[News Terms] China Aiming for 'Friendshoring' While Investing in Vietnam

China Increases Investment in Vietnam Amid Supply Chain Restructuring by Multinational Companies like Apple
'Bamboo Diplomacy' Vietnam Gains Practical Benefits by Strengthening Ties with China

Chinese President Xi Jinping warmly welcomed the Vietnamese Prime Minister visiting China and expressed his intention to strengthen relations. The U.S. think tank Atlantic Council analyzed that one of the reasons China is focusing on Vietnam is because China, like the U.S., is aiming for 'friend shoring' with Vietnam.

'Friend shoring' refers to building supply chains among allied or friendly countries to resolve global supply chain disruption issues.

Since taking office in December last year, Chinese President Xi Jinping (center) is making his third state visit to Vietnam, arriving at Noi Bai International Airport in Hanoi, Vietnam, accompanied by his wife, Peng Liyuan.
[Photo by EPA/ Yonhap News]

As the global supply chain faced crises due to the COVID-19 pandemic, Russia's invasion of Ukraine, and China's city lockdowns caused by COVID-19, the U.S. has been excluding China and Russia from supply chains and building supply chains with allies in the European Union (EU), Asia-Pacific region, and others to secure goods stably. It is establishing friend shoring in sectors such as semiconductors and key minerals.

While the supply of critical materials can be facilitated smoothly, there are concerns that production costs may increase due to giving up relatively low labor costs, and this cost may be reflected in consumer prices, causing inflation.

Related terms to friend shoring include 'off shoring,' which is moving domestic factories overseas; 'reshoring,' which is when companies that moved abroad return to their home country; and 'near shoring,' which is relocating factories to countries adjacent to the home country when companies move their factories.

According to China's state-run Xinhua News Agency on the 27th, President Xi met with Vietnamese Prime Minister Pham Minh Chinh, who visited China to attend the Summer World Economic Forum (WEF) Annual Meeting (Summer Davos Forum) held in Dalian, Liaoning Province, in Beijing the previous day. Xi said, "China places Vietnam as a diplomatic priority among neighboring countries," and expressed willingness to "safeguard unity and friendship with Vietnam, strengthen mutual support, and deepen mutual cooperation."

Earlier, in December last year, just three months after the U.S. and Vietnam upgraded their bilateral relations to the highest level of Comprehensive Strategic Partnership, President Xi made a state visit to Vietnam and agreed to further strengthen the existing Comprehensive Strategic Partnership.

As multinational companies like Apple pursue the 'China Plus One' strategy to reorganize supply chains concentrated in China, Chinese suppliers are responding by increasing investments in Vietnam.

Luxshare, a key Apple component supplier in China, announced it would double its investment in Bac Giang City, Vietnam. Another Apple supplier, China's Goertek, is investing up to $280 million (approximately 389 billion KRW) to establish a subsidiary in Vietnam.

Since 2013, nine out of the top ten Chinese electronic component and assembly companies have made greenfield investments (establishing production facilities and corporations in the investment country) in Vietnam, and the pace of capital inflow has accelerated since 2018. In fact, last year, the combined investment scale from mainland China and Hong Kong to Vietnam exceeded $8.2 billion, which is significantly higher than the $500 million from the U.S.

Vietnam, which advocates so-called 'bamboo diplomacy' to maintain friendly relations with all major countries, is strengthening ties with China to expand its influence while also securing practical benefits.

According to China's state-run English newspaper China Daily, Prime Minister Chinh told President Xi that he opposes the politicization of trade and technology issues and supports China's position on the Taiwan issue. During his visit, he also requested China's support for the construction of a high-speed rail network, including the Vietnam-China border route.