[Vnbiz] Vietnam is not the next China

[Nguyen Duc Hung]

Vietnam is not the next China


By Lara <http://www.financeasia.com/team.aspx?PID=35262&CIID=110680>
Wozniak  |  13 May 2008  

The politics may be similar, but let's face it, Vietnam is a much smaller
economy than China. 




Vietnam is often compared to China. Consider the obvious: they are both
communist countries; Vietnam's laws are often mirror images of Chinese
rules, just translated into Vietnamese; and Vietnam is a rising
manufacturing hub that boasted a booming GDP growth of 8.5% in 2007.

But on Friday, the Royal Bank of Scotland issued a research report titled,
Vietnam: Not Another China, that puts right that myth by stating another
obvious: Vietnam "lacks the same scale advantages. Its impact on global
trade and inflation will also be marginal".

The report concedes that comparisons to China in the 1990s, particularly
southern China, make sense. Hourly manufacturing wages are around $0.50,
which puts it among the lowest in emerging Asia. Plus North Asian
manufacturers are investing in Vietnam - indeed they accounted for half of
total foreign investment in the country in the past five years. And Vietnam
has been pouring money into its infrastructure system - from roads to ports,
it's determined to be user-friendly, just as the six-lane smooth-as-silk
highways in China are.However, the RBS report points out that in the end
Vietnam's impact on global trade will be marginal. "Vietnam's population, at
84 million, is smaller than that of Guangdong province (93 million),
neighbouring Hong Kong. Moreover, Guangdong province accounts for just 30%,
rather than 100%, of China's total exports, and has the advantage of drawing
on the workforce in its neighbouring provinces, in particular Guangxi (47
million), Hunan (63 million), and Sichuan (82 million)."

According to RBS this is good news for the global economy. "Relocating
labour-intensive production to Vietnam from China will have little impact on
global consumer goods inflation. Hong Kong, Japan, Korea, Taiwan, and the
United States accounted for the large share of foreign investment in China
during the past decade. The median hourly manufacturing wage for these
countries was $12.97 in 2005 versus $1.06 in China. The labour-cost saving
of moving to China was thus large. The hourly manufacturing wage in Vietnam
is just $0.60, by contrast, meaning the labour-cost saving of moving to
Vietnam from China is far smaller."

And there's also some good news for China. RBS reckons that China's
labour-intensive manufacturing is what is gradually migrating to Vietnam.
However, capital-intensive production will likely remain in China as
barriers to entry are higher and profit margins wider. And it was
capital-intensive exports that explained 64% of China's export growth in the
second half of last year - so China's keeping the quality of manufacturing.

Furthermore, a recent survey of Hong Kong-owned mainland Chinese factories
indicated that just 14% of respondents are considering switching production
to Vietnam, while 29% are thinking of remaining in China and simply moving
further inland where land and labour costs are lower.

The report agrees with those who say Vietnam is the next Asian Tiger, it's
just not the next China.  

 

Best regards,

Nguyen Duc Hung

 

 

 

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