Chinese textile and garment enterprises are about to flock to Vietnam?

In addition to enjoying many tax incentives and cheaper labor costs, many Chinese businesses are preparing to flock to the Vietnamese market as a gateway to penetrate the US market with much lower export taxes than in China.

Information published in the newspaperSouth China PostHong Kong's May 27 issue. Accordingly, Chinese businesses are eager to invest in new or expand factories in Vietnam with the expectation that textiles originating from Vietnam will soon enjoy low tax rates, even 0% when entering the US market.

“After years of high inflation, bad banking sector debt and slow growth, Vietnam is back on investors’ radar as Chinese manufacturers race to expand production in the country in hopes of enjoying duty-free treatment for garment exports to the US,” the article said.

According to the author's analysis, if negotiations with the US and nine other member countries in the upcoming Trans-Pacific Partnership (TPP) negotiations can be completed, Vietnam will enjoy a tax rate of only half, or even 0%, compared to the 17% rate that the US is currently imposing on Vietnam's garment exports.

The agreement will give Vietnam a big advantage over Chinese exports, which are currently subject to tariffs of up to 37% when entering the US textile market. This will be another reason for manufacturers in China to move their production facilities to Vietnam.

Texhong Textile, which had sales of 6.15 billion yuan ($1 billion) last year, is one such company. While its management is still considering a second phase of expansion, further expansion in Vietnam has been planned for some time.

“Vietnamese textiles and garments are now enjoying a zero percent tariff on exports to China. If they are also exempted from tariffs when exporting to the US, our capacity expansion plan will not be enough,” Hong Tianzhu, chairman of Texhong, told the newspaper.South China Post.

The first round of TPP negotiations, which recently concluded in Lima, Peru, discussed a wide range of issues, including copyright, cross-border trade and legal issues. But the textile agreement was one of the highlights, and to enjoy a 0% tariff, Vietnam had to agree that the entire production process of the product, from weaving, sewing, to dyeing, must be carried out in TPP member countries.

Mr. Hong believes that this agreement will create a new wave of investment in Vietnam. “Vietnam is strong in textile and garment manufacturing, but not strong in stages such as embroidery, knitting and dyeing. I see this as a good opportunity for growth.”

Last year, Texhong planned to invest $300 million to build a new yarn factory in Quang Ninh province. When the second phase of the project is completed next year, its capacity will double to 110,000 tons of yarn per year.

Although the capacity of the group's 12 factories in China is double that of its capacity in Vietnam, the contribution to the group's overall revenue from the two markets is equal.

Mainland Chinese textile maker Pacific Textiles, which is preparing to open a $180 million joint venture in Vietnam with Hong Kong fabric maker Crystal Group, also plans to invest an additional nearly $50 million in the project to increase capacity by 70,000 bobbins.

While Hong Kong fund managers are still keen to court funds that were once popular in Vietnam, some analysts say the situation in Vietnam has fundamentally changed.

Since the beginning of the year, the HoSE index has increased by 20% thanks to the Vietnamese government's efforts to control inflation, stimulate credit growth and stabilize the VND exchange rate.

Last year Vietnam had its first trade surplus of $284 million after 20 years of deficit, and the surplus continued to widen to $480 million in the first quarter.

The next round of TPP negotiations will take place in Kuala Lumpur on July 15.

According to Dan Tri (HV)