The recent state visit of General Secretary Tô Lâm to China underscores the strong economic ties between both nations. Focused on FDI, trade agreements, and shifting geopolitics, Vietnam and China aim to expand their partnerships. As Vietnam strengthens ties with partners like the U.S., the China Plus One strategy reshapes regional FDI dynamics, offering new opportunities for businesses entering Vietnam.
Bilateral and Multilateral Commitments Strengthen Trade
Vietnam and China have long relied on trade agreements to foster economic growth. Through bilateral efforts, the two countries have reduced tariffs, facilitated cross-border trade, and encouraged investment. One major framework is the ASEAN-China Free Trade Agreement (ACFTA), which has been instrumental in increasing trade volumes.
In 2023, trade turnover between Vietnam and China reached an impressive $230 billion, making China one of Vietnam’s largest trading partners.
On the multilateral front, Vietnam’s involvement in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP) has expanded its global economic reach. These agreements help Vietnam position itself as a vital hub for investment and trade, linking supply chains across the globe.
China’s Growing Role in Vietnam’s FDI Landscape
China’s influence on Vietnam’s economy is evident through significant FDI contributions. As of 2024, China has invested over $23 billion in Vietnam, making it one of the top foreign investors. Sectors like electronics, textiles, and real estate have benefited greatly from these investments.
Manufacturing is a key area where Chinese companies are leveraging Vietnam’s competitive labor costs. Vietnam’s strategic location, acting as a gateway to the West, makes it an ideal choice for Chinese companies seeking international expansion.
In addition to FDI, China plays a critical role in Vietnam’s infrastructure projects, including highways, industrial zones, and energy plants. However, tensions related to water management in the Mekong region have raised concerns. Vietnam is looking to protect its economic and ecological interests by diversifying its FDI sources, bringing in investments from other key players like the United States, Japan, and South Korea.
The China Plus One Strategy: A Game Changer for Vietnam
The China Plus One strategy is gaining popularity as multinational companies reduce their reliance on China by diversifying production bases. Vietnam, with its favorable investment climate and expanding trade network, is emerging as a prime alternative.
This strategy offers Vietnam opportunities to attract high-quality FDI while managing the risks associated with overdependence on China. It also aligns with global trends like supply chain resilience, especially in light of recent disruptions.
For China, this shift allows it to maintain its influence in the region, even indirectly, by supporting investments in Vietnam through other channels.
Strategic Recommendations for Market Entry
Foreign businesses planning to enter the Vietnamese market should adopt the following strategies:
- Leverage Free Trade Agreements: Vietnam’s participation in RCEP and CPTPP provides access to key markets with tariff advantages. Investors should align their strategies with these agreements to capitalize on opportunities.
- Explore FDI Zones and Incentives: Vietnam offers specialized economic zones (SEZs) with tax incentives that favor foreign investors. These zones can serve as strategic bases for manufacturing or distribution.
- Incorporate Sustainable Practices: Vietnam’s growing focus on sustainable development means businesses with eco-friendly strategies may benefit from government incentives and rising consumer demand for green products.
