Vietnam’s Resilience in Attracting Foreign Investment Amidst Challenges

Despite the imposition of steep tariffs by the United States, Vietnam continues to thrive as a destination for foreign investment, particularly in the manufacturing and industrial real estate sectors. This resilience can be attributed to various factors, including government policy incentives, infrastructure improvements, and the country’s strategic position in the ongoing shift of the global supply chain away from China.

Economic Ties with the U.S.

Vietnam’s economic relationship with the United States has deepened significantly over the years. As of 2024, exports to the U.S. totaled an impressive USD 136.6 billion, accounting for nearly 30% of Vietnam’s gross domestic product (GDP). Although tariffs have posed a challenge to the manufacturing sector, recent data indicates signs of recovery. For instance, the manufacturing purchasing managers’ index (PMI) experienced a slight uptick to 49.8 in May, following a decline to 45.6 in April – a move that suggests early stabilization in the sector.

The Surge in Foreign Investment

Two primary sectors leading the foreign investment surge in Vietnam are manufacturing and real estate. Reports from Vietnam’s Ministry of Finance reveal that newly approved foreign investment reached approximately USD 13.82 billion as of April 2025, marking a 39.9% rise year-on-year. Notably, USD 8.9 billion of this amount flowed into manufacturing, while real estate attracted USD 2.83 billion, a remarkable increase of 61.9%.

The contribution of industrial and construction-related sectors cannot be overstated; they grew by 7.42% in the first quarter of 2025, providing over 40% of the country’s GDP. As Vietnam continues to develop, the demand for modern infrastructure has become increasingly urgent. Nguyen Thi Dung, Vice Chair of the Vietnam Industrial Real Estate Association, emphasized that investment in industrial parks is a top priority, particularly as prime land in central areas becomes increasingly scarce.

Addressing Infrastructure Challenges

While Vietnam’s potential is evident, the country faces several hurdles. Nguyen identified four key bottlenecks: complicated approval procedures, lack of a unified infrastructure plan, land acquisition issues, and poor inter-regional connectivity. Addressing these challenges will be crucial for maintaining Vietnam’s appeal to foreign investors.

Lance Li, CEO of BW Industrial, a major industrial real estate platform in Vietnam, highlighted significant differences between Vietnam’s land supply system and that of China. In China, land is rapidly allocated by the government, while in Vietnam, land is sold by first-tier developers, resulting in higher prices and extended acquisition times. The complexity of the land acquisition process, coupled with a predominantly freehold land system, often leads to delays in the availability of industrial sites.

Given the exhaustion of available land in key southern regions like Binh Duong and Dong Nai, industrial land prices in Vietnam have surged, often exceeding those in mainland China. Rents increased by approximately 6% annually, reflecting growing demand amidst limited supply.

Government Initiatives to Expand Industrial Capacity

Currently, Vietnam boasts 416 industrial parks spanning nearly 1.29 million hectares. The government plans to enhance this capacity by adding 221 new parks, expanding 76 existing ones, and reconfiguring 22 parks by 2030. BW Industrial, co-founded in 2018 by Warburg Pincus and Becamex IDC, manages over 10 million square meters of land and USD 3 billion in assets across numerous projects. Li pointed out that while costs and productivity vary, the benefits of operating in Vietnam remain competitive.

The Evolving Landscape of Corporate Relocation

The landscape of corporate relocation has undergone a transformation due to the pandemic. Initially, only manufacturers of final products moved out of China. However, logistical paralysis caused by Covid-19 led many to rethink their supply chains. Companies began to shift from a “just in time” model to a “just in case” approach, which emphasized the need for localized supply chains.

Stricter rules concerning product origin also influenced this trend, prompting organizations to increase local content in exported goods. As firms reassess their operations in response to these market dynamics, there has been an uptick in outbound manufacturing from China.

Labor Dynamics and Future Considerations

In contrast to previous expectations, the move by China-based companies overseas has not been uniform. Factors driving this relocation are highly individualized, influenced by each company’s internal dynamics. Li noted that, on labor, Vietnamese workers often reach 80% of Chinese efficiency after three months of training while earning below 80% of their Chinese counterparts’ wages. However, achieving this parity varies among companies, frequently depending on automation and advanced management practices.

The pandemic marked a pivotal turning point, catalyzing actions that had long been postponed. Following the easing of Covid restrictions in late 2022, another wave of firms began to move abroad, spurred by previously delayed strategic decisions.

Navigating a Complex Investment Environment

None of these developments come without their challenges. The looming uncertainties in trade policies, particularly under the unpredictable stance of the Trump administration, have resulted in varied investor sentiment toward Vietnam. Li observed that while some investors remain cautious, others continue to push forward with their initiatives. He believes U.S. tariffs on China are likely to remain high, while those on other nations may see reductions.

As Vietnam faces rising land and labor costs, with wages increasing by 6% to 7% annually, the landscape remains dynamic. Labor-intensive industries may encounter potential disruptions from labor disputes as the cost of doing business in regions like Ho Chi Minh City rises to levels comparable to China’s central and western areas.

Vietnam’s adaptability and ongoing attraction for foreign investment are underlined by both governmental support and the indomitable spirit of its workforce. The country’s commitment to embracing changes in global supply chains, while addressing internal challenges, continues to shape its trajectory on the international stage.