FDI attraction continues to record, benefits and challenges

	Major trends of the real estate market in the second half of 2019
	Hanoi retains lead nationwide in FDI attraction
	Experts warn of sudden increase in Chinese FDI inflows
	FDI in Vietnam hits record high during five month period

The CPTPP agreement took effect from 2019, opening up great opportunities for economic growth, trade and export, which will attract FDI enterprises.

Chinese FDI capital surged

According to the Ministry of Planning and Investment, in the first five months of this year, FDI attraction reached a record of the value of registered investment capital compared to the last four years. As of May 20, 2019, total registered and additional capital, share purchase and capital contribution from foreign investors reached US$16.74 billion, an increase of 69.1% compared to 2018. FDI disbursement is estimated at $7.3 billion, up 7.8% compared to 2018. Notably, investment capital increased in all three components including newly registered capital, projects of added investment capital and share purchase and capital contribution of foreign investors.

Although the capital contribution of $3.85 billion of Hong Kong investors is excluded, total contributed capital still increased by 38.2% compared to 2018. The FDI sector’s exports reached $70.4 billion, up 4.7% compared to 2018 and accounting for 69.9% of export turnover, and had an export surplus of $12.73 billion including crude oil.

According to Dr. Tran Toan Thang, National Center for Socio-Economic Information and Forecast, if we say that the FDI attraction surged, it is not correct, because FDI flows to Vietnam increased significantly since 2017 and 2018 at averages of $33-34 billion/year. In the first five months of 2019, this capital flow highly increased and expected to set a new record of FDI attraction in 2019. Firstly, the US-China trade war is one of reasons for the high increase in FDI attraction. In addition, the implementation of CPTTP agreement in 2019 has opened up great opportunities for economic and trade growth as well as export, which will attract FDI enterprises. Secondly, Vietnam's impressive economic growth in the last five years is also a key factor to attract FDI. The most important reason for the high increase in FDI attraction is the domestic economy. Accordingly, Vietnam has similarities compared to other countries in the region, but its prospects for export and integration are much higher than those of other countries, especially domestic economic stability, such as exchange rates.

Notably, FDI from China increased compared to the past. FDI from China was $2 billion, accounting for 12% and ranking fourth in countries and territories investing in Vietnam, followed by Hong Kong, South Korea and Singapore. But China continues to be the leading country in newly registered capital of $1.56 billion that was 5.5 times higher than China’s FDI to Vietnam compared to 2018.

Experts said the US-China trade war brought opportunities for FDI attraction from China to Vietnam because Vietnam has a transparent business environment, stable security and politics, and countries have rearranged their foreign investment strategies. Large companies that are investing in China will find solutions to minimise risks by diversifying investment activities and transfer some business establishments to other countries, including Vietnam.

Destination to disperse the risk of trade war

Director General of General Statistics Office Nguyen Bich Lam said the office closely monitors the impact of the US-China trade war. From the end of 2018 until now, the flow of capital investment from China and Hong Kong (China) to Vietnam has increased sharply. Total registered investment capital from Hong Kong and China is estimated at $7.1 billion, of which Hong Kong was $5.1 billion, China reached USD 2 billion, accounting for 42.4% of FDI capital in the first five months of 2019.

Prof. Dr. Nguyen Duc Thanh, Director of the Vietnam Institute of Economic and Policy Research (VEPR) said this is a direct impact of the US-China trade war, of which there is a change of investment from China into other countries including Vietnam. For developed countries such as Japan, the US, they do not think that Vietnam is the top destination and is one of the candidates. Meanwhile, China realises that Vietnam has similar cultural, geographical and political characteristics, so Chinese investors have focused on investing in Vietnam, the investment proportion from China has soared and is higher than other countries.

However, Lam said 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 new generation free trade agreements. If Vietnamese enterprises compete ineffectively, the benefits from the Free Trade Agreement will be brought to Chinese enterprises.

“Small and low-tech projects causing pollution can be invested in Vietnam while Vietnam’s environmental standards that are relatively low compared to other countries in the world, which caused serious environmental pollution for Vietnam, because Chinese enterprises often invest in footwear, textiles and garments, iron and steel production. Besides, inflation control and macro economic stability also face challenges when China and other countries in the region and in the world devalued the domestic currency to protect exports will put pressure on the exchange rate of Vietnam dong with foreign currencies. This causes pressure to inflation control, stock market, foreign exchange reserves and maintain macroeconomic stability of Vietnam," Lam said.

Nguyen Van Toan, Vice Chairman of the Association of Foreign Investment Enterprises said the escalation of the US-China trade war has advantages for surrounding countries including Vietnam. “There is a trend that investors who are choosing China will be able to choose Vietnam or the surrounding countries. But this is not simple.”

Accordingly, there have been the transfer of FDI projects from China to Vietnam but it is not easy in reality, because the FDI enterprises have invested in these projects for a long time, so the transfer is difficult. China enterprises also do not want this situation to incur. They will have solutions to prevent this situation, these solutions are not administrative solutions, but that are financial and economic solutions for enterprises to prevent the investment transfer,” Toan said.

To attract FDI in the future, Lam said FDI capital attraction of the localities should be implemented by selecting high quality and high-tech projects, preventing investors investing in Vietnam with goals of abusing the cheap labour market, low service and cost. Especially, preventing Vietnam be a destination of foreign investors to disperse risks in trade war. For sensitive areas related to national defense and security, borders, sea areas, islands and special economic zones, FDI attraction should be considered closely and put on a priority with national defence, security and national sovereignty.