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US-China trade war and warnings on FDI attraction

15:28 | 14/07/2019

VCN - Besides the opportunities for trade and investment, the consequences of the US-China trade war will be larger if Vietnam is not alert to the risks of Chinese enterprises taking advantage of policies in attracting FDI to avoid US tariffs.  

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Chinese investment is rising in the first half of 2019, of which Chinese capital in the wood industry is climbing. Photo: N.Thanh.

Increasing investment from China

FDI attraction in the first half of 2019 achieved positive results when there were nearly US$18.5 billion of foreign investment pouring into Vietnam. One noteworthy point is that the newly registered investment capital decreased, reaching US$7.41 billion, only 62.8% compared to the same period in 2018.

Capital adjustment of projects also decreased compared to last year when there were only 628 registered projects with an increase of US$2.94 billion in registered capital, equaling 66.2% compared to the same period in 2018. At that time, about capital contribution and buying shares, there were 4,020 instances of capital contributions, buying shares of foreign investors with a total value of US$8.12 billion, nearly double compared to the same period in 2018 and accounting for nearly 44% of total registered capital. Even if the investor does not count the contribution of US$3.85 billion of Vietnam Beverage Co., Ltd., the total value of contributed capital still increased by 4.1% compared to the same period in 2018.

Obviously, capital contribution and share purchase is a method that has been paid attention by foreign investors. Many people said that this is because the procedure of capital contribution to buy shares is often simpler and faster than that of foreign investors investing in new projects in Vietnam, and at the same time, investors can immediately take advantage of the brand, market and experience of enterprises in Vietnam.

However, Chinese enterprises are increasingly paying attention to investing in the Vietnamese market as the US-China trade war shows no signs of ending. This also raises concerns about Chinese companies rushing to invest in Vietnam, which is supposed to avoid the punishment of US tax increases on Chinese goods.

On attracting FDI from this country, Nguyen Noi, Deputy Director of Foreign Investment Department, Ministry of Planning and Investment, said data on foreign investment in the first six months of 2019 showed that investment in the Asian region increased by 86% and accumulation increased by 76%, including Chinese investment. China's investment in the first six months of 2019 reached US$2.72 billion, ranking 3rd among 95 countries investing in Vietnam. Accumulated, Chinese investment is currently ranked 7th.

According to Mr. Nguyen Noi, on the issue of Chinese enterprises investing in Vietnam to avoid high taxes from the US, the MPI is unable to make an official conclusion, however, representatives of the Foreign Investment Department said that the US-China trade war will lead to investment shifting. When the US imposes high taxes on some Chinese goods, investors will shift to Asia, including Vietnam, as it is a very attractive investment market.

Vietnam will receive good investment projects, limiting projects with low quality. But there are origin fraud or projects with bad impacts on the environment, as well as ensuring security, we need to carefully prevent these projects.

“This issue has also been mentioned by MPI in the project to improve the efficiency of attracting foreign investment, and there may be resolutions to solve these problems and then there will be study and revise the relevant contents in the Investment Law,” said Nguyen Noi.

Prevent “shadow investment”

Concerns related to the increase of Chinese enterprises' investment in Vietnam after the escalating trade war are reasonable. According to "The US-China trade war: Opportunities and risks for Vietnam's wood industry" which was announced at the conference on "Impact of US-China trade war on Vietnam's wood industry", especially in early 2019 new FDI projects in the wood industry increased rapidly and mainly focused on processing.

Notably, China leads the list of countries investing in Vietnam’s wood industry, followed by Taiwan, South Korea, Hong Kong and Japan. According to this study, one of the reasons for the increase in small-scale projects is due to Chinese enterprises wanting to take advantage of origin as the US government imposes new tariffs on goods from China. However, the risk will occur if these enterprises import wood products from China for preliminary processing then export to the US to avoid taxes.

As Vietnam enjoys a trade surplus to the US, it needs to be cautious. Regarding the tension between the US and China, Luong Van Khoi, Deputy Director General at the National Centre for Socio-economic Information and Forecast, said in addition to the risks, the problem is not only in trade but also in the supply chain, technology transfer and other factors.

Luong Van Khoi said that we must strengthen trade defense measures to prevent Chinese goods from labelling Vietnamese goods to flow into Vietnam.

"We should strictly control the flow of FDI into Vietnam to avoid projects with the purpose of assembling and exporting to the US,” Luong Van Khoi said.

On this issue, Deputy Minister of Planning and Investment Vu Dai Thang said that Vietnam faced both challenges and opportunities from the US-China trade war. The problem is that the Government, ministries and agencies must be alert to take advantage of opportunities but still have solutions to avoid investment that takes advantage of origin in Vietnam.

"MPI regularly updates information, firmly grasps the situation to prevent the consequences of “shadow investment” as well as minimizing unwanted adverse effects due to US-China trade war,” said Vice Minister Vu Dai Thang.

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Regarding the issue of capital contribution, To Xuan Phuc, representative of Forest Trends, one of the authors of the report on "The US-China trade war: Opportunities and risks for Vietnam wood industry”, said this report does not yet have statistics for Vietnamese factories which were purchased using Chinese capital in the form of shares, however, it is possible that Vietnamese factories with Chinese investment create products originating in Vietnam and are exported to the US.

By Hoai Anh/ Kieu Oanh