Google to move smartphone production from China to Vietnam

Production relocation to Vietnam

Recently, a number of global technology giants aim to invest or expand production in Vietnam in the near future, including Apple’s iPhone and iPad production, Google’s mobile phone production line (Pixel 7), Xiaomi, and Oppo, which also intend to set up manufacturing bases in Vietnam.

VNDirect expects registered FDI into Vietnam to grow by about 10-12% yoy and disbursed FDI to increase by 6-8% yoy in 2023F. However, there is growing competition from other countries, and Vietnam currently lags behind in attracting FDI flows to the EV and semiconductor industries. Since 2020, Indonesia has released the Omnibus Law, which provides more opportunities for foreign companies to operate or invest in this country.

Since then, FDI into Indonesia has increased by 10% year on year in 2021 and 46% year on year in 9M22, totaling US$31 billion.Vietnam and Indonesia are the two markets receiving the most FDI, and while Vietnam is transforming itself into an electronics equipment manufacturing hub, Indonesia is focusing on the electric vehicle supply chain.

The EV and semiconductor industries are two more industrial trends that will influence ASEAN's investment climate. New types of investors, new value chain segments, capacity expansion, and increased activity in regional production networks were all significant advancements in these industries. Because of this, nations have actively encouraged FDI in the production of EVs, particularly batteries, and at the same time pushed consumers to adopt EVs due to their potential to continue receiving a high level of FDI in the next years. Vietnam will, however, reportedly lag behind its rivals in this trend, which could lessen Vietnam's appeal as a source of FDI.

China’s bumpy recovery

China's retail sales growth slowed further from 2.5% year on year in September to -0.5% year on year in October 22 due to repeated lockdowns in major cities.Factory activity growth moderated from 6.3% yoy in September to 5.0% yoy in October due to interprovincial supply chain disruption. Default risks for developers with weaker financials stayed elevated. The housing price has already declined for 13 consecutive months. The pre-sales performance of major developers plunged by 33.7% ytd.

With China’s economy showing weak data, the central government has announced a number of new policies that could see total infrastructure spending rise to more than RMB7tr (US$1tr) in 2022. This spending is expected to boost construction activity in the 4th quarter of 2018 and into 2023. The government has unveiled a 16-point plan to rescue the housing market.Developer borrowings due within the next six months are now extended for a year. The authority also urged financial institutions to offer credit lines to quality developers with manageable default risks.

China is likely to grow slowly in 1H23F as an April reopening initially triggers an increase in COVID-19 cases that keeps caution high but should accelerate sharply in 2H23 on a reopening boost. "Our longer-run China view remains cautious because of the long slide in the property market as well as slower potential growth (reflecting weakness in both productivity and the property market)," said VNDirect.

VNDirect believes the reopening of China will be a boost for tourism, as Chinese travelers account for more than 30% of foreign visitor arrivals in Vietnam. Accordingly, travel and aviation businesses would benefit from the recovery of tourist arrivals from China. The smoother cross-border trade will also support Vietnam's agriculture exports. Specifically, the export of rubber, rice, vegetables, seafood, wood, and wooden products to the Chinese market will benefit from the trend of lower transportation costs and the recovering demand of the Chinese market. In addition, the reopening of China also contributes to stabilizing the supply chain of input materials for Vietnam's manufacturing sector, especially electronics and components, machinery and equipment, and textiles.