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Grant Thornton: Trade war not dampening confidence in Vietnam

Released at: 15:14, 06/08/2019

Grant Thornton: Trade war not dampening confidence in Vietnam

Photo: Viet Tuan (VET)

Asia-Pacific businesses benefiting from shift in manufacturing from US-China trade war, according to Grant Thornton study.

by Khanh Chi

Asia-Pacific businesses are caught in the crossfire of the US-China trade war and no matter how it ends, trade patterns in the region are likely to change permanently and it will be those businesses with the most strategic foresight that stand to benefit, according to Grant Thornton.

On the surface, the trade war is taking its toll on the region, compounding broader economic uncertainty and dampening confidence across Asia-Pacific.

Indeed, Grant Thornton’s latest International Business Report (IBR) shows that net optimism among Asia-Pacific businesses has fallen 8 ppts (percentage points) since the second half of 2018 and is more than 50 per cent lower than in the first half of last year. The data, however, also shows that a net 72 per cent of respondents in Vietnam have an optimistic outlook about the country’s economy in the next 12 months, ranking its second in the world and beating Asia-Pacific’s net average of 26 per cent and a global net average of 32 per cent.

Businesses need to think about how they can secure growth in the face of a possible permanent disruption to trade. This requires they grapple with the challenges from supply chain disruption, transformative technology, and the increase in regulations and compliance that can bar access to new markets.

The trade dispute has a mixed impact across the region. The economic fortunes of countries differ across the region with the trade war affecting separate economies in different ways.

Parts of emerging Asia-Pacific are benefitting

Some emerging economies, however, stand to benefit as businesses tactically pivot their manufacturing. “Vietnam has already seen an acceleration of FDI due to the shift in manufacturing of items such as garments, footwear, and power tools, because of the current trade tensions between the US and China,” said Mr. Kenneth Atkinson, Founder and Senior Board Adviser of Grant Thornton Vietnam.

“In the first five months of 2019, Vietnam attracted a record $16.5 billion in new FDI, with 30 per cent of that coming from Hong Kong and investments from mainland China are increasing. The leading beneficiary of this FDI is, in fact, manufacturing and processing.”

Adopting international regulations broadens access to new markets

As growing Asia-Pacific businesses become more integrated into global supply chains, buyers in developed economies are increasingly demanding adherence to regulatory compliance and higher standards. In the UK, the US, and Europe, company officers are more concerned about supply chain practices, because they could face prosecution - in the case of anti-bribery laws, for example - or reputational damage when suppliers’ practices fall short of ethical standards.

However, implementing international regulatory requirements is a significant challenge and progress is often slow among businesses in countries that score very poorly on the Corruption Perception Index (CPI). The IBR shows that among business leaders in Vietnam, 43 per cent cited regulatory restrictions and complexity as an external barrier to expanding internationally. This is compared to 44 per cent in Asia-Pacific’s emerging economies and 28 per cent in developed Asia-Pacific economies.

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