China’s Factory Exodus Is Turning Vietnam into the World’s Assembler
What started as a trickle during the early days of the U.S.-China trade war has become a torrent. To retain access to U.S. markets, companies that have long powered China’s export engine are setting up shop in Vietnam, drawn not only by low labor costs but gains in tariff relief and improved regional access.
Yet, this relocation strategy is being tested by rapidly escalating costs. Fierce competition for premier industrial sites and skilled labor is squeezing margins, forcing many firms into a precarious position: producing goods that cost more than their Chinese equivalents, while betting their survival on a tariff gap that could vanish with a single political decision.
In April, U.S. President Donald Trump imposed a 46% reciprocal tariff on Vietnamese exports. A bilateral deal in August reduced that to 20%, still higher than the 19% average for other Southeast Asian peers.
The new world assembler formation as industrial parks proliferate and cities like Bac Ninh begin to resemble the factory towns that sprang up in Guangdong province two decades ago. The region now hosts a mix of global manufacturers — from South Korea’s Samsung Electronics Co. Ltd. and Japan’s Canon Inc. to a growing roster of Chinese firms, including Apple suppliers like Goertek Inc.
Vietnam’s industrial base has grown in waves. The first influx came in the late 1980s, when Asian neighbors sought to escape rising production costs. The most recent surge is a direct consequence of the U.S.-China trade war.
Hang Vay Chi, a Vietnamese-Chinese businessman who established the country’s first private industrial park outside Ho Chi Minh City in 1987, recalled that most early tenants were small and midsize Taiwanese firms in labor-intensive sectors. By 2007, when his second park opened, nearly 70% of occupants were from the Chinese mainland, many from Dongguan and Shenzhen.
The momentum intensified after 2018, when Washington slapped tariffs of 10% to 25% on a wide range of Chinese goods. Niu Qiang, general manager of KCN Investment Consulting (Vietnam) Co. Ltd., said inquiries from Chinese firms rose from one a week in 2016 to six or seven a day by 2018.
Many gravitated to northern Vietnam, where electronics manufacturing had already taken root. Samsung set up phone production in Bac Ninh in 2008 and steadily expanded, investing more than $23 billion to become Vietnam’s largest foreign investor. Since 2017, Apple suppliers such as Foxconn, Goertek, Luxshare Precision and Lens Technology have followed, deepening the region’s role in global supply chains.
Vietnam’s proximity to southern China adds to its appeal. Components from the Pearl River Delta can reach Bac Ninh within days by road or about a week by sea, Mingjie’s Li said.
This migration is reshaping global trade flows. In 2019, the Association of Southeast Asian Nations (ASEAN) overtook the U.S. to become China’s second-largest trading partner, then surpassed the European Union in 2020 to take the top spot. Bilateral trade reached $982.3 billion in 2024, with Chinese exports climbing 12% to $586.5 billion.
Implications for the Business / Credit Information Industry:
The most recent uptick in migration has largely been triggered by the current ‘tariff’ negotiations between the USA and its leading trading partners. While these negotiations are still ongoing, it has created uncertainties concerning the financial credibility and manufacturing performance of the migrating companies. This poses challenges and opportunities for Business / Credit Information suppliers to provide accurate, reliable and timely information.
Editorial Comment
Vietnam has been China’s largest ASEAN trading partner since 2016. In 2024, it imported $144.3 billion in goods from China, leading to a trade deficit of $83.7 billion. Conversely, the U.S. remained Vietnam’s largest export market, buying $119.6 billion in goods and generating a $104.6 billion surplus.
A study by the Chinese University of Hong Kong found that between 2018 and 2022, the share of U.S. imports indirectly sourced from China via Vietnam jumped 21%, notably in textiles, footwear, and electronics. Over the same period, China’s direct share of U.S. imports fell from 21.6% in 2017 to 13.4% in 2024, while Vietnam’s share more than doubled, rising from 2% to 4.2%.
The new cost equation
For years, Vietnam’s growth was powered by its abundant, low-cost labor. That demographic dividend is now giving way to a different — and less predictable — draw for foreign investors: the tariff dividend.
The influx of businesses has sharply driven up costs. Dongguan-based Hechang Threads Dyeing Co. Ltd., which built a plant in Ho Chi Minh City in 2002 to supply shoemakers such as Nike and Adidas, once paid local workers about 200 yuan a month compared with 1,500 yuan in Dongguan. Today, average factory wages have climbed to 2,500 to 3,000 yuan, narrowing the gap with China’s interior provinces.
Land is even more expensive. In Bac Ninh, industrial plots fetch nearly 1 million yuan per mu ($200,000 per acre), two to three times higher than in parts of China. One Chinese furniture maker warned that rents can swallow a third of expenses, leaving firms exposed to downturns.
Still, Vietnam continues to enjoy a demographic dividend with roughly 1 million babies born each year, according to Ou Kui, senior adviser to the Vietnam Textile and Apparel Association and chairman of H&K Investment Co. A baby boom in 2003 and 2004 pushed annual births to 1.5 million. That cohort is now entering the workforce, providing fresh labor for factories. By contrast, China’s manufacturing workforce is aging and their children are less inclined to take factory jobs — creating a looming generational gap.
Despite rising costs, favorable U.S. tariffs still make Vietnam attractive. Executives say higher costs for imported Chinese components, coupled with rising wages and land prices, make Vietnamese-made goods about 15% more expensive than those from China. Even so, U.S. tariffs averaging 57.6% on Chinese goods versus 20% on Vietnamese goods leave a 37.6-point gap that keeps manufacturers moving across the border.
The supply chain gaps
For foreign businesses, Vietnam’s incomplete supply chain remains a bigger challenge as many parts must still be imported from China, Chinese executives told Caixin.
In electronics, local sourcing is improving as giants like Samsung and Foxconn expand. Li of Mingjie said about 70% of the company’s raw materials can now be procured locally, though complex precision parts and molds still need to be imported.
In furniture, decades of development have created a relatively self-sufficient ecosystem. A Chinese furniture maker noted that 90% of inputs — such as hardware, paint and packaging — are available domestically. But production capacity for some wood panels is still lacking, and reliance on imported iron reflects Vietnam’s limited steelmaking base.
“In fact, the global center of furniture production shifted from Dongguan to Binh Duong by 2018,” the factory owner said. “This industry won’t be going back to China.”
By contrast, textiles remain heavily dependent on Chinese inputs. Tian of Hechang said 80% of raw yarn still comes from China. Weak refining capacity means Vietnam cannot meet demand for petrochemical-derived fibers, while stringent environmental reviews have slowed investment in dyeing and finishing. As a result, importing from China by sea — a week-long trip — remains the norm.
Ou argued that Vietnam’s government lacks the fiscal resources to subsidize firms or discount land to encourage full supply chain relocation, making it harder to attract investment in the same way China once did.
The U.S. role is increasingly important. Under a trade agreement signed in July, Washington will impose a 40% tariff on goods transshipped through Vietnam from third countries — double the rate on Vietnamese-made goods. But with Vietnam still so dependent on Chinese components, what qualifies as “transshipment” remains unclear.
For now, Chinese firms are cautious. KCN’s Niu said rising land costs, labor shortages and incomplete supply chains are prompting hesitation. Still, Vietnam’s free trade deals with the EU and ASEAN countries promise eventual tariff-free exports, giving the country staying power as China’s offshore export base.
“Trade wars may be the spark, but going overseas is really about tapping global markets — not just the U.S., but also Europe and Southeast Asia,” Niu said. “For Chinese companies, this is the true start of globalization.”
Southeast Asia’s beachhead
For most Chinese firms, Vietnam is still primarily a manufacturing base, with finished goods destined for developed markets. But with its 100 million people—ranking third among ASEAN countries behind Indonesia and the Philippines—and an economy growing at more than 7% a year, Vietnam is set to become an attractive consumer market in its own right and a strategic “bridgehead” for the 
broader Southeast Asian market.
Source: Caixin Global