After days of unrest in some of China’s biggest cities, the Chinese government has announced it is relaxing COVID-19 protocols. This may be the first sign that China is returning to business as usual and reopening its economy. This could have both good and bad outcomes for Vietnam.
It was almost three years ago to the day that the first case of COVID-19 was reported in Wuhan, China. Three months later, the World Health Organization declared the outbreak a pandemic and that action should be taken to stymie the spread of the virus.
In these initial stages, Vietnam took a similar approach to China. It closed its borders, isolated people diagnosed with COVID-19, and implemented wide scale lockdowns when cases were found in the community.
When the virus peaked, factories implemented closed loop production, with workers sleeping on site and subjected to regular COVID-19 testing.
Unlike China, however, Vietnam implemented an aggressive vaccination campaign. It reached out around the world seeking donated vaccines and set about inoculating its population.
Furthermore, when authorities were satisfied that Vietnam was as well prepared as it could be, Vietnam reopened its borders. This was almost a year ago. China still has not.
Given they are neighbours, the contradictory policies have had implications on both countries. When China reopens, as it seems on track to do, the impact will be felt on both sides of the border in a broad range of sectors.
FDI inflows could slow down
In the first 11 months of 2022, Vietnam registered a record US$25 billion in foreign direct investment (FDI) partially reflecting changing attitudes toward China among foreign firms.
In recent years, rising wages and a trade war with the US have put a dampener on doing business in China. As a result, many firms were already looking to diversify their supply chains out of the country before the first cases of COVID-19 were even diagnosed.
COVID-zero, however, further exacerbated this sentiment with many multinational firms severely affected by the policy.
Taiwan’s Foxconn, one of Apple’s key suppliers, for example, has been at the epicentre of unrest over COVID-19 lockdowns in China. By some estimates, unrest at its factory in Zhengzhou saw its iPhone production capacity reduced by 30 percent.
Unsurprisingly, Foxconn, is already in the process of moving some production out of China due to the impact of zero-COVID policies. Foxconn announced in August that it would be spending an additional US$300 million to ramp up production in Vietnam.
Vietnam Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Eurasia, including ASEAN, China, India, Indonesia, Russia & the Silk Road.