FDI attraction continues to increase

The CPTPP agreement began to be implemented from 2019, opening up great opportunities for economic growth, trade as well as export, which will attract FDI enterprises. Photo: ST.

Chinese FDI capital increases sharply

According to the Ministry of Planning and Investment, in the first 5 months of this year, attracting FDI reached a record of the value of registered investment capital over the same period within the last 4 years. As of May 20, 2019, the total newly registered capital, increased and contributed capital to buy shares of foreign investors reached 16.74 billion USD, an increase of 69.1% compared to the same period in 2018. Besides, FDI disbursement is estimated at US$7.3 billion, up 7.8% over the same period in 2018. Notably, in the first 5 months of 2019, investment capital increased in 3 components including posted capital of new signings, projects of registration of adjustment of investment capital and capital contribution, share purchase of foreign investors.

According to the Ministry of Planning and Investment; no calculation of the capital contribution of US$ 3.85 billion of Hong Kong investors, the total value of contributed capital still increased by 38.2% compared to the same period in 2018. Continuing to be the light of the economy, the FDI sector's exports in the last 5 months (including crude oil) reached 70.4 billion USD, up 4.7% over the same period in 2018 and accounting for 69.9% of export turnover and in the first 5 months of 2019, the foreign invested sector saw an export surplus of 12.73 billion USD including crude oil.

According to Dr. Tran Toan Thang, National Center for Information and Forecasting of Socio-Economic Affairs, said that FDI attraction has also increased incorrectly because FDI inflows to Vietnam have increased since 2017, 2018 averages at about 33- 34 billion USD / year. In the first 5 months of 2019, this capital flow is high and promises to set a new record of FDI attraction in 2019. According to Thang, the US-China trade tension is just one of the reasons for the high FDI attraction in the last 5 months. In addition to this, the CPTPP Agreement began to be implemented from 2019, opening up great opportunities for economic and trade growth as well as export, which will attract and appeal to FDI enterprises. Secondly, Vietnam's impressive economic growth in the last 5 years is also a bright spot to attract high FDI. So what is the main and most important reason leading to a strong increase in FDI attraction? Mr. Thang said that it is due to domestic reasons. If compared to other countries in the region, we have many similarities but potentials and prospects for export and integration of Vietnam are much higher than those of other countries, especially domestic economic stability, such as exchange rates.

As a result of FDI attraction, it is noteworthy that FDI from China has increased. Specifically, data from the Ministry of Planning and Investment showed that in the last 5 months, FDI from China was USD 2 billion, accounting for 12% and ranking fourth in countries and territories investing in Vietnam, just behind Hong Kong (China), Korea, and Singapore. But in the newly registered capital alone, China will continue to be the leading country with total new registered capital of up to 1.56 billion USD, this figure is 5.5 times higher than Trung's FDI investment. The country entered Vietnam in the same period of 2018.

According to experts, the US-China trade war gives Vietnam the opportunity to attract FDI inflows from China because Vietnam has a clear, secure, politically-stable business environment and the countries are about to reschedule investment strategy abroad. Large companies are investing in China and will find solutions to minimize risks by diversifying investment activities and will transfer some production or trade facilities to other countries, including Vietnam.

Risk of trade war

General Director of General Statistics Office Nguyen Bich Lam said that the General Statistics Office always closely monitors the content and impact of the US-China trade war. From the end of 2018 until now, the flow of investment from China and Hong Kong (China) to Vietnam has increased dramatically. Total registered investment capital from Hong Kong and China is estimated at 7.1 billion USD, of which Hong Kong has registered to invest 5.1 billion USD and China has reached 2 billion USD, accounting for 42.4% of total capital.

Commenting on this, Prof. Dr. Nguyen Duc Thanh, Director of the Institute of Economic and Policy Research (VEPR) said that this is a direct impact of the US-China trade war, in which the wave of displacement investment from China to other countries including Vietnam. For countries with developed technologies such as Japan and the US, they do not fully think that Vietnam is the number one of destination. Vietnam is just one of the candidates. Meanwhile, China finds Vietnam has cultural, geographical and political similarities, so Chinese investment has poured into Vietnam. The proportion of investment from China has soared, taking the upper hand compared to traditional countries.

However, Mr. Nguyen Bich Lam emphasized that the wave of investment from China into Vietnam is also a big challenge when this wave will create competition with domestic enterprises to take advantage of opportunities from trade agreements. If Vietnamese enterprises can’t compete, the benefits from the Free Trade Agreement that Vietnam struggles to negotiate will be reserved for Chinese enterprises.

"Small, low-tech, polluting investment projects can spill over into Vietnam while Vietnam's environmental standards are relatively low compared to other countries, which may cause capital inflows from China to cause problems of serious environmental pollution for our country because Chinese enterprises often invest in the fields of footwear, textiles, iron and steel production. The goal of controlling inflation and economic stability is also facing challenges when China and other countries in the region devalue the domestic currency to protect commodity exports, putting pressure on the exchange rate of the Vietnamese dong with foreign currencies. Causing considerable pressure to control inflation, stock market, foreign exchange reserves and maintain macroeconomic stability of Vietnam," Mr. Nguyen Bich Lam said.

In this regard, Mr. Nguyen Van Toan, Vice Chairman of the Association of Foreign Investment Enterprises said that the US-China trade war has advantages for surrounding countries including Vietnam.

“There has also been a trend that investors who are choosing China will be able to choose Vietnam or the surrounding countries. But this is not simple either. Accordingly, the transfer of FDI projects from China to Vietnam is possible, but it is not easy, because the FDI enterprises they have invested in for a long time, the projects have been registered, so it is difficult to move. Secondly, the Chinese side did not want to let this happen. They will have solutions to prevent this, not an administrative solution, but a financial and economic solution for businesses to feel and struggle and trade in order to prevent the transfer of investment," said Nguyen Van Toan.

Regarding the orientation of FDI attraction, Mr. Nguyen Bich Lam said attracting the FDI capital of the localities in the direction of selecting projects with high quality, high added value and modern technology, and not allowing investors to come to Vietnam with the goal of making use of the cheap labor market and low utility costs. Especially, not letting Vietnam become a destination for foreign investors to disperse risks in the trade war. For sensitive areas and the areas related to national defense and security, border areas, sea areas, islands and exclusive economic zones, the attraction of foreign investment should be considered tight, putting priority on national defense, security and national sovereignty.