South Korean manufacturers increasingly prefer Vietnam over China for capital investment due to the Southeast Asian country’s favorable investment conditions including tax benefits.
The Korea Economic Research Institute (KERI) under the Federation of Korean Industries (FKI) said Thursday that it analyzed foreign direct investment of local manufacturers between 1992 and 2017 and found that Vietnam accounted for 17.7 percent of their combined direct overseas investment in 2017, surging from an average of 3.7 percent in the 1990s. On the other hand, the share of China shrank from 44.5 percent in the 2000s to 27.6 percent in 2017.
In particular, local small- and mid-sized firms have upped their investment in Vietnam to $720 million last year, 1.7 times more than the amount in China at $430 million. Their direct investment in Vietnam for the first time outpaced that in China in 2014.
Investment items have also been diversified. More than half of the local manufacturers’ investment in Vietnam was focused on textile products and electronic parts in the 1990s, but in 2017, clothes took up 10.1 percent in their total investment, textile 8.6 percent, rubber products 7.4 percent and electric equipment 6.0 percent with the share of electronic parts up to 29.8 percent.
The research institute said local manufacturers increasingly pick Vietnam as a destination for their direct investment thanks to the country’s investment promotion policies such as tax exemption. On the other hand, China is getting less favorable for overseas investors, as the country began to impose a uniform tax of 25 percent on both Chinese and foreign firms in 2008 after applying different corporate tax rate of 33 percent to Chinese firms and 15 to 24 percent to overseas firms.
By Lee Jae-cheol and Choi Mira