Spotlight: Mob violence damages Vietnam's investment reputation, economy
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E-mail Xinhua, May 24, 2014
Recent Vietnamese mob violence against foreign enterprises, targeting mainly Chinese ones, have damaged the country's investment reputation and cast a shadow over its economic growth.
The deadly riots in Vietnam last week, which left at least two Chinese dead and more than 100 injured, are "harmful to the country's image and stability," Jonathan London, professor of Southeast Asia Research Centre at the City University of Hong Kong wrote recently on his blog.
During the riots in central and southern Vietnam, Chinese companies including those from China's mainland, Taiwan and Hong Kong, were the hardest-hit companies.
Taiwan-based Formosa Plastics Group, which was planning to invest 23 billion U.S. dollars in Vietnam, announced last week it would halt future investment.
Besides Chinese companies, a large number of South Korean, Japanese and Singaporean plants also fell prey to Vietnamese mobs, with their factories forced to shut down.
A lack of security has now emerged as an obstacle for investors, as they seek to balance advantages in human resources and potential uncertainties in the country, Edmund Malesky, an expert from Duke University said.
Those enterprises in China's southeast provinces, such as Guangdong and Guangxi, considering migrating to Vietnam in search of lower labor and land costs may change their mind.
The potential outflow of foreign investment could be a huge hit for Vietnam, whose fast-growing export-oriented economy is thirsty for foreign capital.
In 2012, foreign enterprises accounted for almost half of its overall industrial output. Foreign investment has been undoubtedly an important part of its economic growth.
China is a big source of foreign direct investment in Vietnam. There are about a thousand projects from the Chinese mainland with a total registered capital of 7.3 billion dollars.
Taiwan is the fourth biggest investment source after Japan, Singapore and South Korea, with a total investment of 28.05 billion dollars since 1988.
In 2013, Vietnam lured 21.6 billion dollars in foreign direct investment, up 54.5 percent year-on-year thanks to favorable external factors, including China's industrial upgrading, which has created many opportunities for its neighbor since 2011.
Besides investment, the nationalist sentiment in Vietnam could impair its tourism and foreign trade. International tourist arrivals, especially those from China and South Korea, have sharply declined since the violence.
"A more prosperous China is good to the region, good for the Vietnamese economy," Theodore Moran, a senior fellow with the Peterson Institute for International Economics said.
The nationalist sentiment is not conducive to solving such problems as improper industrial structure, fiscal deficit and poor infrastructure.
In fact, Vietnam has been suffering economic transformation troubles owing to a lack of funds, as the backbone of its export sector has very low value added, which makes it difficult to accumulate funds and train skilled people.
The government's preferential policies in land and tariffs for foreign investment also help widen the gap between foreign and local enterprises, which lack the finance to upgrade equipment and are uncompetitive with their foreign rivals.
In these circumstances, Vietnam has no choice other than to rely on international investment. Once the influx of external funds is cut, its export and whole economy could be under risk.
"The Vietnamese government should see that there is nothing to gain from protests against Chinese workers in the industrial zone," Moran said, "They should try to minimize the disturbances."
"The upheavals is part of the territorial tension between the two countries," he said, adding that they should "leave it to political negotiators."
"If the geopolitical dimension can be managed smoothly, the economic dimension could be win-win for the region, because the Chinese economy and those economies are very complimentary with rising amounts of trade in both directions," Moran said.
Derek Scissors, a scholar at the American Enterprise Institute, said: "The host government should protect foreign investors to some extent against unusual domestic political risk." Enditem
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