The impact of the US-China trade war on FDI in Vietnam

The trade war reduces the global economic growth, especially that of the two main countries, the US and China two major trading partners of Vietnam, thereby reducing demand for Vietnam's

INTERNATIONAL FINANCE

Topic :

The impact of the US-China trade war on FDI

in Vietnam

Instructor : Trần Minh Tú Group members :

contribution

2 Nguyễn Hồng Bảo

Ngọc

185081102 Support I + II +

Powerpoint

100%

3 Dương Thanh Thảo 185080850 Support III + IV +

I

THE BEGINNING 1

1 REASON FOR CHOOSING THE TOPIC 1

2 OBJECTIVE OF CHOOSING THE TOPIC 1

3 RESEARCH OBJECT AND SCOPE 2

4 RESEARCH METHODOLOGY 2

II- FDI 2

1.WHAT IS FDI ? 2

2 THE NATURE OF FDI 3

3 FEATURES OF FDI 3

4 TYPES OF FDI INVESTMENT THAT BUSINESSES OFTEN CHOOSE TO INVEST IN VIETNAM 3

4.1HORIZONTAL FDI 4

4.2PLATFORM FDI 4

4.3VERTICAL FDI 4

4.4 CAUSES OF THE US-CHINA TRADE WAR 5

5 FACTORS AFFECTING FDI ATTRACTION 7

5.1POLICIES 7

5.2 INVESTMENT LAW 8

5.3 OTHER INFLUENCING FACTORS 8

III- FDI INTO VIETNAM BEFORE THE US-CHINA TRADE WAR 9

1 POSITIVE SIDE 9

2 THE NEGATIVE SIDE 10

IV- VIETNAM'S FDI IN THE MIDST OF THE US-CHINA TRADE WAR 11

1 POSITIVE IMPACT 11

2 NEGATIVE IMPACT: 15

V-CONCLUDE AND SOLUTIONS 16

The impact of the US-China trade war on FDI in Vietnam

I - The Beginning

1 Reason for choosing the topic

The process of globalization and economic integration is becoming more and more widespread, has strongly affected all countries, especially developing countries International economic integration not only affects economic growth and development, but also strongly impacts many fields including international investment and investment-related fields Any country that wants to industrialize and modernize needs to have investment capital to invest in the production and business process, building infrastructure, upgrading equipment, building and developing a team … But where and how capital is created depends greatly on the policies of each country Among them, FDI capital can play a great role in building social infrastructure, economic development, promoting economic restructuring, creating jobs for millions of workers , improve people's living standards Because of this, FDI is increasingly important in the current situation of our country Recognizing the importance of capital (FDI), the Vietnamese government has had many strategies and policies to systematically attract this investment capital into the economy Especially in the wake of the trade war between the two great powers The US-China economy is escalating The trade war reduces the global economic growth, especially that of the two main countries, the US and China (two major trading partners of Vietnam), thereby reducing demand for Vietnam's exports and has the big effect to the lines capital FDI to Vietnam That's why our team chose the topic "IMPACT

OF THE US TRADING WAR - CHINA ON FDI INTO VIETNAM"

2 Objective of choosing the topic

The US and China are the two leading economies in the world that dominate global trade and are also the two leading trade partners of Vietnam today Therefore, the US-China trade relationship has a very strong impact to trade in particular , the economy

of Vietnam in general Therefore, when the trade war between the first two major economic powers (the US) and the second (China) in the world has not shown any signs

of cooling down, tensions seem to be escalating The conflict between these two largest economies in the world has affected the entire world economy, reducing the growth rate

of countries during the past 4 years and showing no signs of cooling down Particularly in Vietnam, it is also significantly affected by the trade war between the two, so this huge economy Direct and indirect impacts on Vietnam's developing economy with both positive and negative impacts These things have caused the Vietnamese government to give develop appropriate strategies and policies to prevent negative impacts on Vietnam's economy, thereby bringing more positive impacts to Vietnam's rise One of the top and urgent priorities of the government today is to attract FDI into Vietnam to develop the economy FDI capital is one of the important factors to build and strengthen Vietnam's economy And to know the impact that FDI brings to Vietnam's economy in the giant war between the two great powers Therefore, we chose the topic "IMPACT OF THE US TRADE WAR _ CENTRAL ON FDI INTO VIETNAM" Thereby, let's try to understand whether the application of these policies and strategies in the big war is really suitable for the Vietnamese economy? From there, analyze the operation of these FDI sources, also

from that experience, propose solutions to improve the efficiency of attracting investment capital into Vietnam, bringing positive impacts to the economy

3 Research object and scope

The first object of the essay's research is how the huge influx of FDI affects Vietnam during the ongoing global trade war Specifically, the negative and positive impacts of FDI in the construction and development of Vietnam's economy can be mentioned in different periods Research scope: the current state of FDI for the economic growth development of Vietnam FDI capital options are suitable for Vietnam's economic development

4 Research Methodology

* Methods of data collection :

· Collect primary data from mass media

· Collecting secondary data provided by Accounting Department and Sales Department

* Methods of data analysis : Use statistical methods to collect descriptive analysis

of data collected from sources From that financial analysis and offer the most suitable solutions

II- FDI

1.What is FDI ?

FDI (Foreign Direct Investment) is a form of long-term investment by an individual or organization from one country to another by setting up factories and business establishments The main purpose is to achieve long-term benefits and take control of this property

To explain in more detail what an FDI project is, the World Trade Organization has defined: Foreign Direct Investment (FDI) will occur when an investor from a country acquires an asset in another country (which is an attractive country for investment) with the right to manage the assets The regulatory aspect is what differentiates FDI from other financial instruments

In most cases, both the investor and the assets he or she manages abroad will be the basis for doing business In such cases, the investor is often referred to as the parent company (or main company) and the assets are referred to as a subsidiary or branch of the company

2 The nature of FDI

Although FDI appeared several decades later than other external economic activities, FDI has rapidly grown and established its position in international relations What is the nature of an FDI project? The essence of FDI is the meeting of the needs of two parties and one side is the investor and the other side is the host country Which includes:

There are established rights and obligations of the investor to the place of investment

For invested capital and established ownership as well as management rights

Accompanying that is the right to transfer technology and techniques of the investor to the native countries

There is a link to the market expansion of multinational enterprises, companies and organizations

Always associated with the development of international financial markets and international trade

3 Features of FDI

What are the characteristics of FDI companies? FDI is a feasible form with great economic efficiency Therefore, the primary purpose of FDI is to bring profits to investors The income that the investor earns is business income, not interest Therefore, this type of income depends entirely on the business results of the enterprise

If you want to attract investment and promote economic development, the invested countries need to have a clear legal corridor What are investors' rights to FDI companies? They have the right to decide on their own investment and business decisions and are responsible for their own profit and loss At the same time, they are also free to choose according to the field of investment, investment form So they can make the most suitable decisions that bring high profits

4 Types of FDI investment that businesses often choose to invest in Vietnam

4.1 Horizontal FDI

Horizontal FDI is also known as a form of horizontal investment Horizontal FDI

is generated when a company/enterprise doubles its operations in the host country at the same stage of the value chain in a host country through FDI

4.2 Platform FDI

Platform investment form FDI is also known as a form of foundation investment The FDI platform makes direct investment abroad from a source country into a destination country for the purpose of exporting to a third country

4.3 Vertical FDI

Vertical FDI is also known as a vertical form of investment Vertical FDI is the form that occurs when a firm through FDI moves upstream or downstream in different value chains, i.e when firms carry out value-adding activities on a one-to-one basis longitudinal phase in the host country Government investment promotion agencies (IPAs) are using various marketing business strategies inspired by the private sector to try and attract foreign investment, including the marketing of diaspora to attract investment

in any form from foreign investors

In addition, countries will have different forms of incentives to stimulate the investment of the host countries by some forms of incentives for outward direct investment, which may take the form of:

Low corporate tax and personal income tax rates

Tax season

Other types of tax concessions

Preferential tariff

Special Economic Zone

EPZ - Export Processing Zone

Bonded

Maquiladoras

Investment financial support

Free land or subsidized land

Relocation and Deportation

Infrastructure subsidies

R&D Support

Energy brings

Offense from regulations (usually for very large projects)

By excluding internal investment to get downstream profits

4.4 Causes of The Us-China Trade War

Since becoming US President in January 2017, Mr Donald Trump has threatened many times to take strong measures to repay what China has done to the US in the field

of trade Since Donald Trump took office, the two countries have repeatedly negotiated to come up with a suitable agreement and concessions, but without success

Root causes

The US-China trade war is an increasingly fierce conflict between the two largest economic powers in the world It is forecasted that by 2030, China's nominal GDP will surpass that of the US However, in terms of purchasing power parity (PPP), China's GDP now exceeds that of the US The US and China are also two trading powers: the US

is the world's second-largest importer and second exporter; China is the world's largest exporter and second-largest importer

In recent years, the competition between the two superpowers has become increasingly fierce in the context of the US showing signs of decline Meanwhile, China is expressing its ambition to replace the US as the world’s number one power and dominate the world’s cadastral chessboard

Specific cause

First, the US trade deficit with China has continuously increased sharply.

The US trade deficit is considered a direct cause of US-China trade tensions In 2017, the

US imported $506 billion worth of goods from China, while exporting only $131 billion worth of goods to China Thus, the US trade deficit with China is up to 375 billion USD Therefore, to achieve a trade balance with China, the Trump administration has imposed import taxes on goods from China, putting pressure on China to increase purchases of US

goods Thereby reducing the trade deficit In addition, the tax will make goods made in China imported to the US will lose their competitive advantage in price, forcing multinational companies that are placing most of their production plants in China to see Consider relocating to the US This helps support the Trump administration’s strategy of bringing jobs back to the US and encouraging domestic manufacturing

Second, the protectionist policy of the Trump administration, the US is consolidating its position as a superpower on the world cadastral map.

Since taking office, President Donald Trump has pursued a protectionist trade policy with the goal of “America First” and “making America great again” This protectionist trade policy not only leads to a trade war with China but also leads to trade conflicts with countries that are considered allies of the US (such as EU, Japan, Korea) or neighboring countries, close to the US (such as Canada, Mexico)

Immediately after taking office, Mr Trump withdrew from or asked to renegotiate a series of free trade agreements (FTAs) that the US had signed or was implementing Reducing the trade deficit and re-establishing the fair game when doing business with China are among the goals Trump has made since his 2016 presidential campaign The fact that Mr Trump keeps his promise to the voters who have backed him will give the Republicans a great advantage in the upcoming midterm elections

With the above developments, a trade war between the US and China has turned from a mere risk of escalation to a real war

Third, China’s ambition to become the world’s leading technology nation.

Although the US trade deficit with China is seen as an external cause of the trade war The core issue of the tension between the two countries is that the US is concerned about China's ambitions to become the world's leading technology nation

To become an advanced economy in the world, independent of the import of key technologies from major competitors, China is currently pouring billions of dollars into its “Made in China” program 2025 (Made in China 2025)” to create a driving force for the development of key technology industries, including robotics, artificial intelligence, aerospace, electric cars, and 5G Internet technology

The paradox is that China’s ambition is great while its technological level is still limited

To implement the “Made in China 2025” strategy, Chinese companies must rely on core technologies from the US

The US accuses China of tacit agreements that are forcing American companies to transfer technology to Chinese partners in joint ventures China denies this allegation However, the US also accused China of trying to get American technology through methods such as importing technology or even stealing technology

Another method used by large Chinese companies (e.g., ZTE, Huawei, China Mobile) to acquire American high technology is through mergers and acquisitions with American companies

Fourth, the situation of piracy is serious in China.

The US has repeatedly accused China of serious intellectual property rights infringement, especially for the copyrights of US companies The US government believes that US companies lose billions of dollars each year due to the theft of Chinese trade secrets This stems from the very weak ability of the Chinese legal system to protect intellectual property rights

5 Factors affecting FDI attraction

5.1 Policies

- Stable monetary policy and level of currency risk in the host country The first factor here contributes to the expansion of export activities of investors If the VND exchange rate is raised or lowered, it will adversely affect import and export activities

- Trade policy This factor has special significance for investment in the field of export goods Tariff levels also affect export prices Low import and export limits and other trade barriers in the field of import and export may not be attractive to foreign investors It is this factor that complicates export procedures and is classified as another export barrier

- Tax policy and incentives Preferential policies are often applied to attract foreign investors

- Macroeconomic policy If this policy is stable, it will contribute to creating favorable conditions for the activities of both local and foreign investors

5.2 Investment law

- This factor can limit or hinder the operation of foreign companies in the local market (This law usually protects the interests of the natives.) Many countries are open

to attracting foreign investment under the same conditions as for local investors

- In Vietnam, the implementation of the law on foreign investment promotion is slow and does not meet expectations because the level of incentives and incentives is still limited and inconsistent

5.3 Other influencing factors

- The leading factor is the characteristics of the local market (the size and capacity

of the market, the purchasing power of the local population and the ability to expand the investment scale)

- Characteristics of the labor market Workers are the top concern here, especially for foreign investors who want to invest in labor-intensive sectors with large production volumes The level of occupation and education of the leading workers (with potential and prospects) has a certain meaning

- The ability to repatriate invested capital Capital and profits are freely cross-border (repatriation) is an important prerequisite to attract foreign investment In some countries carrying foreign currency, it is cumbersome to obtain a license from the central bank

- Protection of property rights This right includes the rights of inventors, patents, copyrights, including trademarks and trade secrets, etc This is a factor that is especially important for those who want to invest in the industries with high scientific content and dynamic development (such as manufacturing computers, means of communication, etc ) in some countries, this field is examined, supervision is quite lax, common is the illegal use of these foreign technologies It is for this reason that some countries are excluded by investors from the list of countries capable of receiving investment capital

- Adjusting investment activities of foreign investment companies Rigid regulations also increase the costs of foreign investment firms Investors love to have freedom in the operating environment and so they are very interested in a flexible law that helps them respond flexibly and effectively to market movements For example, there are countries that prohibit layoffs, which are not in the interests of foreign companies Bank interest rate policies and preferential policies for some regions also make sense for investors in some countries

- Political stability in the destination country and in the region This is a weakness that cannot be underestimated when investing capital because political risks can cause great damage to foreign investors

- Infrastructure development If the above factors are all favorable but only a certain stage in the infrastructure (transportation, electricity and water) is lacking or weak, it will also affect and reduce the attractiveness of investors

III- FDI into Vietnam before the US-China trade war

1 Positive side

Foreign investment contributes significantly to the State Budget

In 2017, FDI into Vietnam reached nearly 36 billion USD, the highest in the past

10 years According to a report by the Foreign Investment Department (Ministry of Planning and Investment): In 2017, the total FDI capital into Vietnam reached 35.88 billion USD, up 44.4% over the same period in 2016

Disbursement record: 17.5 billion USD, FDI around 11-12 billion USD According to the Foreign Investment Agency, there were 115 countries and territories investing in Vietnam

in 2017, in which, Japan led with a total registered capital of 9.11 billion USD, accounting for 25.4% of the total capital FDI into Vietnam; South Korea ranked second with a total registered capital of 8.49 billion USD, accounting for 23.7% of total investment capital and Singapore ranked 3rd with total registered capital of 3.17 billion USD, accounting for 14.8% of total capital investment