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Workers perform quality checks on Vsmart smartphones on the production line at the VinSmart factory, operated by Vingroup JSC in Hanoi. Photo: Bloomberg

How Vietnam is learning from the ‘extravagance and consequences’ of China’s industrialisation

  • Vietnam is taking note of China’s rapid industrialisation as it positions itself to benefit from multinationals looking to diversify from the mainland
  • Though Vietnam has a young workforce, improving workers’ productivity and boosting innovation will be crucial if it wants hi-tech and greener development
Vietnam has been seen as one of the major beneficiaries of the US-China trade war with firms seeking alternative locations for their factories to avoid costly tariffs. Post reporter Erika Na recently travelled to Vietnam, and her three-part series looks at how the Southeast Asian country has fared over the last four years. In the third part, she delves into similarities and differences in industrial development between the two countries.

At a garment factory in the Vietnamese city of Tay Ninh, each step of the manufacturing process is manned by a group of young Vietnamese workers and a middle-aged Chinese supervisor.

The Vietnamese in their 20s are new to the craft and trained by the Chinese workers, who have about three decades of experience with heavy machinery at the same company’s factory in Jiangxi.

The factory in Tay Ninh, which is owned by a Hong Kong company that requested anonymity, has had two manufacturing plants in the mainland since the 1980s and opened another in Vietnam in 2019 after the US-China trade war. Since then, a number of experienced Chinese workers from mainland factories have been stationed in Vietnam to train local workers.

According to factory manager Max Lee, the young Vietnamese workers’ enthusiasm to absorb the expertise of older Chinese colleagues has even made the language barrier between the two groups a non-issue.

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“It’s not that we teach the Vietnamese workers Chinese. They study it themselves so that they can learn better from the Chinese workers,” Lee said.

Vietnam is taking note of China’s successes and failures over the past five decades as it accelerates its own industrialisation and positions itself to take advantage of multinationals looking to diversify from the mainland.

While the Southeast Asian country has been taking industrial development cues from China, a critical ace up Vietnam’s sleeve is its young workforce. Many foreign businesses are impressed by the ambition of the young Vietnamese population.

“The common question we get asked from potential employees in Vietnam is, ‘What can your company offer me for my personal development?’ You will never hear this kind of question in Germany,” said Marko Walde, the head of the German Chamber of Commerce in Vietnam.

Still, improving workers’ productivity and boosting innovation prowess will be crucial as the country looks to drive economic growth with hi-tech and greener development.

01:34

Inflation in the West forces Vietnam factory lay-offs

Inflation in the West forces Vietnam factory lay-offs

Quyen Nguyen, the co-founder of the Vietnam Supply Chain Association, emphasised the importance of investing more to cultivate a skilled workforce.

“Innovation is everything. It starts with education as the future will need more engineers that can create new things than workers,” Nguyen said. “Then support programmes to incentivise companies to increase productivity with digital solutions will be needed.”

Compared to China, Vietnam’s population is just one tenth of the size, but it is younger.

In 2021, half of Vietnamese were under 35 years old. In China, 42 per cent of the population was under 35 in 2020. By 2040, 28 per cent of China’s population will be aged 60 years or older, a looming ageing crisis that threatens to weigh on economic productivity.
The fertility rate in Vietnam was 2 births per woman in 2020, higher than 1.3 in China, according to the World Bank. In 2022 China’s population declined for the first time in six decades and the birth rate fell to a record low.

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China’s elderly population will overtake its working-age population around 2080, according to the researchers at the Shanghai Academy of Social Science. Decreases in the number of working-aged people will lead to much lower economic growth and higher labour costs as the burden of elderly care grows.

But elsewhere, Vietnam and China are similar in terms of industrial development strategies, including the use of preferential tax systems and setting aside industrial zones to attract investors.

Industrial zones played a big role in the early stages of China’s economic take-off, and the country has more than 15,000 industrial estates that contribute more than half of the country’s industrial output by value.

China’s industrialisation model through industrial estates has been recognised as a success by the United Nations Industrial Development Organisation and its experience was consolidated into a comprehensive study in 2020 to be used as a guidebook for developing countries.

01:42

Xi Jinping says China will build stable supply chain with Vietnam

Xi Jinping says China will build stable supply chain with Vietnam

Like its bigger neighbour, Vietnam has utilised industrial zones to lure investment, especially in the hi-tech sectors of the economy. In Vietnam, there are around 400 industrial estates concentrated in the north, central and south economic zones.

But Vietnam is taking a greener and more balanced approach to growth and sustainability than China.

Many observers say Vietnam’s emphasis on sustainable development is key to its long-term success, not only because it is good for the environment, but because meeting ESG standards is now critical for global firms.

“Things like green energy are not just a nice mindset. These are really necessary so that Vietnam remains an attractive investment location,” said Walde.

Vietnam is already in a better position than its neighbouring countries
Marko Walde

“Vietnam signed some commitments in the free-trade agreement with the European Union regarding environmental protection, human rights and labour protection law,” he said. “So in this regard, Vietnam is already in a better position than its neighbouring countries.”

The Vietnamese government provides various incentives – such as exemptions on import duties and tax breaks on corporate income tax and land use – to investors that satisfy environmental protection regulations.

With China still grappling with the consequences of decades of breakneck development that left cities shrouded in smog and waterways polluted, some observers say it is important that Vietnam takes the right lessons from its neighbour.

“China suffered from the extravagance and the consequences of becoming a manufacturing unit of the world. Vietnam should be smart and select carefully whom they want to invest in their country,” said Bruno Jaspaert, the CEO of one of Vietnam’s biggest industrial estates DEEP C.

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