[Post-China Vietnam]④ The True Face of Vietnam... Beware of Rosy Prospects

"Vietnam is an alternative market to China. We must actively utilize Vietnam as a buffer zone in the US-China conflict."

As Vietnam emerges as the biggest beneficiary of the US-China conflict, rosy prospects for Vietnam continue, but Vietnam experts agree that it will not be easy to sustain last year's performance this year. This is because Vietnam's economic indicators plummeted in the first quarter of this year due to the global economic downturn since the second half of last year.

With accelerated monetary tightening by major countries last year and decreased demand amid the global economic slowdown, Vietnam, a 'global production base,' recorded a first-quarter economic growth rate of 3.32%, the lowest in 13 years. The State Bank of Vietnam (SBV) has cut interest rates this month following last month, becoming the first developing country to pivot (PIVOT - monetary policy shift) to stimulate the economy, but achieving this year's economic growth target of 6.5% seems difficult. In particular, concerns have arisen that Vietnam's export decline in the first quarter could shake South Korea's position as the largest trade surplus country last year. Since Vietnam is a market that can easily falter due to the global economy, a sophisticated and multifaceted approach is necessary.

As Vietnam's population surpassed 100 million at the end of this month, voices are growing to shift focus from a production base to a consumer market, but local companies have quite different opinions. Fierce competition among global companies targeting the Vietnam consumer market backed by population has led to successive cases of withdrawal due to failure in localization. Vietnam's Thaco Group aggressively expanded stores after acquiring 100% of Emart Vietnam's shares in October 2021, and growth has accelerated post-acquisition, which is a bittersweet situation for Korean companies.

The proportion of intermediate goods in exports to Vietnam reaches 90%... consumer goods account for only 4%

Looking at the export status by processing stage to Vietnam, it is pointed out that it is still difficult to fully target the consumer market. According to the Korea International Trade Association, last year, intermediate goods accounted for an overwhelming 88.8% of South Korea's exports to Vietnam. Trade between Korea and Vietnam is structured such that Korean companies operating production factories in Vietnam export intermediate goods, produce finished products, and then export them globally or to Korea from Vietnam. The proportion of consumer goods in exports to Vietnam last year was only 4.2%. Jang Sang-sik, head of the Trend Analysis Office at the Trade Association, said, "Since 2020, the export proportion of intermediate goods has continuously increased, but the proportions of primary products, consumer goods, and capital goods remain minimal," adding, "Although Vietnam has a strong willingness to purchase Korean products and Vietnamese consumers' purchasing power is increasing, it still requires time to fully develop as a consumer market."

Vietnam as a buffer zone between the US and China, actively utilize it as a re-export base

Experts advise that approaching Vietnam as a buffer zone between the US and China is an efficient strategy. Kwak Sung-il, head of the Economic Security Strategy Office at the Korea Institute for International Economic Policy (KIEP), said, "From the US perspective, which is sharpening its stance against China, Vietnam is a market that cannot be missed," adding, "South Korea, the top investor in Vietnam that both the US and China favor, should actively utilize Vietnam as a re-export base."

Recently, the US has shown special affection for the Vietnamese market. On the 14th, US Secretary of State Antony Blinken arrived in Hanoi, Vietnam, and actively discussed ways to enhance bilateral relations with the leadership, including Nguyen Phu Trong, the Communist Party General Secretary and the top-ranking official, and Prime Minister Pham Minh Chinh. The US and Vietnam are expecting to upgrade their relationship to a 'strategic partnership' on the 10th anniversary of the comprehensive partnership agreement in July this year. Vietnam already maintains the most solid 'comprehensive and strategic partnership' with South Korea, China, and Russia.

China has shown a sensitive reaction to Secretary Blinken's visit to Vietnam. Vietnam, which has pursued 'bamboo diplomacy'?maximizing national interests flexibly without leaning to one side?has become a new point of interest regarding what strategy it will adopt amid the US-China conflict. Professor Lee Han-woo of Sogang University evaluated, "Vietnam's foreign policy has pursued balanced diplomacy without siding with one party and excluding the other, and this direction will continue," adding, "However, Vietnam continues to have conflict situations, including actual physical clashes with China over the South China Sea, and given its past experience of substantial domination by China, Vietnamese people’s vigilance is high, making cooperation with the US inevitable."

South Korea-Vietnam trade volume to grow from $87.7 billion in 2022 to $190 billion by 2030

As the US-China conflict intensifies, Vietnam's importance as a production base replacing China and a new market due to the global supply chain restructuring and de-Chinafication is further highlighted. According to the Korea International Trade Association, trade volume between South Korea and Vietnam grew rapidly at an average annual rate of 15.6% over the past 20 years (2013?2022). The Korea-Vietnam trade volume is expected to increase about 1.1 times from $87.7 billion last year to $190 billion by 2030. Although Vietnam was hit hard by the global economic slowdown in the first quarter of this year, its economic growth rate still exceeds the global average, enhancing its investment attractiveness.

Experts advise that since the ecosystem of Korean companies, including large corporations like Samsung and LG as well as domestic SMEs, is already established in the Vietnamese market, it is important to maintain good relations by leveraging this. Samsung completed a large-scale research and development (R&D) center employing over 2,200 people last year to mark the 30th anniversary of Korea-Vietnam diplomatic relations, and Samsung Electronics Chairman Lee Jae-yong personally attended the opening ceremony in Hanoi, showing a commitment to mutual cooperation. LG Electronics' Haiphong plant serves as a global production base for automotive electronic devices and home appliances, and recently opened the 'LG Electronics Vietnam R&D Corporation' in Hanoi, responsible for developing and verifying vehicle infotainment system software (SW).

Going forward, there are calls to actively target the Vietnamese startup market, which is advanced in IT technology, to discover new growth engines. According to the Vietnamese Ministry of Science and Technology, the number of startups in Vietnam surged to about 3,800 last year. Kwak said, "As Vietnamese consumers shift to digital-centered consumption, e-commerce in Vietnam is expected to grow to a scale comparable to offline grocery retail by 2025," emphasizing, "The digital native generation, including Generation Z and millennials born between 1980 and 2012, is expected to account for 40% of Vietnam's consumption by 2030, expanding opportunities in the startup market." For example, the founder of 'OKXE,' a widely used used motorcycle trading platform in Vietnam where over 90% of the adult population uses motorcycles, is Korean.

Professor Cho Young-tae of Seoul National University Graduate School of Public Health, who advised the Vietnam Population and Family Planning Department, said, "Unlike Korea, where IT technology is advanced but regulatory barriers cause missed opportunities in new industries, Vietnam is open to new attempts and possibilities," adding, "Vietnam is rapidly aging but remains a young country with a median age of 32, and small cities alongside Hanoi and Ho Chi Minh City are developing as new consumption centers, creating opportunities for new businesses."