China firms eye 'Made in Vietnam' windfall - if Obama's TPP survives
REUTERS
UPDATED : 11/07/2016 07:53 GMT + 7
HO CHI MINH CITY, Nov 7 -- From textiles and shoes to paper and furniture, Chinese manufacturers are pouring investments into neighbouring Vietnam, hoping to ride on the coattails of the Southeast Asian country's pending trade blitz.
Vietnam's Free Trade Agreement (FTA) with the European Union, signed last year, and the Trans Pacific Partnership (TPP), if it clears significant political hurdles in the U.S., would collectively give the country access to markets worth $44 trillion in combined gross domestic product.
Even as doubts linger over the future of U.S. President Barack Obama's TPP once he leaves office, early moves by China Inc to leverage off Vietnam's lower factory wages - about a third that of China's - show a re-centering of the world's factory activity.
Importantly, a base in Vietnam gives Chinese manufacturers access to trade agreements of which China is not currently a part.
"So far this year, I've had more than 30 Chinese wood companies coming to me for consultation," said Nguyen Ton Quyen, who heads Vietnam's Timber and Forest Product Association.
"There's a considerable amount of Chinese wood furniture firms moving their investments to Vietnam, to enjoy tax incentives."
Chinese inflows into Vietnam in 2015 doubled from a year earlier to $744 million and 80 percent of that was in the second half of the year, just after Vietnam signed the EU FTA and the TPP.
In the first nine months of this year, investments from China quadrupled to $1 billion compared with the same period in 2015.
Vietnam has numerous other free trade agreements, including with top investor South Korea, supporting resident giants like Samsung and LG. As a part of the Association of Southeast Asian Nations, it also enjoys free trade with other members of the 10-nation zone, plus the various bilateral agreements the bloc has with other economies, like China.
Nguyen Chien Thang runs a furniture factory and is also feeling the Chinese surge. He estimates a third of the approximately 500 foreign-owned wood processing firms in Vietnam are from China and Taiwan, adding to competition for his Scansia Pacific, a supplier for Swedish giant IKEA.
"Tax rates here are also much more favourable," said Thang. "Labour costs in their mainland are getting much higher."
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