New projects reflect the trend of nearshoring production from China, photo Le Toan

In early February, SMC Manufacturing Vietnam, under Japan’s SMC Corporation, was green-lit to invest $330 million more into its automatic control devices factory in the southern province of Dong Nai, raising its backing to nearly $1 billion in the locality.

This is part of SMC’s efforts to ramp up its manufacturing relocation plan to Vietnam to prepare for contingencies like geopolitical tension between the United States and China, as well as rising labour costs in China.

Masahiro Ota, director and executive officer of SMC Corporation, said, “The shift of production to Vietnam is something we have been talking about for some time, and we are moving our global supply base from China to Vietnam. The US response may change a little, but I believe that tariffs will be lower in Vietnam than in China, so I do not think we are going in the wrong direction.”

“In terms of production ratios by country, these are rough figures, but in FY2024, China is still higher than Vietnam, but we are planning for Vietnam’s production capacity to increase and overtake that of China in the next fiscal year or so,” Ota said.

Earlier this month, Key Tronic Corporation, an American provider of manufacturing and design engineering services, revealed its plan to significantly increase production capacity in Vietnam and the US. This expansion is also expected to help mitigate the adverse impact and uncertainties surrounding the recently announced tariffs on goods manufactured in China and Mexico.

In Vietnam, Key Tronic has ample space in its current facility and plans to double its manufacturing capacity by September with significant capital poured into equipment. Key Tronic has invested in a $70 million factory in the central city of Danang since 2019.

“Our customers are very excited about our plans to increase our production capacity capabilities in the US and in Vietnam,” said Key Tronic president and CEO Brett Larsen. “These initiatives reflect the longstanding trend to nearshore production from China, and may also help address the potential adverse impact of tariff increases. Our US-based production provides customers with outstanding flexibility, engineering support, and ease of communications, and our Vietnam-based production offers high-quality, low-cost choice associated with China in the past.”

According to the latest data from the Ministry of Planning and Investment, total newly-registered and newly added capital and stake acquisition and capital contributions from foreign investors in Vietnam hit over $4.33 billion in January, up 48.6 per cent on-year. In which, 282 new projects were granted certificates, with a total registered capital of $1.29 billion. The adjusted capital for 137 ongoing projects climbed $2.73 billion, more than a six-fold on-year jump.

“We were pleasantly surprised to see a sizeable jump in registered foreign funding in January despite the six-day Lunar New Year holiday, underpinned by the manufacturing sector,” said Brian Lee, an economist at MayBank. “FDI is off to a strong start, and Vietnam remains one of the top destinations for China+1 factory shifts. We remain cautious about FDI performance this year, amidst uncertainty about how US tariff policies will impact Vietnam’s exports there.”

Vietnam vowed several months ago to buy more aircraft, liquefied natural gas, security equipment, and chips from the US, Lee added.

Import tariffs on Chinese goods have already been hiked by 10 per cent across the board, and multinational companies still deem it necessary to diversify their operations from China amid persistent tensions in China-West relations.

Most recently, fashion commerce platform Shein asked some Chinese apparel suppliers to set up new production capacity in Vietnam as the company seeks to mitigate the impact of fresh US tariffs on Chinese goods.

Amid the global uncertainty, Vietnam’s foreign investment strategy has focused on boosting its fundamentals. There has been a determined push for administrative reforms to streamline the state apparatus, in addition to an overhaul of multiple regulations to improve the business environment.

“Furthermore, there has been a focus on infrastructure spending to improve airports, expressways, roads, and rail,” said Lee of MayBank. “An additional $3.3 billion, equivalent to about 0.7 per cent of GDP, was allocated to the public investment budget last week. The Lao Cai to Haiphong railway project will connect northern Vietnam with China’s Guangxi region, strengthening supply chain links between the two countries and reinforcing Vietnam’s China+1 role.”