million of Taiwanese investors.

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As the US-China trade war is accelerating with the US imposing high tariffs on many Chinese products, experts said that the government and domestic firms must take actions against Chinese firms, which ship their unfinished products to Vietnam and then export them to the US through a Vietnam-based firm as an intermediary to avoid tariffs.

“Vietnam needs to be cautious with such investment projects, which are registered in Vietnam only to obtain legal Vietnamese status in a move to allow Chinese firms to avoid high taxes when exporting products to the US” said Nguyen Xuan Thanh from Fulbright Vietnam University.

If Vietnam cannot prevent the wave of Chinese goods that transit in Vietnam before going to the US, it may bear punishments imposed by the US as the case of steel originated in China but exported from Vietnam. The US Department of Commerce had decided to slap tariffs on steel produced in Vietnam using Chinese-origin materials.

Bui Quang Tin, CEO of BizLight Business School, said Vietnam was the only market among the US’s five trade partners with which it had a high trade deficit but had not imposed tariffs yet. But that could still happen, he warned, adding if the US imposed punitive tariffs, the impact on the Vietnamese economy would be huge.

According to a HSBC’s recent survey, Vietnamese firms also foresee the situation, HSBC Vietnam’s CEO Pham Hong Hai said, adding while the firms have kept calm about challenges to be brought by FTAs, they now have a big worry about transshipment goods from China, which may result in high taxation on Vietnamese goods as well.

If some Vietnamese firms lend a hand to Chinese to avoid tax, entire industries and the national economy will suffer, Hai said.

Goods origin under strict control

To avoid the risks, experts said that authorities should closely monitor the import and export of goods for origin to prevent customs declaration fraud.

Besides, Pham Sy Thanh, director of the Chinese Studies Program, said third countries like Vietnam need to prepare well to prove the Vietnamese origin of the products.

Sharing the same view, Hai from HSBC said that with high risky industries, both firms (through associations) and the government should actively prepare transparent information on origin to readily show out before being taxed.

In particular, according to Hai, enterprises must actively access information, even update it daily to come up with solutions. Of course, there is no perfect solution because everything changes constantly, but the more the firms know how to have access to information and focus on competitive advantages, the more they can take opportunities.

The information needs to be shared widely among the business community, especially with small companies, Hai said.

Meanwhile, Tran Du Lich, deputy chair of the Vietnam International Arbitration Center (VIAC), said that state management agencies should create criteria and standards on goods origin.

In the long term, Lich believes that the best solution is to develop local supporting industries that will help increase the locally-made content in products.

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