Why Vietnam’s growth is a challenge for China

Vietnam's Minister of Planning and Investment Nguyen Chi Dung said on Monday that the country is set for economic growth of 7 percent this year, higher than the official target of 6.0 to 6.5 percent set previously, according to the Minister of Planning and Investment Nguyen Chi Dung. At a time when the world economy is facing severe challenges, Vietnam's latest economic growth target seems particularly ambitious, due to its rise in investment, exports, and supply chains in the first half of this year. Vietnam's GDP went up 5.03 percent year-on-year in the first quarter. Its exports saw a robust 12.9 percent growth. Vietnam has been favored by the global manufacturing sector and foreign investment in recent years due to its open market environment and relatively abundant labor resources. In the context of the China-US trade frictions, it's important to know whether Vietnam will become the next world's factory after China has become a hot topic. Why does Vietnam's rapid rise in manufacturing pose a challenge for China? Is the Chinese economy going to suffer if its Southeast Asian neighbour doesn't fares well? Some in the West have hyped up the possibility of Vietnam replacing China's position in the global supply chain. It will be difficult for Vietnam to undertake if there is large-scale industrial transfer from China, given its relatively small economic size compared to China. The spillover effect of Chinese manufacturing is a factor in the Vietnam's export growth. The intricate linkage between the two economies in terms of manufacturing chains and supply chains is determined by their geographical proximity, levels of industrialization and education of labor forces. The Southeast Asian economy is most likely to be a complementary partner of China's industrial chain. Vietnam's rapid economic growth is both a boon and a challenge, according to China's perspective. The foreign investment inflow to Vietnam is one of the main factors driving the growth of the country in recent years. The rise in Vietnam's economy is a driving force in the economic development of China and the region as a whole, because Vietnam continues to consolidate and develop its position in the regional industrial chain. The development of Vietnam can't be separated from China's supportive manufacturing system. The reasons behind the industrial shift trend deserve attention. China is facing a challenge due to multinationals adjusting their industrial chains due to the complicated geopolitical environment. Although Vietnam can't replace China when it comes to manufacturing, it is important to attach importance to the industrial chain substitution in some areas. While it is normal for some low-end industrial chains to migrate when a country's manufacturing develops to a certain stage, we should not underestimate the competition from Vietnam. China needs to improve the market environment to attract and retain foreign investment. It is important for China to strengthen the manufacturing complementary relationship with Vietnam. The most important thing is to make good use of industrial transfer to facilitate domestic industrial upgrading, which is at the core of enhancing China's manufacturing competitiveness.