Chinese investors pouring money into Vietnam textile and garment sector

Chinese investors are pouring money into Vietnam’s two main business fields – textile & garments and real estate. A report of the Foreign Investment Agency showed a “high jump” of the Chinese foreign direct investment (FDI) in Vietnam with the total registered FDI capital reaching $2.3 billion in 2013, much higher than the $345 million in 2012.

Troy Griffiths from Savills Vietnam has confirmed that the real estate consultancy firm received a lot of Chinese investors who are seeking to purchase real estate projects. The great potentials can be brought by the investors from Japan and South Korea, but the investors from China would be in the focus.

Not only eyeing real estate projects, Chinese investors have also injected big money in textile and garment factories in Vietnam in anticipation of the Trans Pacific Partnership Agreement (TPP) to be signed soon.

Bloomberg newswire has reported that the prices of Chinese Texhong Textile shares have increased by 445 percent over the last 12 months thanks to the investment projects in Vietnam. This has helped increase the net asset value of the biggest shareholder of the group, Hong Tianzhu, to $1 billion.

In mid-2013, the first stage of the fiber factory project was kicked off in Quang Ninh province with the investment capital of $300 million. This is the fourth factory of Texhong in Vietnam.

The Hong Kong based Crystal Group has recently announced the investment deal of $425 million in Pacific Crystal, a textile factory, and $120 million in a garment project, covering more than 70 hectares of land in the Lai Vu Industrial Zone in Hai Duong province.

Dr. Alan Phan, an expert about Chinese market, noted that three years ago, no Chinese thought they needed to invest in Vietnam, but now they rush to invest in Vietnam to enjoy the benefits from TPP.

Diep Thanh Kiet, Deputy Chair of the HCM City Textile, Garment and Embroidery Association, warns that Vietnamese enterprises would be at a disadvantage amid the Chinese strong investments in the textile and garment industry.

When cooperating with Vietnamese outsourcing enterprises, Chinese may “sacrifice” the profit from the outsourcing to attract laborers from Vietnamese enterprises, while they would only focus on making profit from material production. As such, domestic enterprises are likely to lose the battle.

As for the enterprises that buy materials and sell finished products, Chinese would have more advantages than Vietnamese because they can buy materials at lower prices thanks to the existing relations.

While most Vietnamese have to pay money on material deliveries, Chinese can make deferred payments. This would help them make products with lower production costs.

Diep has also warned that Vietnamese enterprises would be more heavily reliant on Chinese materials in the future. If so, they would do the outsourcing for others for ever. If the Chinese material factories shut down, domestic companies would lose the material supply sources.

The high Chinese investment is believed to lead to the trade deficit increase, because Chinese investors tend to bring their equipment and machines to Vietnam.

With China just in the first nine months of 2013, Vietnam sees the high trade deficit of $17.2 billion in the trade