The Vietnam boom
The author is an editorial writer at the JoongAng Ilbo.
Vietnam is geographically not that close to South Korea. It takes five hours to fly from Incheon International Airport to the Southeast Asian nation. The broad view of Koreans about the country is based mainly on history. Korea waged a war with the United States and others in Vietnam, while the country became communist with the withdrawal of U.S. troops. After the collapse of the Soviet Union, Vietnam phased out socialism. Despite its fast modernization, one of the first things Koreans associate with the country are Vietnamese wives in rural Korean families who often face beatings by their Korean husbands.
Vietnam, however, is not a country to be underrated. In fact, Korean men increasingly marry Vietnamese women to reside in the country and build business in the flourishing country. Vietnam has become Korea’s third largest export destination after China and the United States. China takes 25 percent of Korean exports, the United States 12 percent and Vietnam 9 percent. Shipments to Japan hover at about half of those bound for Vietnam.
Vietnam is No. 2, after China. The country is one of Korea’s main investment destinations. Over $50 billion of Korean capital went to Vietnam as of 2017, followed by $40 billion from Japan, then Singapore and Taiwan. The direct investment alone suggests Korea’s high hopes for Vietnam. Korea has also delivered the most overseas development aid to Vietnam after Japan.
The sustainability of investment in Vietnam, however, raises questions. Vietnam opened up under the Doi Moi reform adopted in 1986. Its privatization, liberalization and globalization scheme has so far been successful. Swiss investment bank UBS named Vietnam as the most attractive market in Asia for investment. It predicts it will be one of the emerging market’s top five logistics hubs over the next five years.
Vietnam has achieved remarkable development. Its per capita income was less than $100 before the opening in 1986 and reached $2,545 last year. The sum is not small, given the fact that Korea’s per capita income did not exceed $2,000 under the industrialization of strongman Park Chung Hee. Vietnam has proved its capabilities to turn itself around from a poor country.
The economy shows potential to grow even faster than South Korea thanks to its fortunate timing. Vietnam’s potential has become convincing to foreign investors who have seen the case of China. China has already become too expensive for labor-intensive multinationals. Korea companies and those from other countries are rushing to build factories to replace those in China, where labor costs are no longer cheap.
Samsung Electronics has slowed investments in China and instead is expanding in Vietnam. Vietnam has happily met the demand by installing an exclusive customs service for the electronics giant.
The shake-up in global value chain due to the Sino-U.S. trade war is another opportunity for Vietnam. American companies have turned to Vietnam from China for imports, and Vietnamese companies have bumped up staffing to meet the demand. Vietnam is still at conflict with China over territory in the South China Sea after enduring more than 10 wars with China. It would welcome any foreign capital shifting away from China.
Vietnam’s future begins now. It has progressed fast, yet it lacks a self-sufficient growth engine. China has attracted foreign capital to make its own technologies and now poses a threat to Korean and other foreign competitors. Vietnam, on the other hand, could be less threatening.
Korea has regularized deputy prime ministerial-level economic talks with Vietnam. Major corporate names — Samsung, LG, Hyosung and Kumho — have built major manufacturing facilities in Vietnam. Hanwha Group made an equity investment of $400 million in Vingroup, and SK Group invested $470 million in Masan Group in their bets to take advantage of Vietnam’s growth. The economy has been growth at a 6 percent pace.
Vietnam has opened up fast and joined the global value chain. The country has always been practical. When the Korean government offered to make an official apology for its backing of the U.S. in the Vietnam War, the government refused, saying it wants to focus on future relations.
JoongAng Ilbo, Sept. 30, Page 26