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China's Vietnam Investments Soar as President Xi Visits Hanoi, While US Spending Declines


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As the two biggest economies in the world compete for influence in the strategically important Southeast Asian nation, China's investments in Vietnam have surged this year, official data reveal, compared to a decline in US trade and spending.


In worldwide supply chains that frequently depend on Chinese components and American consumers, the manufacturing center that stretches along the South China Sea is becoming an increasingly important assembling link.


In September, Joe Biden, the US president, visited Hanoi and successfully negotiated an improvement in diplomatic ties with the former enemy. This came about after a year of intensive diplomatic endeavors to move the US up to the same ranking as China in Vietnam.


The goal of President Xi's visit to Vietnam next week is to strengthen bilateral relations. According to diplomats, he might consent to state that China and the United States share a common future. This could be seen in Beijing as an official enhancement of diplomatic relations.


It is uncertain which symbolic enhancement carries more weight, but China seems to have gained the upper hand thus far in terms of economy, in part because of US trade policy. Chinese investment in Vietnam has increased as a result of recent US-led sanctions against China and tensions between the US and China.


China and Hong Kong became Vietnam's largest investors, with registered investment reaching $8.2 billion in the first eleven months of this year, based on official statistics. This is double what China did during the same period last year, when China was under pandemic restrictions.


Instead, US-registered investment dropped from $0.7 billion in 2022 to $0.5 billion this year, placing it 10th in terms of investors after the Netherlands and Pacific offshore center Samoa.


Since no tariff reductions were reached during Biden's visit, bilateral trade has also decreased as American consumers struggle with the country's rising cost of living.


According to data from Vietnam, exports to the US fell by 15% to $79.25 billion in the first ten months of the year, while US imports also decreased.


Vietnam's exports to China rose by 5% to almost $50 billion during that period, though imports decreased because the majority of Vietnam's purchases from Beijing are parts that are assembled and exported to the West.


Conflicts over South China Sea borders have strained relations with China despite robust economic ties. People in Vietnam are also sometimes anti-Chinese, and this often results in protests, including a protest in 2018 against the establishment of specific economic zones that might have benefited Chinese companies.


De-risking

The White House promised increased investment and easier trade along with the US diplomatic upgrade.


Zachary Abuza, a professor of Southeast Asian politics of the National War College in Washington, DC, noted that despite the excitement surrounding Biden's visit, not much has materialized thus far and that foreign businesses encounter significant obstacles when making investments in Vietnam.


A number of business consultants situated in Vietnam indicated a rise in the interest of American investors while pointing out that making investment decisions requires time.


Companies' de-risking strategies due to US-China trade frictions contribute to the parallel boom of Chinese investment, which, disregarding Hong Kong, has almost doubled this year over the level before the pandemic to $3.9 billion.


The economic downturn in China has also affected investment decisions. Chinese people are looking for investment opportunities abroad due to the country's unfavorable short- to moderate-term macroeconomic outlook.





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