Vietnam is ready for the upcoming semiconductor wave after the visit of President Joe Biden

From Hanoi, the capital of Vietnam, heading south, in less than an hour’s drive, the tall buildings outside the car window quickly give way to industrial factories.

This is Hai Duong Province, the electronic manufacturing hub of northern Vietnam. In the industrial zones attracting foreign investment, the roads are straight and wide. On one side, you have the network equipment factory Wistron NeWEB, while on the other side, Wistron is planning to expand its operations. Not far away, a newly started Japanese electronics factory is under construction. Cattle graze leisurely in the scorching sun on endless construction sites.

In Dong Van Industrial Zone, Henan Province, Vietnam, major factories are expanding against the economic boom.

“Passionate, healthy, and ready for overtime!” Lin Xuanjie, Chairman of Great Resource Group and President of the Bac Nunh Branch of the Vietnam Taiwanese Business Association, stopped his car and casually translated the recruitment signboard next to him. Factories are settling in one after another, and every street corner is filled with job advertisements.

Lin Xuanjie, who is engaged in factory construction, has been in Vietnam for 17 years. He never expected that the industrial zones in northern Vietnam would be as crowded as they are now, and land prices have doubled along with it.

Because the factories that were stuck due to the pandemic have all started operating this year,” observed Chien Chih-ming, Chairman of the Vietnam Taiwanese Business Association. Just among the Taiwanese business members in northern Vietnam, there has been an increase of 150 new companies in the last two years.

Hai Duong Province is just a microcosm of this recent explosion in foreign investment. Looking at the map of major factory locations, it’s evident that this wave is different from what we saw four years ago.

Initially, major electronic factories that set up in China followed the route that Foxconn founder Terry Gou had chosen 20 years ago. They took China’s production capacity and distributed it through land routes from Guangxi to Hanoi, the airport hub, and the seaport of Hai Phong in northern Vietnam.

But now, the areas around Hanoi and Hai Phong are no longer sufficient. Electronic manufacturing giants are sprouting up all over northern Vietnam. Even the agricultural province of Ninh Thuan in southern Vietnam announced this year that it is opening up land for development, welcoming Foxconn’s $1.2 billion investment with open arms.

This investment boom we see now is almost going against the economic trend.

Looking at Ho Chi Minh City, tall buildings are rising from the ground.

China Plus One hotspots: Customers are specifically requesting factory setups

Currently, with sluggish consumer demand in Europe and the United States and the manufacturing industry still working to reduce its inventory, Vietnamese officials have acknowledged that this year’s GDP growth target of 6.5% may be difficult to achieve. Paradoxically, investments continue to pour in.

“The customers have already directly told us to prepare a factory in Vietnam. Can we afford not to come?” lamented the head of a major electronics contract manufacturing company in Vietnam.

Northern Vietnam has become the hottest new region for the “China Plus One” strategy. The reason is its proximity to China, allowing for integration with Chinese factories and the gradual development of industrial specialization.

“Other than China, where in the world can you find all the Electronic Five Brothers gathered like in Taiwan?” accurately described Liao Yun-huan, the Deputy General Manager of Chisilin Vietnam, a major passive component manufacturer.

In Northern Vietnam, it’s not only Taiwanese businesses that are thriving. Chinese Apple supply chain giant Luxshare Precision plans to expand its Vietnamese factory this year, while Vietnam’s largest foreign direct investor, Samsung, has announced further investment, with plans to spend $220 million in Hanoi to establish a new research and development center.

Vietnamese authorities estimate that this year’s foreign direct investment (FDI) scale will return to pre-pandemic highs, ranking just behind Singapore and Indonesia within the ASEAN region.

“The entire world is now linked to Vietnam,” said Schneider, the Deputy Chair of the Legal Committee of the European Business Association in Vietnam. Vietnam already had numerous free trade agreements in hand, and now it has even more opportunities to substitute for China as the world’s factory.

Vietnamese people take pride in being the only nation to have defeated both major powers, the United States and China. Whether you visit the Military History Museum in Hanoi or the War Remnants Museum in Ho Chi Minh City, they document the glorious history of how the Viet Cong guerrillas during the Vietnam War turned the tide against the once-mighty United States, causing them to leave with their heads hung low.

In the heart of Ho Chi Minh City, a three-story statue of the historical figure Chen Xingdao stands tall. In 2019, during a territorial dispute with China in the South China Sea, the Vietnamese people gathered at the statue to light incense and pay their respects as a symbol of resistance against China.

However, unlike the past, this time, the conflict between major powers did not plunge Vietnam into civil war; instead, it led Vietnam, which navigates between the United States and China, to mark a significant coming of age.

The statue on Ho Chi Minh Book Street says that Hoang Sa and Truong Sa belong to Vietnam.

Refusing to wash away its place of origin! Biden sends semiconductors

In September, U.S. President Biden, along with high-tech companies, visited Hanoi. Bilateral relations elevated two notches, with the U.S. establishing a ‘Comprehensive Strategic Partnership’ with Vietnam. Simultaneously, U.S. packaging giant Amkor announced a $1.6 billion investment in building a semiconductor packaging plant in North Ning Province near Hanoi.

Barely three weeks after Biden’s departure, Reuters exclusively revealed that Chinese President Xi Jinping might visit Vietnam at the end of October or early November.

Chen Ruiqi, a seasoned diplomat who has served over six years as Taiwan’s Economic and Cultural Representative to Vietnam, commented on the situation. He analyzed that due to supply chain restructuring and Vietnam’s strategic location in the South China Sea, both China and the U.S. cannot afford to ignore Vietnam.

“We want semiconductors, we want high technology, we want to develop renewable energy, digital economy, and establish an international financial center,” said Du Yihuang, Director of the Foreign Investment Agency under Vietnam’s Ministry of Planning and Investment, in a recent investment briefing, laying out the straightforward investment goals.”

As Vietnam’s exports continue to grow, Haiphong Port, North Vietnam’s largest port, has had to expand the construction of deep-water terminals. The picture shows Evergreen Marine’s joint venture terminal in Haiphong.

In the past, the main focus of economic and trade policies was signing free trade agreements to facilitate foreign investment for export. However, there has been a recent shift in the emphasis highlighted by Vietnamese officials.

While Vietnam still relies on importing raw materials and intermediate goods from China, in recent years, it has drawn the attention of the United States. The U.S. has raised concerns that Chinese companies are exploiting Vietnam as a “place of origin.” To counter this mispractice, Chen Yiqian, a practicing accountant from PwC stationed in Vietnam, observed that Vietnam has been strengthening customs oversight lately, stating that “this is to prevent the erosion of the tax base.

A general manager of one of the Electronic Five Brothers also revealed that Vietnamese officials are becoming increasingly concerned about whether foreign investment is genuinely helping Vietnam upgrade its technology. He explained, “In the past, when we set up factories in mainland China, local officials would ask what assistance we needed. But it’s different in Vietnam; officials now ask, ‘How many local employees have you hired? How much tax have you paid?'” Comparing the attitudes of officials in both places towards foreign investment, the difference is clear.

While officials aim to enhance the value of “Made in Vietnam” to benefit the local economy, they are also pushing for the upgrade of domestic businesses’ manufacturing capabilities.

The young entrepreneurs are ambitious about building a national brand.

VinFast, the first Vietnamese electric car brand to go public in the United States, may appear to be a grand vision of the Vin Group, Vietnam’s largest conglomerate. It has brought together partners from various countries to build Vietnamese electric vehicles from scratch. However, beneath the surface, Vin Group aims to nurture the most comprehensive domestic electric vehicle manufacturing supply chain through the flagship electric car project.

“Vietnam is not poor, and Vietnam is also not at war!” exclaimed Ruan Wenqing, former Senior Vice President of VinFast and current General Manager of Vin Group’s Green Smart Mobility (GSM) division in a powerful statement during an interview with “CommonWealth Magazine”.

At under 30 years old, he is one of the youngest high-level executives at Vin Group. When asked why he joined the company, his answer revealed a grand ambition: “To enhance the national brand of Vietnam.”

Ruan Wenqing is not an exception. Whether it’s interviewing the electric motorcycle startup Selex Motors or actively participating in the Ho Chi Minh City Startup Week, creating a national manufacturing brand for Vietnam is the overarching dream of the majority of young entrepreneurs.

However, to achieve this manufacturing upgrade, Vietnam faces two clear obstacles.

Obstacle 1: Persistent corruption and inadequate infrastructure

First and foremost, corruption and inadequate infrastructure are the major stumbling blocks in Vietnam today.

Vietnamese often say, “While China is crossing the river by feeling the stones, Vietnam is crossing the river by feeling China.” Both are socialist countries, and Vietnam actively looks to China for inspiration, presenting an economic development plan every five years, just like its neighbor.

However, since China’s economic reforms, local officials’ performance and economic development have become closely intertwined, while in Vietnam, local officials are still mired in corruption and inefficiency.

Vietnam’s infrastructure development is slow. It took more than ten years to build a single line of Hanoi’s light rail. In the end, only 13 kilometers were completed, and residents regarded it as a holiday tourist facility.

Even today, when driving on Vietnam’s expressways, there are police officers in uniforms at the toll booths, parked in groups by the roadside, checking license plates and stopping vehicles at any time to collect what’s colloquially known as “coffee money,” a form of bribe.

“If we take into account the underground economy, Vietnam’s economic size would have ranked in the top three in Southeast Asia a long time ago,” quipped Kevin, a 26-year-old entrepreneur from Hanoi.

The lack of administrative efficiency is most notably reflected in the lagging infrastructure.

Throughout Vietnam, you can see infrastructure projects that have been under construction for over a decade without completion.

Due to the influx of numerous businesses, Vietnam, which heavily relies on hydroelectric power, faced challenges due to climate change and an outdated power grid. In May of this year, Northern Vietnam experienced an unexpected power outage, affecting factory production capacity.

“We, a few Taiwanese electronics companies, even set up a Line group to discuss this issue daily,” said one major manufacturer, expressing frustration.

Obstacle 2: Uneven distribution of the labor force

While infrastructure has been a headache, Vietnam’s young labor force, once considered an advantage in manufacturing, has now become a pain point for businesses.

Ho Chi Minh is full of youth and vitality.

At the end of August, when “CommonWealth Magazine” conducted interviews in Northern and Southern Vietnam, foreign investors, scholars, and even officials were all discussing the labor shortage in Vietnam.

Looking at the population distribution in Vietnam, about 60% of the population is concentrated in the South. However, the influx of businesses into Vietnam is primarily concentrated in the northern regions, creating an evident supply-demand imbalance.

There’s a belief among businesses that it’s challenging to hire employees from different provinces in Vietnam because Vietnamese people are “homesick.” However, this issue likely stems from a lack of understanding of Vietnamese culture.

“Foreigners might find it challenging to understand, but regionalism is prevalent in Vietnam. People are hesitant to move between provinces or from North to South. They would rather go abroad for work,” explained Professor Nguyen Thanh Chung from Fulbright University Vietnam.

Furthermore, foreign investors are eyeing high-tech talent in Vietnam. Setting aside the fact that Vietnam’s international rankings in higher education still lag behind, data from the Ministry of Education, as provided by Counselor Chen Hexian from the Ministry of Education in Ho Chi Minh City, indicates that Vietnam produces just over 90,000 STEM graduates annually. Both foreign technology companies and domestic software companies in Vietnam are competing for the same pool of talent.

“Vietnam is dreaming big, but without the economic foundation that China had for its development, it’s unlikely to become the next China,” commented a Korean businessman who has been deeply involved in Vietnam for over 20 years.

The current chaos in development is quite similar to driving in Vietnam. When you arrive in Vietnam, the first thing you’re told is that if you’re not bold enough, or if you follow the rules too strictly, you won’t be able to cross the road.

“Everyone moves slowly, looks left and right, front and back, and then proceeds,” described Wang Kunsheng, a Taiwanese businessman who has been involved in toy manufacturing and business in Vietnam for over 20 years.

However, progressing based on mutual understanding cannot be the long-term strategy for a nation. In the midst of U.S.-China competition, can Vietnam seize the historical opportunity? Their biggest enemy isn’t someone else; it’s themselves.

Source：天下雜誌 ｜連結

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