VietNamNet Bridge - Vietnam has been urged to prepare for foreign direct investment (FDI) flow from companies leaving China because of unfavorable business conditions there.

Reports all show that South Korean, Japanese and Western investors have been decreasing their investments in China.

According to the South Korean Ministry of Finance, the country’s investment in China dropped by 32.1 percent in the last six months, a very sharp decrease if noting that China is always the Number 1 choice for South Korean investors, thanks to the advantageous position and cultural similarities.

South Korean media in late 2014 also reported that the number of South Korean businesses in China decreased by half compared to 10 years ago. 

China’s August PMI (purchasing managers index) released by Caixin Media and Markit Economics dropped dramatically to a 6-year low to 47. 

According to the two institutions, once the PMI drops to below 50, this means that production has reduced.

Bui Kien Thanh, a renowned economist, said that the investment outflow from China is inevitable as China is losing its attractiveness in international investors’ eyes.

China raised its minimum wage by 17 percent last year and plans to raise the wage by 13 percent a year in the context of the global economic recovery, the drop in oil prices and unpredictable exchange rates.

In the first seven months of the year, 25 South Korean invested projects in Binh Duong province received licenses, while another 14 South Korean invested projects got approval to increase capital.

A report from the South Korean finance ministry showed that South Korean investment in Vietnam increased sharply by 82.2 percent in the first half of 2015. 

Vietnam is now in the second position, after Singapore, in South Korean outward investors’ list of the fastest growing markets.

The strong rise in the South Korean investment in Vietnam is partly attributed to the signing of the Vietnam – Republic of Korea’s free trade agreement in May 2015.

Analysts commented that Vietnam has two options now, either opening its doors widely to receive all foreign investors, or becoming more selective in attracting foreign investment. 

Thanh warned that if the former is chosen, Vietnam may fall into the ‘low-cost labor trap’, i.e., it would become the world’s production base thanks to the cheap labor force. 

With the second option, the foreign investment flow to Vietnam may go slowly and Vietnam may miss a lot of great opportunities, especially when Myanmar and neighboring countries have laid out red carpet to welcome investors.

Robert Tran from Canadian Robenny Group, a consultancy firm, said Vietnam should be selective in attracting foreign direct investment, or it would have to pay heavy price in environmental damages.

DDDN