Abandoning China: In Search of Cheap Labor, Businesses Turn to Vietnam

The traffic rarely moves freely on the road which links the northern Vietnam city Mong Cai to Nanning, the capital of Guangxi province in southern China. Trucks rumble at high speed on this 150-kilometer-long stretch of road, which was repaved a few years ago. These trucks are carrying loads of clothes, shoes and bottom-of-the-range supplies destined to be sold in the region, but also in Guangdong, the neighboring province.

Abandoning China: In Search of Cheap Labor, Businesses Turn to Vietnam

A local Chinese businessman explains: in Vietnam “everything is cheaper, since the workforce in China is getting more and more expensive.” Across the border, he adds: “doing business is still worth it.” China — the world’s second-largest economic power — is no longer a manufacturing engine where blue-collar workers slaved away in factories in return for low wages.

In the southern Chinese city of Shenzhen, workers went on strike, picketing in front of the factory gates of foreign-owned companies. “But things have been getting better,” says Qiang Li, founder of China Labor Watch (CLW), an American non-governmental organization. He estimates that in those factories, 85% of workers got a pay raise in 2010.

Qiang Li says pressure put on wages has had a “noticeable” impact: factory workers earn $141 a month, a 21 percent pay hike over one year. Still, Li thinks that “the working conditions are often unacceptable.”

More and more Chinese and international companies have been turning to southeast Asia, Vietnam in particular, in search of cheaper labor. In Vietnam, the minimum wage does not exceed $85 a month in the large manufacturing zones.

To witness this relocation trend, all you have to do is going to Bac Ninh, a city 40 kilometers north of Hanoi. A few years ago, there used to be large rice fields, but now they have been replaced by multinational companies and their local subcontractors.

Samsung’s Bac-Ninh-based factory is its largest worldwide, employing 9,600 workers. Canon employs 8,500 workers, whereas Foxconn, a Taiwanese electronics manufacturer, employs 5,600. The latter is the world’s largest maker of electronic components and the largest private company in China, employing 420,000 people.

“Vietnam has become a very competitive and dynamic country,” says a media consultant working at Foxconn’s headquarters. Since 2000, Vietnam has been experiencing rapid industrial growth, which has exceeded its GDP by 6 points on average. However, it is impossible to know the exact number of Chinese companies which have recently relocated their factories in Bac Ninh or in Ho Chi Minh City, Vietnam’s largest economic region.

One thing is sure: long dormant trade and investment between China and Vietnam is suddenly starting to take off, says an European expatriate who is in charge of quality control in factories in the region around Hanoi. In January 2011, China invested several million dollars in two projects. The latter is currently the 8th largest investor in Vietnam.

Thanks to the China-ASEAN (Association of Southeast Asian Nations) free trade agreement, which was implemented in early 2010, Vietnam has increased exports to China by 49% over the past twelve months, even though the trade deficit with China was close to 9 billion euros in 2010.

The small and medium-sized Vietnamese businesses are those taking greatest advantage of this boom. In Dongxing, a Chinese city located near Mong Cai, large streamers are hailing the free trade agreement reached between China and Vietnam. They have announced the construction of Asean’s largest cross-border market was finally finished. This 52-hectare-large site cost 200 million euros, and will soon allow for businesses and merchants to sell and/or buy all the products that Vietnam can produce at a low price.

Chinese companies are gaining an increasingly strong foothold in the Vietnamese market: the state-owned giant in the infrastructure and public works sector, the company CSGEC, has been building huge industrial complexes in Mong Cai. Many middlemen from Guangdong also have their own offices there.

The Renminbi, China’s official currency, is used as a benchmark whereas the Dong, Vietnam’s official currency, was devalued last Februar, the fourth time in the past fifteen months. Local observers warn that Vietnam is increasingly falling under China’s sphere of influence. China is indeed Vietnam’s top importer, as well as an important supplier with industrial equipments, electronic products, steel and oil products.

“Our local market is full of Chinese manufactured goods,” says Vietnam News, the Vietnamese Daily, in 2011.

Vietnam is now trying to stop importing 15 000 kinds of products, including wine and certain manufactured goods. Local observers have noticed that the customs levied on some products have been on the rise. Finally, in early 2011, the Vietnamese government launched a public awareness campaign to encourage people to buy Vietnamese-made products.


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