While Vietnam welcomes record increases in Chinese FDI, it should also ensure that Chinese interest in opening many factories here does not make it a recipient of unwanted technologies, experts say.  

The caution comes as localities across Vietnam report greater investment interest from Chinese firms to locate its factories here.

According to the Foreign Investment Agency (FIA) under the Ministry of Planning and Investment, China tops the table for newly registered direct investment (FDI) capital in Vietnam this year.

In the first four months of the year, they registered 187 projects worth $1.3 billion. Another $400 million was registered as supplementary capital for existing projects and share purchases.

Most notably, according to the FIA, of the 6 biggest newly registered FDI projects in Vietnam, four were from mainland China and Hong Kong. 

These include a project to build a $280 million factory to produce heavy-duty truck and bus tyres in southern Tay Ninh Province. This Chinese invested project is the the biggest newly registered one with 100 percent foreign capital.

The biggest FDI project in terms of capital contributed via a share purchase came from Beerco Limited of Hong Kong, which invested $3.85 billion in Vietnam Beverage Co., Ltd., to make beer in Hanoi.

The other two projects are a $260 million electronic equipment factory by a Hong Kong company, and a $214.4 million tyre factory from a Chinese company. 

Heightened China interest

Information released by the Vietnam - Singapore Industrial Park located in northern Bac Ninh Province, show that dozens of Chinese investors specializing in electronics and machinery manufacturing are interested in setting up factories there, despite the IP not being put into operation yet. 

A number of industrial parks in the Mekong River Delta like Long An, Tien Giang and Can Tho are also reporting interest from Chinese, Taiwanese and Hong Kong investors. 

According to experts, China had been shifting production to other countries over the last few years, but this movement has recently sped up because of the escalating US-China trade war. 

The aim of Chinese investors targeting Vietnam is to take advantage of opportunities from the CPTPP that Vietnam recently ratified, and the EU-Vietnam free trade agreement (EVFTA) that is to be ratified, which will allow more FDI into the country with lower tariff structures.

Given the high tariffs the U.S. is already imposing on many Chinese products, causing major losses to exporters, Chinese producers have to find "outs" in nearby countries, including Vietnam, experts say.  

Analysts from the Mizuho Research Institute say that even if the global economy slows down, the movement of companies relocating from China to Vietnam is expected to continue, given the country’s relatively favorable investment environment, including investment incentives, low labor costs, and political stability. 

External costs

However, this inflow of capital has also raised concerns. 

Dr. Nguyen Duc Thanh, director of the Institute of Economic and Policy Research - VEPR (Hanoi National University), said that China is currently trying to replace its cheap industries, which consume much energy and pollute the environment, with high-tech industries under its "Made in China 2025" plan. 

As a result, China is looking to shift labor-intensive industries, which depend on cheap labor to be competitive and are harmful to the environment, overseas, and Vietnam is very likely one of the venues, he said. 

In fact, China has policies to cut down on thermal power plants; wood processing, and iron and steel production. Production of textiles, fiber and footwear also be part of this plan, Thanh said.

He warned that Vietnam should consider requiring projects to get both central and local approval in order to "avoid receiving projects that adversely affect the environment and society."

Prof. Dr. Dinh Trong Thinh from the Academy of Finance said that FDI increase is a good thing because many projects are in need of foreign capital to develop. 

However, Vietnam should be especially wary of FDI from China, because investment from this country tends to be directed into low-tech, high pollution industries. 

In particular, many Chinese industries wherein investment is being discouraged or restricted are being shifted to Vietnam and other countries with lower technology levels. 

"Observing China’s investment capital, we can see that most of it is directed at ‘sensitive’ areas such as metallurgy, chemical production, textile dyeing, or thermal power; areas in which the country is currently minimizing investment in and shifting to Vietnam," he told local media. 

Thinh warned that Vietnam should not be overly joyful with large numbers. Instead it raise national standards to filter capital coming in. 

As of April 20 this year, the total newly registered and supplementary capital from foreign investors totaled $14.59 billion, an increase of 81 percent compared to the same period of 2018.

This is the highest amount of capital registered in the first four months of the year since 2015. FDI in this period reached $7.5 billion in 2016, $10.6 billion in 2017 and $8 billion in 2018.