Vietnam: Japan’s investment in Vietnam plummets while Suga seeks closer ties

• Japan, once the largest source of corporate investment in Vietnam, has fallen to fourth place for Jan-Sep 20, overtaken by more agile rivals from South Korea and China.
• Approved foreign direct investment by Japanese companies dropped 43% y/y for that period. While Japan ranks second in cumulative investment, and topped the annual list in 2017 and 2018, it sank to fourth place for 2019.
• The decline comes even as Japan has striven to forge closer diplomatic ties with Vietnam. Prime Minister Yoshihide Suga chose the Southeast Asian nation for his first official trip this week, and his administration has set up a subsidy program to encourage Japanese companies to diversify their supply networks into the region.
• The coronavirus pandemic has hit corporate investment in Vietnam more broadly, with total investment by foreign companies for Jan-Sep 20 slumping 19% y/y to USD21.2bn, but Japan’s drop-off far exceeded the average. New Japanese investment alone plunged 70%, putting the country in sixth place behind Taiwan and Hong Kong.
• Meanwhile, China has gained ground, with investment by Chinese companies picking up since around 2015.
• The country jumped into the lead both in new spending and in expanded investment in 1H19, and sits in third place overall in 2020. Chinese companies are believed to channel money into Vietnam through Singapore and Hong Kong as well.
• South Korea remains the largest source of corporate investment in Vietnam to date.
• Samsung Electronics began making mobile phones in northern Vietnam in 2009 and now operates two massive smartphone factories in the country. Compatriot LG Electronics has shifted production to Vietnam from its home country. South Korean companies are making headway in the country’s hotel and retail sectors as well.
• In light of these developments, the Vietnamese government has been cozying up to South Korea over Japan.
• In late Jul 20, Vietnamese Prime Minister Nguyen Xuan Phuc invited the South Korean ambassador to Vietnam, as well as executives from Samsung and other South Korean corporations, for a dialogue. “South Korea is the largest investor in Vietnam, and we want to create favorable conditions for investment,” he said.
• Vietnam did not hold a similar dialogue with Japan until over a month later. It also resumed business travel and passenger flights with South Korea before Japan.
• Companies from around the world are considering shifting their supply chains to Vietnam from China amid Beijing’s growing tensions with Washington. While the Vietnamese government rolled out the red carpet for Suga, “Japan is slipping in terms of relative economic importance,” said an executive from a Japanese trading house.
• Speedier decisions could be the answer to reversing this trend.

External Link : https://asia.nikkei.com/Business/Business-trends/Japan-s-investment-in-Vietnam-plummets-while-Suga-seeks-closer-ties