Missing the FDI Boat?
Missing the FDI Boat?
And population problems lurk
Good morning! Hello to all new readers, and welcome to the latest edition of the Vietnam Weekly, written by Ho Chi Minh City-based reporter Mike Tatarski.
The Friday newsletter is always free to read, while earlier this week I published an article for paying subscribers about the unusual Công Minh Green Tree Company investigation, the upcoming FLC Group trial, and more anti-graft updates.
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A new episode of The Vietnam Weekly Podcast drops Monday morning on all major podcast platforms.
On to the news.
The Shifting FDI Narrative
While parts of Vietnam’s economy have struggled over the last couple of years, one consistent bright spot is foreign direct investment (FDI), something that is frequently hammered home by domestic media - especially when it comes to tech investment.
Headlines just from the past week include ‘Taiwanese investments expand horizons in Vietnam,’ ‘Vietnam’s FDI capital likely to hit US$40 billion this year,’ and ‘Inflows picking up the pace for semiconductors.’
While it’s hard to argue against US$40 billion, keen observers know there is more to this story.
Despite all the talk of global manufacturers de-risking/decoupling from China and looking at Vietnam, Chinese companies accounted for 29% of new FDI projects in the first half of the year - the most of any source country.
As I wrote for Hunterbrook Media last month, Vietnam also hasn’t attracted any multi-billion investments from Western tech giants this year, unlike Malaysia and Indonesia.
Vietnam potentially losing out to competitors is rarely discussed by state media, so I’ve been struck by a recent string of articles on exactly this topic.
The Investor ran a story titled ‘Intel shuns Vietnam to invest $3.3 bln in Poland, Samsung could leave for India: ministry,’ VnExpress International published ‘Why global tech giants consider Vietnam but choose to invest elsewhere’ (the direct inversion of a 2022 story headlined ‘Why does Vietnam attract global tech giants?’), and Sài Gòn Giải Phóng went with ‘Vietnam needs to do more to attract sustainable foreign investment.’
It’s no accident when multiple news outlets have simultaneous coverage. This came from the Ministry of Planning and Investment (MPI), which blamed the problem on a lack of financial incentives for foreign corporations following the implementation of the 15% global minimum tax (GMT) on January 1.
The first article listed above may be the most surprising. Last November, Reuters reported that Intel had canceled plans to expand its investment here. Intel and the Vietnamese government both attempted to obfuscate this embarrassing fact and now MPI is openly admitting it.
According to Reuters, Intel’s decision was linked to power shortages and red tape - neither of which were cited by MPI in these recent articles.
This narrative shift is laying the groundwork for an announcement of subsidies for foreign corporations like Samsung, something that was first mooted over a year ago.
Called the Investment Support Fund, this will place further stress on the already strained state budget, though exact figures haven’t been laid out yet.
Malaysia and Indonesia both plan to implement the GMT by January 1, 2025.
I’m going to expand on this topic in the future, including in an upcoming podcast episode.
Population Concerns
The Ministry of Health recently proposed that Vietnamese couples should be able to have as many children as they wish, a shift from the current two-child “limit.”
I put limit in quotation marks as I’m not sure how strictly it’s enforced: that policy came from the 2003 Population Ordinance which “called for” people to have “one to two children, with exceptions to be regulated by the government.”
It certainly isn’t as strict as China’s one-child policy, for example.
In any case, this stance from the health ministry comes in response to declining birth rates: just four of Vietnam’s 63 localities are currently at or above the replacement birth rate of 2.1 children per woman.
There is particular concern about HCMC, with a current birth rate is 1.32. The city’s rate has been below the replacement rate for almost two decades, and people over 60 years old now make up 12.5% of the urban population.
None of this is unusual: globally, cities have lower birth rates than rural areas, and birth rates always fall as nations industrialize and become more wealthy.
Or, to quote Tuổi Trẻ News: ‘Ho Chi Minh City's youth opt for freedom over family.’
Officials have good reason to worry though, as falling birth rates (along with improved life expectancy) will cause problems down the road, with rapidly aging countries like South Korea and Japan serving as a warning.
Vietnam is currently in its ‘golden population phase,’ meaning two or more working-age people for every person not in the working age - and has been since 2007, which has greatly appealed to manufacturers needing large workforces.
But that period is expected to end in 2036, and the government wants to avoid the risk of Vietnam “becoming old before getting rich.” In May the Asian Development Bank warned that developing Asia and the Pacific - including Vietnam - aren’t yet ready to ensure the well-being of rapidly aging populations.
Like other fast-growing countries, however, it won’t be easy to convince people to have more children, especially in major cities where the cost of housing and good education is out of reach for many.
Sticking with population issues, the health ministry also wants to implement heavier penalties for couples practicing fetal sex selection, which led to the emergence of a sex imbalance at birth in 2006.
This ratio has been at least 112 boys for every 100 girls each year since 2012.
The imbalance is higher in rural areas - in 2022, Sơn La Province saw 117 boys born for every 100 girls, with VnExpress International stating the national “gender imbalance could be attributed to some people preferring sons to daughters, as well as the improper usage of technologies, such as sex selection with IVF [in vitro fertilization].”
At current rates, by 2050 Vietnam could have over 4 million men unable to find a female partner, which the health ministry says “can lead to gender-based violence, human trafficking, prostitution, political instability and economic losses.”
Data Corner
6% - the percentage of Vietnamese who told a recent Gallup survey that they felt loneliness “a lot of the day yesterday,” the lowest rate in the world and well below the global average of 23%.
25% - the percentage of Vietnamese businesses that have a website with the national domain (.vn, in this case), compared to over 70% in Europe. I want to know what percentage of these websites actually function, as many even from major corporations like CGV and VietJet are almost unusable.
Two - the number of months the high-speed boat service from Ho Chi Minh City to Con Dao lasted. It will be discontinued on July 29 due to lack of demand, in part because the departure port was in the city’s far southern reaches an hour from District 1. The vessel was the largest of its kind in Vietnam, with seating for just over 1,000 people.
US$780 million - the cost of a proposed 30-kilometer-long automated tramline between Tân Sơn Nhất International Airport and Đầm Sen Park in HCMC.
Extra Links:
Vietnam, Not India, is in a Geopolitical and Geoeconomic Sweet Spot (The Diplomat)
How Saigon's Free Water Coolers Quench Thirst and Spread Kindness (Saigoneer)
Is the EU's agroforestry agenda just? (Clickable Insights)
Southeast Asia and BRICS: Fear of Missing Out (Fulcrum)
The sinking aquaculture dragon: struggles in the Mekong (The Fish Site)
Have a great weekend!
Peter Zeihan, a pretty well paid Geopolitical Strategist slams home most days the link between demographic change and economic stability. I’m curious as to how elderly Vietnamese retain wealth. In the US, we tend to transfer from higher risk investments in our stock market to more stable portfolios. So, where does the old money go in Viet Nam? Property ownership?