Vietnam’s booming economy will see another surge of new investment after signing a free trade agreement with the European Union (EU) that could hasten the exodus of manufacturers from China, according to analysts.

The South China Morning Post on July 3 quoted experts as saying that Chinese firms looking to gain lower-tariff access to the EU market are likely to be incentivised to open production in Vietnam.

Adam McCarty, chief economist at Hanoi-based Mekong Economics, said the agreement will “speed up, slightly, the already fast movement of factories from China to Vietnam”.

“The trade war adds a little to what was happening anyway, and this [free trade agreement] adds a little more. It is both Chinese and foreign firms relocating to Vietnam,” he added.

“From the business strategy point of view, Vietnam is actually a good manufacturing location that people are looking at for the advantage of the network of the [free trade agreement with the EU],” said Angelia Chew, founder of the Singapore-based consultancy AC Trade Advisory.

“On top of the trade tension, we have Chinese clients that are looking for manufacturing relocation [to Vietnam] to mitigate increased duties for goods made in China to the US. It is pretty exciting for companies investing into [Vietnam now] as well as existing companies in Vietnam, they knew the [free trade agreement] was going to attract more investment.”

Dr Cassey Lee, senior fellow at the ISEAS-Yusof Ishak Institute in Singapore, a research institution that specialises in Southeast Asian studies, said the EVFTA would “help Vietnam diversify its portfolio of inward foreign direct investment”.

The EVFTA and the EU-Vietnam Investment Protection Agreement (EVIPA) were signed in Hanoi on June 30. The agreements will be submitted to the National Assembly of Vietnam and the European Parliament for ratification.