With a population of 95 million people and maintained political stability for three decades, Vietnam is developing into a major economy within ASEAN. Its rapid development, abundant yet inexpensive labor, consistent governance, and favorable tax terms have made Vietnam a popular destination for foreign investors. Since the 1980s, investors from Singapore, South Korea, Taiwan, and Japan have expanded their business to Vietnam, either to lower business costs or explore new markets. As an important part of this trend, industrial parks have been created throughout the country. Early industrial parks in Vietnam were mostly ran and operated by large foreign investors, such as companies from Singapore, Japan, and South Korea. Developers negotiated directly with the government to acquire a strategically located zoned area. After building basic infrastructure, the operating companies divide the land into lots to different investors, who then build and run factories. This model is unique as it concentrates dedicated infrastructure in a designated area and can reduce the per-business expense of infrastructure, which includes roadways, high-power electric supplies, large-volume water supplies, etc.
China is a late arriver in Vietnam, but its operation in Vietnam has rapidly grown in recent years. Today, driven by the Belt and Road Initiative, trade and investment between China and Vietnam has substantially increased. In 2017, China invested 2.17 billion dollars in Vietnam, a historic high, becoming the fourth largest investor in Vietnam, a number that is expected to grow further in the coming years. In the context of China’s growing business interests in Vietnam, a few questions are raised. On a micro level, when and why will a firm decide to invest in Vietnam? In comparison to conditions in China or other ASEAN countries, what are major pros and cons of running factories in Vietnam? How much do factors, such as labor costs, utility costs, policy differences, and transportation access matter? Do different industries react differently to these factors?
To answer the questions above, our team (8 students of Tsinghua-Johns Hopkins University Dual Master’s Degree Program) traveled to Vietnam and conducted a seven-day field study. Within this period, we visited two industrial parks, Linh Trung Industrial Park and Long Jiang Industrial Park, and seven factories that represent various industries, with varying needs. Linh Trung is a joint-venture project between Vietnam and China, each side holding a 50% stake, while Long Jiang is run fully by a private Chinese corporation based in Wenzhou, Zhejiang. Linh Trung hosts smaller and less polluted companies that require less land, while Long Jiang hosts mostly leading firms from heavy industries. The investigated companies included, shoe, candle, floorboard, copper coil, pet food bag, and industrial cooling system production, varying in size, age, and industry. Additionally, the sample includes both private firms and state-owned enterprises (SOE).
Through close observation and interviews, we collected firsthand information to unravel the rationale of why Chinese investors made the decision to invest in Vietnam. We found that the 2007 anti-dumping dispute settlement had a major influence on US-focused firms and was the reason that most interviewed companies moved production outside of China. Vietnam offered tax incentives, and cheaper water and electricity costs, and more stability than other possibilities. In comparison to their Chinese counterparts, Vietnamese workers are less productive and have stronger unions to protect their rights. The management offices of industrial parks are helpful in liaising between firms and the local government, offering legal assistance and educating investors on policy updates. Moreover, being in an industrial park helps avoid harassment from gangs and improves overall safety and security.
The basic framework of this report constitutes 4 sections which will describe the above topics on a deeper level. This report will expound each industrial park and each individual company’s business focus, investment decision considerations, and experiences operating in Vietnam. The individual cases will be contrasted and compared to draw common patterns and answer two questions in detail, why Vietnam and why industrial park.
Linh Trung Industrial Park
Linh Trung Industrial Park, is a joint-venture project between Vietnam, Tan Thuan Industrial promotion company limited, and China, China Electric Import and Export Corp. Linh Trung Industrial Park consists of Zone I, operating since 1995, Zone II, operating since 2000, and Zone III, under construction with a total land area of 327.50 ha. The total investment capital of the project is USD 55.5 million with each party holding a 50% share of the legal capital. Nowadays, it is regarded as one of the most successful industrial zones in Vietnam. In 2002, Linh Trung’s export turnover reached over 2 % of the whole nation, creating one tenth of the job opportunities in the foreign-invested sector. Among 74 export processing zones and industrial parks in Vietnam, Linh Trung Industrial Park has the highest investment rate, export turnover, and number of exported products. Compared to other industrial parks in Vietnam, Linh Trung enjoys location advantages; Zone I and II are located in the center of Ho Chi Minh City, and Zone III is located just 10 Km from Ho Chi Minh City. Additionally, the infrastructure inside the park attracts investors. Our field trip focused on Zone III of Linh Trung Industrial Park, where all the 5 enterprises we visited are located.
Long Jiang Industrial Park
Long Jiang Industrial Park (LJIP) was established in November 2007, with a project term of 50 years. Long Jiang is located in Tan Lap 1 Commune, Tan Phuoc District, Tien Giang province, alongside the Ho Chi Minh city Trung Luong Highway and is 600 hectares. Approximately USD 100 million was invested in the industrial park project by Qianjiang Investment and Management Co., Ltd. In May of 2008, the industrial park started building its infrastructures, and finished construction and attracting the needed capital in 2012. The Long Jiang Industrial Park has received support from both the Chinese and Vietnamese government. In June of 2007, the Prime Minister of Vietnam officially approved of the construction of the park.
Unlike Linh Trung, Long Jiang plans to target enterprises working in specific industries. It welcomes textile & light industries, mechanical & electronic industries, and building material & chemical industries. It can accommodate about 100 to 200 enterprises, depending on factory size needs, which would create up to 100,000 jobs for locals, potentially producing more than USD 4 billion in
production, and increasing USD 3.6 billion in exports in the future.
Relocation Outside of China
Most of the companies we visited previously ran all of their factories in China. However, they decided to move outside of China for various reasons. It was discovered that the major reasons they moved out of China were anti-dumping tax imposed on products manufactured in China and the influence of China’s national strategy.
Anti-dumping tax
Anti-dumping tax is a common method countries employ to protect their domestic markets when they regard an imported product as being sold under market value. Ever since China opened its economy, it has experienced rapid growth in exports, but some countries have begun to question the fairness of China’s export strategy. Consequently, dumping allegations against China are rising. Also, some countries do not recognize China as having a market economy status, meaning Chinese companies are at risk of attracting anti-dumping allegations and unfavorable investigations.
Among the six companies visited, half of them, XinSheng, Kang Da and Best Base, transferred their manufacturing lines or entire company to Vietnam due to anti-dumping investigations launched by European countries or the US. In 2006, the United States imposed a tariff on Chinese candle products, which decreased the profits of the King King Group resulting in the creation of the Vietnam branch, Best Base. Today, while the mother company in China is targeting the European market, Best Base focuses on the US market. Kang Da and XinSheng also faced the same challenges when an anti-dumping tax was imposed on wooden floorboards and pet food bags in 2008. In 2008, the United States launched anti-dumping investigations on wooden floorboards imported from China, which dramatically decreasing Kang Da’s profits. After Kang Da lost its lawsuit against the investigations, the company moved manufacturing lines out of China to avoid the tariff. Faced with over a 300% tariff in 2008, XinSheng came to Vietnam and rented two factories containing manufacturing line. In 2011, XinSheng decided to purchase land in Linh Trung Park to expand its business.
National Strategic Planning
At the beginning of the 21st century, China launched the Going-Out Strategy to deepen its economic relations with the rest of the world and make full use of internal and external markets. The main purpose of this strategy was to encourage competitive Chinese companies to expand their business outside of China. Due to financial incentives from the Chinese government and SOEs being responsible for following national policies, Chinese SOEs were among the first group of companies to enter the international market.
In 2006, Yantai Moon established its subsidiary company in Vietnam as a response to China’s Going-Out Strategy. According to the plan set by the Chinese government, Chinese companies were supposed to go out, go inside, and go upward so that they could obtain advanced experience and earn a positive brand reputation. Selling products in foreign markets is seen as going out, establishing factories outside of China is seen as going inside, and promoting brands is a demonstration of going upward.
In a sense, Yantai Moon has accomplished its mission. Its subsidiary company in Vietnam produces cooling equipment in Vietnam and sells products in multiple countries. The Vietnamese market still accounts for a small portion of sales, so the company is trying to increase its marketability in Vietnam.. More importantly, Yantai Moon finished acquisition of a 90% stake of Bush Company (a past learning source for Yantai Moon) from a Russian company. This successful business strategy helps the company to upgrade its manufacturing technology and improve the overall level of the whole company.
This case demonstrates that SOEs have quite different concerns compared to private companies with regards to decision-making criteria. Private companies are more profit-oriented while state-owned companies bear the responsibility of following national strategies even though it might damage profits in the short term. It is risky to start factories in a foreign country without sufficient investment information, however, SOEs are expected to go out first and collect essential information for other companies.
Choosing Vietnam
Even if Chinese companies decided to move out of China, it does not mean that they had to come to Vietnam. The specific reason why they chose Vietnam may vary, however, companies shared some reasons. The major reasons include, low tax rates, a cheap and stable supply of utilities, transportation convenience, cheap labor, and cultural similarities.
Lower costs
Preferential Policies and Tax Cuts
Vietnam provides preferential policies and tax cuts to overseas investors to encourage investment in Vietnam. Investors in Long Jiang Industrial Park enjoy an income tax preferential period of 15 years after gaining operating income. During this period, they enjoy a preferential tax rate of 10 percent. They are also free from tax for four years after they start to earn a profit, with the tax rates of the following nine years being halved. As for Linh Trung Industrial Park, the business income tax rate is 20 percent. They are free from tax for two years after they start to earn a profit, and the tax rates of the next fournine years are halved. In both parks, devices that consist of fixed assets of enterprises are free of import duties. Additionally, all imported raw materials and spare parts that cannot be produced or obtained in Vietnam are free of import duties for five years. Investors can also choose to set up processing export enterprises which are free of value-added tax in both industrial parks. The preferential policies and tax cuts mentioned above help investors reduce costs, making Vietnam an attractive destination for investment.
Cheap and Stable Utilities
The price of electricity in Vietnam is 6.57 US cents/kwh, and the price of water is 36.6 US cents/m³. Both are much cheaper than in China. And for industries that consume enormous amounts of water and electricity the difference in costs can be huge. The stability of the power grid is also significant for investors. On unstable power grids, frequent power outages slow down production and make it challenging for enterprises to deliver their products on schedule. For instance, Xinsheng, a company that produces pet food bags, consumes a lot of electricity. The company has already purchased land in Cambodia and has been trying to establish factories there as well. However, since the infrastructure in Cambodia is underdeveloped and the power grid is unstable, production is slowed and waste products are manufactured frequently, increasing costs. Although electricity may be cheaper in Cambodia, the additional cost of production delays and waste products make the cost savings negligible. It is more beneficial for the corporation to transfer their Cambodian production line to Vietnam.
Convenient Transportation
Vietnam possesses three transportation advantages important for companies looking to relocate from China. It possesses high quality convenient sea ports, has a land border with China, and is close to downstream customers. Vietnam is on the coast of the South China Sea with a coastline of 3,260 km. Along the coast there are multiple high-quality ports such as the Hanoi Port, Quang Ninh Port, Haiphong Port, Quy Nhon Port, Ngee Ann Port, Nha Trang Port, Da Nang Port and Ho Chi Minh Port. These ports provide convenient ocean shipping for companies to export large quantities of products.
Vietnam’s proximity to China also makes Vietnam a favorable destination for investment. For example, although Hua Xing Group has transferred part of its manufacturing process to Vietnam, it still produces large quantities of goods back in China. Therefore, geographic proximity to China is an important factor in keeping transportation costs as low as possible. Best Base, a corporation that produces candles, provides another example. Paraffin wax is a major raw material of candles. Since China is the biggest producer of paraffin wax in the world, it is opportune for a candle enterprise to be situated close to China. Naturally, Vietnam becomes a favorable choice for Best Base, considering that it takes only twelve days to ship the raw material from China to Vietnam.
Chinese enterprises’ relocation to Vietnam is also driven by the relocation of their downstream customers. For instance, Hua Xing Sports Goods which provides fabric for sports shoe factories decided to move to Vietnam as their major customers, international shoe brands, transferred production from China to Vietnam. First of all, Hua Xing Sports Goods wanted to save on transportation costs by moving to Vietnam along with their customers. Also, Hua Xing expected that its decision to move to Vietnam would allow its technicians and designers to better communicate with their customers face to face and revise their designs according to their customers’ requests on the ground.
Labor Costs
The interviewed enterprises also mentioned that labor price was a significant factor. According to them, when they decided to move to Vietnam, the price of local labor was still relatively low compared to China. However, it is worth noting that this advantage has been fading in the past few years for four reasons. First, Vietnam’s population is relatively small compared to China’s population. Second, a large number of enterprises transferring to Vietnam are in labor intensive manufacturing industries with similar skill requirements, so the competition to find high quality laborers is becoming more difficult. Third, the productivity of local workers is not always high enough to satisfy factory owners’ expectations. Fourth, frequent strikes interrupt production, and increase the companies’ costs. As a result, the supply of labor in Vietnam cannot meet the demands of all Chinese investors who want to transfer from China to Vietnam, not to mention investors from other countries. Despite these factors, enterprises still save a significant amount in labor costs when operating in Vietnam compared to China. Additionally, although labor costs are more expensive in Vietnam than in some other Southeast Asian countries, this difference is negligible due to other factors.
Cultural, Political, and Legal Similarities
Vietnam and China have a shared history that has resulted in pertinent similarities that ease the transition of Chinese enterprises into Vietnam. These similarities are not only cultural, but also political and legal. Vietnam and China share similar legal and political institutions. According to Vietnam’s constitution, Vietnam is a socialist country. The Vietnamese Communist Party is expected to lead the country and society. All state power in the country belongs to the people and Vietnam implements a people’s representative system. All these political characteristics can also be found in China. Due to this, Chinese companies can relatively easily understand and adapt to Vietnamese political institutions.
In addition, both countries have cultural heritage rooted in Confucianism. As the birthplace of Confucius, Confucianism has a significant impact on various aspects of Chinese culture. Confucianism spread widely to neighboring countries, including Vietnam, influencing their culture and government structure. The Confucian ethics of benevolence, loyalty, and forgiveness permeate many aspects of Vietnamese social life. And this is an integral part of Vietnamese traditions. Therefore, many Chinese companies feel more at ease and comfortable conducting business activities with Vietnamese people due to a similar culture and similar customs.
The Benefits of Industrial Parks
As it tries to draw foreign direct investment, the Vietnamese government has facilitated the setup of multiple industrial parks. After companies decided to move to Vietnam, they had to choose whether or not to be located within an industrial park. If so, they had to choose one from various options within a growing pool of industrial parks. Most companies in Linh Trung and Long Jiang chose these two industrial parks because of their location, the source of their investment, infrastructure, and the security the industrial parks provide.
Location
Linh Trung Park is located at the junction of Ho Chi Minh City and Tinh Tay Ninh. The location allows factories and companies in Linh Trung Park to keep a balance between convenient transportation and low costs.The park is only 43.5 km away from Ho Chi Minh City, one of the most important port cities in the southern part of Vietnam. However, administratively, the park is located outside of Ho Chi Minh City which allows it to enjoy lower taxes, cheaper labor and land prices.
Long Jiang Park also enjoys proximity to important ports and low costs. Although Long Jiang Park is very close to Ho Chi Minh City, approximately 50 km away. Additionally, the park is only 15 km away from My Tho, another port city which is connected to Long Jiang Park by a canal, giving the park an alternative route to ship goods. Apart from proximity to ports, Tinh Tien Giang, where Long Jiang Park is located, has a population of 1.7 million, providing a vast source of labor. More specifically, there are 8 million workers within a 15 km radius of Long Jiang Park.
Chinese Investment Background
Chinese enterprises value the Chinese background of Linh Trung Industrial Park and Long Jiang Industrial Park. Despite the similarities between China and Vietnam in terms of culture and political system, differences in language still remain as major barriers for Chinese enterprises investing in Vietnam. Industrial parks created through Chinese investment are more attractive to Chinese enterprises as they ease communication between Chinese companies and other entities.. It is also easier for Chinese industrial parks to understand the special concerns of Chinese enterprises and provide better directed suggestions. In addition, Chinese staff find it helpful to stay together to psychologically support each other in a foreign country and maintain a vivid social life.
Infrastructure
Both Linh Trung Park and Long Jiang Park provide infrastructure for factories which eases the transition of relocating to Vietnam. Among other infrastructure needs, the stable supply of electricity and water is very important. Linh Trung Park provides 15,000 square meters water per day and the water supply of Long Jiang Park reaches 48,000 m3 per day. Both parks are equipped with IDD telephone lines, 1,500 in Linh Trung Park and 4,000 in Long Jiang Park. Both parks emphasize environmental p rotection and have sufficient sewage treatment capabilities with Linh Trung Park treating 5,000 m3 of sewage per day and Long Jiang Park treating 40,000 m3 of sewage per day. Additionally, for companies looking for small factory spaces, the parks have pre-built factories available for rent, decreasing the burden for companies during the initial stage of setting up production.
Security
Investors placed tremendous emphasis on security as part of the reason they chose to function within an industrial parks. Both Linh Trung and Long Jiang have their own advantages in security. Both parks are enclosed by walls, which helps prevent potential criminals from entering, increasing the feeling of daily security. However, daily security is not the prime concern of investors. What they are more worried about is the frequent deteriorating bilateral relationship between China and Vietnam. Due to disputes over the South China Sea, large-scale anti-China riots, and the danger of riots is one of the most important sources of security concerns of the Chinese companies.
China-Vietnam Joint Venture Project
Through joint venture projects local governments, in this case the Vietnamese government is not only a stakeholder but also a protector of the project. In this respect, Linh Trung Park has a special advantage as a China-Vietnam joint venture project. Both the Chinese and Vietnamese partners of Linh Trung Park are SOEs, meaning the park has support from both the Chinese and Vietnamese government. Each party possesses a 50% share of the company. Therefore, the security of the park is in the interest of both the Chinese and Vietnamese investors, and also the Chinese and Vietnamese governments. Due to its Vietnamese government connection, the local government is a major stakeholder in the security of Linh Trung Park. This was demonstrated by the protection provided by local police during the anti-China riot on May 13th of 2014. Since the police arrived in time, the park suffered little damage during the attacks compared to non-joint-ventures.
Positive Local Relationships
Other than seeking support from the local government, Chinese industrial parks in Vietnam have also been trying to prevent riots through proactive actions. They are attempting to address the root of the problem in advance by establishing positive relationships with local people and employees. For instance, as local peasants sold their land to the Vietnamese government to build Long Jiang Industrial Park, they retained a small piece of land around the park. The development of the park increased , the value of the small piece of land, making it much more valuable than land previously owned. Realizing how their living standards have improved thanks to the industrial park, local people tend to be less willing to destroy it. In addition, Long Jiang Park donated locally to help citizens. They helped provide potable water and built infrastructure, such as primary schools. Representatives from the park also visit poor local families during festivals and provide them with gifts.
Regulations and Enterprise Categories
Chinese enterprises consider both specific regulations and enterprise categories that have already been moved to the industrial parks. Some industrial parks prefer enterprises in certain industries for the sake of production specialization. Therefore, they usually reject enterprises in non-targeted industries. Linh Trung Park and Long Jiang Park have less strict regulations in this aspect and thus have a relative advantage in attracting investors. However, Linh Trung Park has high entry thresholds in some respects. First, it does not welcome enterprises in high-pollution industries such as chemical, electroplating, and leather industries. Second, since the total number of local people is limited, enterprises in Linh Trung Park is concerned that incorporating more labor-intensive enterprises will make it more difficult to hire workers. To address this concern and ensure the interests of older investors, Linh Trung Park stopped welcoming labor-intensive enterprises. Such high entry thresholds may not be friendly to enterprises that cannot meet the demands, yet it is an advantage to enterprises that have already been situated in the park.
Differences between Linh Trung Industrial Park and Long Jiang Industrial Park
From the previous sections, we investigated general information on Linh Trung and Long Jiang and discussed the reasons Chinese companies decided to move to these two industrial parks. However, given that Linh Trung and Long Jiang have both similarities and differences, it is very important to research more specific information on each industrial park. Based on this information, this section will compare various aspects of the two industrial parks to draw a full picture of Chinese direct investment in Vietnam.
Ownership
Linh Trung Industrial Park is a joint venture between China Electrical Import and Export Company (CEIEC) and a Vietnamese corporation, with a 50%-50% ownership distribution between the two sides. The even distribution offers equal decision-making power between the Chinese and Vietnamese side, which will get more Vietnamese people involved when necessary and makes it easier to deal with the local government. The Chinese side, CEIEC, a central-run company, sends representatives from the headquarters to manage the industrial park every 3 years. They initially set up an industrial park in Vietnam out of the pursuit of high profits.
On the contrary, Long Jiang Park is built up by the Long Jiang Industrial Park Development Company, without Vietnamese involvement. The company was initiated by private enterprises which wanted to escape from strict anti-dumping tax and trade penalties from developed countries. The independent ownership enables the park to have unified decision making on park managing, avoiding internal differences due to cultural and social diversity.
Development Stage
Linh Trung Industrial Park has three sites, built in 1995, 2000 and 2002 separately. The three sites are almost full and most have been in production for several years. As a result, the basic infrastructure in the park, such as roads and worker living quarters, are all complete. Compared with Linh Trung, Long Jiang Park has one site built in 2007. Currently, 80% of the land and factories in the park are rented. However, only 20% of them have started producing goods. Also, Long Jiang is still in rolling development, with some roads uncomplete. Infrastructure is currently under construction by both the enterprises and the managerial group of the park.
Enterprise Variation
According to the introduction to Linh Trung Park, in site I and II, most enterprises came from Taiwan, Hong Kong, South Korea, and Japan, and a minority of companies came from mainland China. As for site III, 25 out of 75 enterprises in the park came from mainland China, taking a much greater proportion than the previous two sites, but still not an absolute majority. For site I, the reason for the mismatch between the Chinese ownership of the park and the minority of mainland enterprises is that the managerial group set up site I for profits. As early as the 1990s, mainland China was in its golden era after the reform and opening up with all industries booming with favorable policies in the international environment. Consequently, very few mainland enterprises moved abroad to expand marginal profits and avoid tax cost.
On the contrary, among all the enterprises in Long Jiang Park, 70% of them are from mainland China. Explanations lie in that Long Jiang was set up as late as 2007, more than a decade later than Linh Trung Park. As a latecomer, Long Jiang has benefited from the experience of other industrial parks in Vietnam, therefore attracting higher-quality investments. Also, when China joined the WTO in 2001, Chinese enterprises started taking an active part in international trade, and some soon were involved in legal cases concerning dumping and unfair competition. Many of them decided to move to Vietnam or other countries that had cheaper production costs and better export policies.
Comparative Advantages
The two parks also differ in their comparative advantages, such as favorable policies for enterprises, tariffs, etc. Both parks have good transportation conditions because they are near highways, border Cambodia, and Ho Chi Minh International Airport. However, the major difference is that Long Jiang Park has an internal port that enables enterprises to take advantage of the Jiu Long River to transport goods to My Tho Port and Hiep Phuoc Port directly.
In terms of favorable tax, Linh Trung Park’s income tax rate is 20%, while Long Jiang’s income tax is 10%; when the companies start to gain profits, enterprises in Linh Trung enjoy a tax-free policy for two years, and have a 50% tax discount for the following four years, while in Long Jiang, the corresponding years of similar tax policies are four and nine respectively. Additionally, Linh Trung Park is a manufacturing zone for exporting commodities, thus enterprises inside it can enjoy the VAT-free policy and import/export tax-free policies. On the other hand, in Long Jiang Park, only enterprises focusing on import and export can fall under similar policies.
Different favorable policies result from different governmental development plans designed for different areas. The government carries out policies with incentives to encourage foreign investment to speed up regional development, and it adjusts the policies period by period according to the situation.
The Evolution of China’s Overseas Investment Model
From previous comparisons, it is clear that the two parks reflect different foreign investment situations, and we can understand the evolution of China’s overseas investment model by analyzing those situations. Linh Trung Park III started construction in 2002 and began attracting investment in 2004. However, Long Jiang Park got its investment license in late 2007, and it is still undergoing construction on a large scale. Although only a 5 to 10 year gap existed between construction and attracting investment, the conditions and operational model of the companies that invested in the industrial parks have changed. Chinese investment in Vietnam now is on a larger scale and has become more modern.
The larger scale is reflected in the number of Chinese companies. There are 77 companies in total that invested in Linh Trung Park I and II, and barely any are from mainland China. The majority of the investments there come from Taiwan, Hong Kong, South Korea, and Japan. Such a situation has changed in Linh Trung Park III, among 75 companies, one third are from mainland China. Similarly, in Long Jiang Park the number of companies from mainland China account for 70% of all companies. Additionally, the larger scale is also embodied at the operational level, and this can be measured by the acreage of the industrial parks. Although obtained similar amount of companies, Linh Trung Park III occupies 203.8 acres of land, which is more than 3 times larger than Linh Trung’s previous two parks. However, Long Jiang Park occupies 600 acres of land but can only contain around 50 companies.
The evolving model can be understood from two angles. The first angle is the changed standards for how industrial parks evaluate and select companies. One manager from Linh Trung Park explained that, in order to maintain daily operations and draw more investment, they set low standards when evaluating companies when the industrial park was first established. After obtaining some investors, they started to prefer industries with lower energy costs and that discharge less pollutants. The standard is similar in Long Jiang Park. It has attracted investment from industries like electronics, communication equipment, optical instruments, and medical equipment. The second angle is the labor requirements of the companies who invest in those parks. The labor cost was widely mentioned as an essential advantage that drew foreign investment to Vietnam, but such an impression has been out of date. Nowadays, labor intensive industries are less desired. For example, the total amount of employees in Long Jiang Park is 30,000 to 50,000, which is similar to that in Linh Trung Park I and II. Linh Trung Park III has 15,000 employees. Considering the number and scale of companies in these industrial parks it is apparent to get the conclusion.
Conclusion
China has achieved continuous rapid economic development coupled with increasing influence in the global economy. Since it began to open its economy in the 1990s, China has successfully maintained a high growth rate while implementing changes to support new situations it encounters. One of the most important changes is the increase of China’s foreign direct investment (FDI). This paper focuses on Chinese FDI based on field research in two industrial parks in Vietnam, Linh Trung Park and Long Jiang Park. This research investigated the reasons why Chinese firms decided to move to industrial parks in Vietnam, common benefits, and common concerns. It suggests that one of the most important factors leading companies to move out of China was anti-dumping taxes imposed on Chinese companies in the late-2000s.The companies chose Vietnam because of low tax rates, stable low cost utilities, favorable transportation accessibility, and cultural similarities. Although Chinese firms perceive that Vietnamese workers are less productive than Chinese workers and there exists security threats, the benefits provided by the industrial parks overshadow the issues.China is a late arriver in Vietnam, but its operation in Vietnam has rapidly grown in recent years. Today, driven by the Belt and Road Initiative, trade and investment between China and Vietnam has substantially increased. In 2017, China invested 2.17 billion dollars in Vietnam, a historic high, becoming the fourth largest investor in Vietnam, a number that is expected to grow further in the coming years. In the context of China’s growing business interests in Vietnam, a few questions are raised. On a micro level, when and why will a firm decide to invest in Vietnam? In comparison to conditions in China or other ASEAN countries, what are major pros and cons of running factories in Vietnam? How much do factors, such as labor costs, utility costs, policy differences, and transportation access matter? Do different industries react differently to these factors?
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