Even G20 summit has an out of expected result, it is too late to reverse the supply chain reaction from trade war risks. Global shift in cross-border supply chains right now is the biggest since China joined the WTO in 2001. Company is searching for new suppliers, Vietnam are emerging as their preferred destination.
Global companies shift their production
Global companies are nervous and scrambling around. The scramble is driven by the risk of more, and higher, U.S. tariffs on China. On the other hand, they fear that nearby emerging economies can only accommodate new businesses on a ”first come, first served” basis.
A dozen of relocation activity happened across Asia in recent months. In June, A Hong Kong furniture maker bought a factory in Vietnam. And they plan to expand the capacity to hundred thousand square meters by the end of 2019. The company mentioned, the acquisition is to mitigate the risks posed by tariffs.
Vietnam electronics and manufacturing solutions companies also benefit from this movement. The existing customers who have operation in China find them for new deals. Some companies will start moving their production base from China to Vietnam very soon.
When China’s economy shifts toward services and high-end manufacture, supply chain relocation has been begun. Any relocation away from China is going to be very slow and uncertain. Companies need to secure funding, the right suppliers and new logistics. Legal and accounting issues in a new country are also problems for them.
However, trade tension seems to be a disruption for old model. If US raising tariffs on 200 billion in Chinese imports goods from 10% to 25%, companies must do something to change.
From Victims to opportunities
To be sure, smaller emerging Asian economies will be hurt in the trade war between the world’s top two economies worsening. Southeast Asia growth has slowed in the third quarter. Vietnam’s manufacturing sentiment indicator is the highest in Asia but is well off its peak.
Vietnam’s PM hoped that Japan will pour more investment in Vietnam to become the largest investor in the nation. The Vietnamese Government is paying special attention to attracting more Japanese investment in Vietnam. Vietnam is willing to tackle difficulties and obstacles for Japanese Investors. Because the Vietnamese Government also closely controls the inflation rate, real estate credit and stocks.
However, Asia countries cooperation poised to speed up. To solve the infrastructure problems, the construction of China-Vietnam cross-border expressways, railways, bridges and tunnels is on the fast track. China is seeking to expand cooperation with ASEAN, and Vietnam can be an important widow.