The United States and China, the two most significant economies in the world, are competing for influence in Vietnam, a vital Southeast Asian country. According to government data, Chinese investments in Vietnam have increased significantly this year, in contrast to decreased spending and trade in the United States.

In global supply chains that frequently rely on Chinese components and customers in the United States, the industrial center stretching around the South China Sea is becoming an increasingly important connection where components are assembled.

After a year of strenuous diplomatic efforts to raise the United States to the same tier as China in Vietnam’s ranking, Vice President Joe Biden upgraded diplomatic ties with the erstwhile adversary during a visit to Hanoi in September.

Furthermore, President Xi Jinping of China will visit Vietnam this week to strengthen ties between the two countries. There is a possibility that he may consent to the declaration that the two nations share a shared destiny, according to diplomats. This declaration can potentially be viewed in Beijing as a formal boost to diplomatic ties.

In terms of economics, China looks to have had the upper hand up to this point, partly due to the trade policies of the United States. It is unclear whether symbolic improvement bears more weight than the other symbolic upgrades. Over the past several years, tensions between Washington and Beijing and various sanctions launched by the United States against China have promoted Chinese investment in Vietnam.

According to Vietnam’s official data, the total amount of registered investment from China and Hong Kong in the first eleven months of this year was $8.2 billion. This figure is twice as much as the amount of investment registered during the same period in the previous year, when China imposed pandemic restrictions. This makes China and Hong Kong the largest investors in Vietnam.

However, registered investment in the United States has decreased to $0.5 billion this year, down from $0.7 billion in 2022. This places the United States as the tenth largest investor, behind only Samoa, an offshore Pacific center, and the Netherlands.

Since consumers in the United States have been struggling with a cost-of-living issue this year, bilateral commerce has also decreased. Furthermore, during Biden’s visit, no tariff reductions were agreed upon.

In the first ten months of the year, Vietnam’s exports to the United States dropped by fifteen percent, reaching a total of seventy-two and a half billion dollars. At the same time, the United States’ imports also decreased.

During the same period, Vietnam’s exports to China climbed by 5%, reaching about $50 billion. On the other hand, Vietnam’s imports decreased, mainly because Vietnam purchases assembled components from Beijing. These components are then sent to Western countries.

Even though there are economic interactions with China, disagreements over the South China Sea’s boundaries complicate relations. In addition, an anti-Chinese attitude is widespread among the Vietnamese people, and it manifests itself in the form of periodic demonstrations. One such demonstration occurred in 2018 against establishing special economic zones that may have benefited Chinese businesses.

REDUCE OF RISK

The White House’s commitment to increased investments and simplified commerce accompanied diplomatic upgrading for the United States.

According to Zachary Abuza, a professor of Southeast Asian politics at the National War College in Washington, DC, “despite the fanfare during Biden’s visit, we have not seen so far a lot materialize.” Abuza also mentioned that international corporations encounter substantial difficulties when investing in Vietnam.

Noting that it takes time to make judgments on investments, several business consultants headquartered in Vietnam indicated that there has been a rise in the interest shown by investors from the United States.

According to Kyle Freeman, a partner at the business consultancy Dezan Shira, the concurrent rise in Chinese investment, which has nearly quadrupled this year above pre-pandemic levels to $3.9 billion, is partially explained by firms’ de-risking tactics amid trade tensions between the United States and China.

According to Chad Ovel, a partner at Mekong Capital, a private equity company focusing on Vietnam, the slowdown in China has also been a factor in investment decisions. “(The) poor short to moderate-term macro outlook in China is motivating Chinese to find investment opportunities outside their own country.”