FDI attraction – throne was swapped

There is a need for a filter that only captures clean, high-tech, durable FDI. Photo by H. Anh.

Growth spurt

Data from the Foreign Investment Department (Ministry of Planning and Investment) shows that in the first two months of 2017, foreign direct investment in Vietnam reached a record level compared to the same period of previous years in both number of new granted projects, registered capital and disbursed capital. Accordingly, Vietnam has attracted 313 new projects with a total registered capital of $US 2.028 billion. Along with 137 projects registered to increase investment capital with a total registered capital of $US 759.51 million and 654 capital contributions and share purchases of foreign investors with a total capital contribution of $US 619 million, Vietnam has attracted $US 3.4 billion, an increase of 21.5% over the same period last year. Along with increasing registered capital, disbursed capital was estimated at $US 1.55 billion, increased 3.3% over the same period of 2016.

There is no change when the manufacturing industry still attracts the attention of most foreign investors among the 18 sectors and investment fields with total capital of up to $US 2.5 billion, accounting for 73.4% of the total registered capital.

Evaluating on attracting FDI, Mr. Nguyen Van Toan, Vice Chairman of the Association of Foreign Investors, said that two months does not show much, but it can be said that even without TPP, the main trend of Vietnam is still the trend of integration and the highlight in recent times was that FDI attraction had not decreased, specifically not was not affected by the newly elected President of the United States, Donald Trump who announced that the US would not be involved in the TPP. The expert also said that without TPP, the FDI we expected would be reduced, but the available FDI would not be lost, therefore, the growth of FDI into Vietnam in 2017 would not decrease but would be made up by investment from other markets such as the EU, Japan, and South Korea. Recently, Chinese investors in Vietnam not just focus on the trade itself but they also invest on post-trade.

Statistics also show that recently there has been a stunning switch in the status of foreign investors investing in Vietnam. In 2016, South Korea was leading almost all countries and territories having investment projects in Vietnam, then in the first two months of this year, that position has belonged to Singapore when this nation “injected” $US 881.6 million worth of investment into Vietnam. In regard to South Korea, in January of this year the country still ranked second after Singapore, then in February they suddenly dropped to third and the rise of Chinese investors was the cause of this change. According to the Foreign Investment Department, China rose to second place when theirs investors poured $US 721.7 million into Vietnam, accounting for 21.1% of total investment.

In five largest projects licensed in the first two months of 2017, besides the Viet Nam - Singapore Industrial Zone III Project (total investment capital of US $US 284.75 million) invested by Singapore in Binh Duong, it is obvious to see the presence of two projects from China, including the Vietnam Billion synthetic fiber and Polyester Production Plant Project (total investment capital of $US 220 million), was invested by Chinese investors in Tay Ninh Province; and the infrastructure project on Lan Son Industrial Zone complex and Khai Hong Viet plastic factory (total investment capital of $US 150 million) invested by Wenzhou Hendy Mechanism and Plastics Co., Ltd (China) in Bac Giang Province.

However, according to Mr. Nguyen Van Toan, in March 2017, South Korea will return to the leading position when Samsung group increases their investment by $US 2.5 billion for their project in Bac Ninh province.

Needing a "filter" to capture only clean capital

The growth of FDI capital, especially the rise of Chinese investors investing in Vietnam, has received the attention of experts as well as the general public. Currently, China's FDI inflows to Vietnam are concentrated in sectors such as textiles and garments, real estate, footwear, construction, thermal power and mining. According to Assoc. Prof. Dinh Trong Thinh, Head of Economics, Academy of Finance, the growth of FDI in Vietnam is good, but is the growth in the source of capital coming from China to Vietnam good or not good, is what Vietnam should be careful about.

Explaining this, Assoc. Prof. Dinh Trong Thinh said that in the past time, China has been restructuring its economy, replacing its production model from the groth in width with low-tech enterprises to growth in depth with higher technology enterprises, resolutely terminating large enterprises polluting the environment, moving enterprises, factories with low technology, managing environmental pollution and developing surrounding countries. "In the history of investment, lots Chinese investment projects in Vietnam polluted the environment, which is a costly lesson for most Chinese projects, therefore we need to be careful receiving investment projects from this country" Assoc. Prof. Dinh Trong Thinh warned.

According to Mr. Nguyen Van Toan, the trend of China investment in Vietnam would be increased since China now is overcapitalised and promoted to invest in other countries including Vietnam. In addition, Vietnam's relationships with countries such as the United States and Japan in terms of geopolitics, economics, and society also make China think and calculate, then the economic policies would be changed.

Experts also say that Chinese investors are willing to invest money in Vietnam to get "Made in Vietnam" products to export to other countries for benefits. On the other hand, some Chinese goods also create unequal competition, or having defects that is unwanted in the consumer community, therefore through this form of foreign investment, Chinese investors want to "change the shape" of their merchandise, which is also something that we need to be careful about. "In the trend of receiving FDI from China, we have to be very careful to avoid the weaknesses of these investments, but at the same time, be able to acquire the essence, the goodness and satisfy the demand for growth and development of the economy" said Dr. Assoc. Prof. Dinh Trong Thinh.

About the FDI attraction trend in 2017, Mr. Nguyen Van Toan said that the sudden surge is not much, but the sudden drop is not to worry about, because without TPP we still could take advantages of many opportunities from AEC, Vietnam – EU, Korea and Japan Agreements. Besides, one more advantage is that nowadays, multinational companies have entered Vietnam more than before, some corporations such as Samsung have registered to expand their investment in Vietnam. In the condition where the Samsung Group in Korea is having problems but they continue to expand in Vietnam, is a good trend.

According to experts, lots of international organizations now regard Vietnam as one of the bright spots for economic development in 2017 and this is the basis to forecast that in 2017, we could attract bigger FDI capital. "The most important issue is that we are in need of FDI and are working to improve the business environment to attract better FDI, but we need a filter to attract only clean FDI capital with high technology and sustainability rather than following FDI at all costs. It is time to work seriously and fully to fasten FDI with overall growth and development of the Vietnamese economy, fasten the interests of foreign investors to the interests of Vietnamese economy rather than just prioritize foreign investors like we used to do. The benefits of the Vietnamese economy must be adequately addressed," Assoc. Prof. Dinh Trong Thinh recommened.