Foreign investment hit a four-year high of US$16.7 billion in the first five months of 2019, up 69 per cent compared to the same period in 2018.
Chinese investment made up 42.5 per cent of the total according to data released by the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment.
But, many local businesses are voicing their concerns about Chinese companies are accelerating investment in Vietnam. Chinese investors poured nearly $7.7 billion in Vietnam, including Taiwan’s investment, surpassing South Korea, Singapore and Japan to become the biggest foreign investor.
In its recent report, the FIA says the trade tensions between China and the United States has a significant impact on the shift of Chinese investment. Investments from mainland China and Hong Kong increased from $3.7 billion in 2017 to $5.8 billion in 2018 and $7.1 billion in the last five months.
Previously, Chinese investors were mainly small businesses with out-dated technology but now many large corporations have funded large-scale projects.
According to a report on Vietnam News Agency, five of the seven biggest foreign-invested projects in the last five months came from Chinese backers, including the ACRT’s all steel Radian tire manufacturing project worth $280 million, a $260 million electronic equipment and multimedia audio products manufacturing project invested by Hong Kong-based Goertek Co Ltd, and the $214.4 million tires, rubber manufacturing project invested by Guizhou Advance Type Investment Co Ltd.
However, FIA said increased technological pressure would drive Chinese companies to move their low-quality and old-fashioned technology investment to other developing countries, including Vietnam, which would potentially pose risks of environmental pollution and create pressure on infrastructure and society.
Chinese investors are also increasing merger and acquisition (M&A) activities, raising the concerns Vietnamese enterprises would be acquired and annexed.
“ Vietnam needs to fine tune its policies to ensure high-quality foreign investment. Said Nguyen Mai, the Chairman of the Association of Foreign Invested Enterprises.
“China is a country that exports a lot of raw materials to Vietnam. Therefore, it is not excluded that they invest in manufacturing in Vietnam to get the origin of goods to take advantage of tax benefits from the free trade agreements Vietnam has signed with other countries.” Mai added.
Regarding the rapid increase in Chinese investment in the last five months, Mai said Hong Kong topped foreign investors in Vietnam with $5.08 billion but three quarters of the amount was spent on buying shares of local companies, of which $3.8 billion was for the purchase of Vietnam Beverage Co Ltd in Saigon Beer-Alcohol-Beverage Corp (Sabeco). He said China was looking for investment opportunities but was not rushing into purchases. Vietnam News Agency reports.
At a recent press conference in Hanoi this month, commercial counsellor of Chinese Embassy in Vietnam Hu Suo Jin said Chinese investment had increased since 2017 and the value of this year would be higher than last.
However, he did not see solid evidence for the connection between the investment increases with the trade friction with the US so far. A more detailed report must be conducted in the next few months.
Another representative of the Chinese Embassy said China had adopted many measures to mitigate the effect of the trade tension with the US and confirmed China’s socio-economy was still doing well.
“Vietnam continues to be an attractive investment destination for many businesses. Foreign direct investment flows to Vietnam rose to a new record in Q1 2019. Monthly, we support many foreign-owned enterprises from all over China and many countries in the world to identify business opportunities and to expand their business operation in the country,” said Ms. Sophie Dao, Partner of GBS, a business and legal services company in Vietnam.
The most preferred legal entity types to set up in Vietnam are a limited liability company (LLC) and a joint-stock company (JSC), businesses may also open a representative office in Vietnam or a branch if they already had business in other countries.