Chinese Direct Investment in Vietnam in Past 10 Years

The Vietnam-China relationship during the last 10 years has reached a new development era, starting with the defining the framework for the relationship between the two countries in the new century with the 16-word slogan "friendly neighbors, total cooperation, long term stability, looking forward to the future" (1999) to the introduction of four good spirits "good neighbors, good friends, good comrades, good partners" (2002) and finally the upgrading the bilateral relationship to become comprehensive strategic partnership cooperation (2008).

Together with the increased political trust building process, leaders of the two countries always give utmost attention to the building of effective, practical economic relations which are being concretized with development plans to create close links between the two economies such as "two corridors, one belt", "one axe two aisles", "expanded Tonkin gulf cooperation" and they are working towards equilibrium of trade balance and increase Chinese investments in Vietnam.

As one of the main content in the cooperation between the two countries, Chinese direct investments in Vietnam would play an active role in stimulating the mutual cooperation between the two countries. China's direct investments in Vietnam have transformed radically in the past few years as compared to the first nine years after the two countries normalized their relations. Since 2000 until today, Chinese investments have increased rapidly, both in quantity and scale, not to mention the invested localities. This article will present in general China's investments in Vietnam for the last 10 years.

Increase in Project Number and Scale
If during the first nine years since normalization (from November 1991 to December 1999), China only had 76 projects with a total invested capital reported in licenses of $120 million, then ten years later at December 2009, this number has increased up to 657 projects with a total registered capital of $2,673,941,942. In other words, within ten years, the number of Chinese projects in Vietnam has increased eight fold and the registered capital twenty two times compared to the first nine years after normalization, making China the 11th biggest investor among the 43 countries and territories that are investing in Vietnam at present.

Chinese investments increase progressively over the years, with 125 percent in 2008. Nevertheless, due to the global financial crisis together with the downtrend in Foreign Direct Investments (FDI) to Vietnam, China's investments to Vietnam have been reduced drastically in 2009 compared to previous years both in number of projects and newly registered capital. The number of projects and volume of newly registered capital of China in Vietnam in 2009 (with 48 projects and $180.4 million) were about the same with that of 2004 or half of 2008 in number and one third in capital. In the first nine years, the average invested capital of each project was relatively small, with around $1.5 million and there were projects with more or less $100,000 in capital. At present, the average invested capital of one project is $4.3 million with many ranging from $1 to $10 million.

Projects with invested capital ranging from over $10 million to $100 million mainly came after 2007 with landmark projects such as the $175 million BOT (build-operate and trade) project to build the infrastructure of the Haiphong industrial zone by the Shen Viet Joint venture company; the $100 million BOT project to build industrial zone and real estates in Tien Giang province by the Tien Giang Investment and Management company (China); the $60 million project to manufacture footwear in Dong Nai province by Tung Fang company (China); the $33 million steel mill project in Thai Binh province; the South Nam Hoang Dong I Urban development project worth of $27,750,000 of Thanh Ba company, Nannin, China; the $20 million Wolfram starch production project in Quang Ninh province by Wolfram Ha Long company; the $20 million project to manufacture plastic syringe s and plastic products of Takaotek Corporation, China; the $18 million project to produce electronic components in Danang province by Tuong Huu scientific and technological company; the $10 million project of Glory Wing company, China to manufacture MDF boards in Long An province; the $10 million project to supply injection printing, designing and publicity services in Ho Chi Minh city of Hai Thai company, Shantung, China and so on. These projects have contributed to change the outlook of Chinese investments in Vietnam in recent times.

Shift of Investment Portfolio

Chinese investments in Vietnam in the past 10 years have shifted from the hospitality, catering and consumer products sectors to the industrial manufacturing and processing sectors. Among the 17 sectors that China have invested in Vietnam, industrial processing and manufacturing is the top choice with 501/657 projects accounting for 76 percent and followed by construction with 5.3 percent and agriculture-forestry-marine products 3.8 percent.

In addition, Chinese investments are also found in other sectors like real estate business, travel agency, catering, mineral exploitation, information and communication, power, gas, water and air conditioners. To this date, Chinese investments are mainly concentrated in traditional sectors and there is no project in the high-tech sector with large investment capital. Nevertheless, the shift in the areas of investment has caused changes in the scale as well as the form of investment.

Change in Form of Investment
In the past, the majority of Chinese direct investments in Vietnam were under the form of joint ventures with Vietnamese businesses, but for the last ten years, there was a visible change. By 2009, there were 441/657 projects with 100 percent foreign capital accounting to 67 percent of the total projects followed by 169/657 joint ventures (25 percent) and a small number of business cooperation contracts and share holding companies.

The present change has shown that Chinese investors have passed the exploring or experimenting stage by joining with local partners who have a better grip of the market in the nineties of the last century. They are now more confident, more informed to do business by themselves and most of all, they believe in the Vietnamese market.

Expansion of Investment in Localities
At present, Chinese investments are present in 52 provinces and cities of Vietnam; nevertheless, they are mainly concentrated in populous urban areas with large labor forces and good infrastructure appropriate for the import export trade and convenient for traveling to and fro China. Ranking first in attracting Chinese investments by the end of 2009 is Hanoi (112 projects), Ho Chi Minh City (60), Binh Duong (52), Haiphong (43), Quang Ninh (37). Most of the projects in these localities are in the processing, manufacturing, real estate and construction.

Nevertheless, together with the above-mentioned advantages and the policy of China to boost investments overseas (from 2002 to 2007, China's FDIs at overseas has increased nearly seven fold with direct investment capital increasing from $2.5 billion to $18.7 billion helping China to jump from the 26th place to 13th in the world list and become the top investor among the developing countries, we have reason to believe that China direct investments in Vietnam will continue to grow and contribute greatly to each other economy as well as to the Vietnam-China relationship.