15-9-2023 (HANOI) Vietnam is currently experiencing its most severe factory downturn in a decade, indicating that the shift in global supply chains away from China has not benefited the Southeast Asian country as much as expected. The weakening demand has led to a slowdown in shipments of Samsung phones and Adidas shoes, major products in Vietnam’s electronics and textiles sectors. Data from January to August reveals a 10% decline in overall exports compared to a 17% growth recorded during the same period the previous year.
As a result, manufacturers are reducing their workforce at a time when they would typically be preparing for Christmas orders. Industrial job losses have forced approximately 300,000 Vietnamese workers into the informal sector, engaging in activities such as fishing, farming, or domestic work, according to the national statistics office.
Companies like Uniqlo and Synopsys have expanded their operations in Vietnam due to concerns about geopolitical risks in neighboring China. However, in addition to the weak global economy, Vietnam has faced challenges such as bureaucratic red tape and power outages that disrupt various industries.
Julien Chaisse, a professor at City University of Hong Kong specializing in international economic law, highlighted the underlying issues in Vietnam, including logistical hurdles and an overarching bureaucratic system. Chaisse noted that the “China plus one” strategy, which aims to diversify economies by shifting production away from China, has not fully delivered on its promise.
The Vietnamese government’s crackdown on corruption has made bureaucrats cautious about approving permits, leading to delays in public investment. The statistics office reported that public investment reached only 33% of the year’s target in the first half of the year. Exports have also declined for eight consecutive months, marking the longest stretch in over a decade.
Job site VietnamWorks stated that companies usually need to increase their workforce to meet the peak Christmas demand but are currently hesitant due to the lack of positive market signals.
Theng Theng Tan, an assistant economist at Oxford Economics, sees no immediate end to the downturn. Tan pointed out that the hope for an export boost from China after its reopening has diminished. As a result, second-half gross domestic product (GDP) growth is expected to fall short of the prime minister’s ambitious goal of 9%.
Manufacturers previously faced challenges in 2022 when the US and European markets shifted towards services rather than purchasing goods during the pandemic. They had hoped for improved conditions in 2023, but the inventory surplus has persisted into the new year.
While oversupply remains a concern, some analysts believe that stocks will eventually clear in the coming months, leading to renewed demand for Vietnamese products. However, this will depend on the ability of factories and ports in Vietnam to keep up with the demand.
Steve Olson, a research fellow at the Hinrich Foundation, a trade think tank, suggested that Vietnam might be struggling to maintain adequate infrastructure after the surge in production relocations from China and the subsequent boom in exports. Despite the challenges, both Olson and Chaisse remain optimistic about Vietnam’s long-term prospects. They believe that Vietnam has made significant progress in positioning itself for the future economy. Recent business deals during US President Joe Biden’s visit to Hanoi, focusing on high-value technologies, indicate potential opportunities for Vietnamese enterprises. Additionally, Washington has pledged to assist in the development of rare earths in Vietnam and contribute $2 million towards the training of workers in the semiconductor industry. Investments from companies like Amkor and Marvell are also expected to boost the semiconductor sector in Vietnam.
Chaisse expressed hope that these partnerships will stimulate an economic rebound and create new opportunities for Vietnamese businesses.
