Vietnam GDP Up 7.4% in Q3, Semiconductor Industry Booms
Despite the devastating impacts of the rare and powerful Typhoon "Mocha," Vietnam's economy demonstrated remarkable resilience in the third quarter of 2023, achieving a year-on-year growth of 7.4%, marking its strongest quarterly performance in two years. This impressive growth is particularly notable in the manufacturing sector, which reported a robust increase of 11.41%, the highest rate in the same period over the last six years. A confluence of global geopolitical influences has led an increasing number of multinational companies to relocate their operations to Vietnam, seeking refuge from economic uncertainties in other regions.
However, Vietnam is not content with merely becoming a lower-end manufacturing hub; it aims to elevate its status within the global supply chain and production networks. The Vietnamese government is keen on enhancing profit margins and expanding developmental opportunities. One significant stride in this direction was the announcement of Vietnam's medium to long-term semiconductor development strategy on September 21. The government aspires to position Vietnam as a rising star in the global semiconductor market.
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Still, the rapid development of Vietnam's economy is accompanied by precarious challenges. Zhou Shixin, an expert from the Southeast Asia Research Center at the Shanghai Institute for International Studies, shared with the media that while investment opportunities abound, significant risks lurk beneath the surface, and foreign investors must exercise careful judgment.
The aftermath of Typhoon "Mocha," which made landfall in northern Vietnam on September 7, revealed the fragile nature of this growth. The storm wreaked havoc across northern regions, bringing torrential rains and severe flooding, resulting in 345 fatalities and substantial damage to agricultural, forestry, and fisheries sectors which collectively incurred losses of around $3.3 billion. Many critical industrial facilities in the north suffered extensive damage, disrupting production due to severe harm to industrial infrastructure alongside significant impacts on the regional power grid.
Reflecting these challenges, the S&P Global Manufacturing Purchasing Managers' Index (PMI) indicated a sharp decline from 52.4 in August to 47.3 in September, marking the largest fall since November last year and signaling the first contraction in factory activity in five months for the trade-dependent economy.
Nevertheless, even in the face of such adversity, Vietnam's exports managed a remarkable growth rate of 15.7% in the third quarter compared to the same period last year, underscoring the tenacity of the manufacturing sector. Additionally, the economic growth rate of 7.4% in the third quarter exceeded the revised rate of 7.09% in the second quarter, demonstrating a resilient economic outlook.
Over the first nine months of the year, Vietnam's economy expanded at a rate of 6.82%, surpassing initial projections by the government. Encouraged by these new figures, officials have revised the economic growth target for 2024 to a range of 7%, up from the original target of 6% to 6.5% set by the National Assembly.
Unwilling to rest on its laurels, Vietnam is actively planning for the long-term future. The Vietnamese Prime Minister, Pham Minh Chinh, outlined a strategic roadmap for the semiconductor industry with goals for 2030 and a vision for 2050, targeting the establishment of at least one small semiconductor manufacturing plant and ten assembly and testing facilities by the end of the decade, as well as reaching an annual revenue of $100 billion within the industry by 2050. The aim is to transform Vietnam into a significant global semiconductor industry hub over the next 25 years.
The Minister of Information and Communications, Nguyen Manh Hung, previously emphasized that the semiconductor industry is not only foundational for Vietnam but represents a focus area for the country over the next 30 to 50 years. As artificial intelligence technology flourishes, industry giants like Samsung, Intel, Qualcomm, Infineon, and Analog Devices have been ramping up investments in Vietnam.
By the end of 2024, it is projected that the value of Vietnam’s semiconductor industry will exceed $6.16 billion, establishing the country as a key production center globally. The Southeast Asia region, including Vietnam, has become an integral part of the global semiconductor supply chain; however, much of its activities remain centered in low-profit assembly and testing sectors.
Geopolitical factors have created a unique opportunity for Vietnam to engage in the global semiconductor value chain. According to the World Semiconductor Trade Statistics, Vietnam has leveraged its strategic position along important international logistics routes, engaging actively in globalization and establishing free trade agreements with several countries, including the United States, South Korea, and Japan, the leaders in chip production. Additionally, Vietnam's relatively low labor costs further enhance its competitiveness.
Meanwhile, high-ranking officials in Vietnam are fervently working to advance the semiconductor industry. In late September, Nguyen Phu Trong, General Secretary of the Communist Party and President of Vietnam, embarked on a visit to the United States, where he participated in discussions on enhancing Vietnam-U.S. cooperation in the realms of semiconductors and AI development.
Analyst Nguyen Khac Giang pointed out that Vietnam's relations with the US, Australia, Japan, and South Korea have evolved into comprehensive strategic partnerships over the last two years. The semiconductor industry's fundamental nature indicates that geopolitical considerations heavily influence investor decisions, and Vietnam's numerous advantageous conditions are poised to solidify its role in the global semiconductor value chain.
Reflecting a strengthening Vietnam-U.S. relationship, Vietnam has become America’s largest export market. In 2023, bilateral trade between the U.S. and Vietnam reached $110 billion, with figures exceeding $100 billion for three consecutive years, prompting many American companies to set up operations in Vietnam.
The United States plays a pivotal role in the economic landscape of Vietnam. Recently, the Asian Development Bank warned that global geopolitical uncertainties and the political environment in the U.S., Vietnam's largest export market, could place pressure on the country’s economic growth. In late September, Trong undertook his first visit to the U.S. following his election as General Secretary of the Communist Party, attending the 79th United Nations General Assembly and engaging in a meeting with President Joe Biden on September 25. The White House highlighted that this meeting offered both leaders a substantial opportunity to discuss mutual interests in Southeast Asian stability and prosperity.
During their meeting, Biden lauded the transition of the U.S.-Vietnam relationship into a "new era," emphasizing investments in Vietnam’s semiconductor industry and supply chain. Trong commended Biden's "historic contribution" to strengthening bilateral ties. Observers speculate that Biden's decision to meet with Trong during the United Nations General Assembly underscores Vietnam's significance to the U.S. in the geopolitical landscape.
Last year, Biden’s unexpected departure from the Group of Twenty (G20) summit in India to visit Vietnam marked a pivotal moment, elevating the partnership from "comprehensive partnership" to "comprehensive strategic partnership"—skipping the "strategic partnership" designation and underscoring a robust upgrade in bilateral ties.
Zhou Shixin noted that historically, "Vietnam and the U.S. have forged closer ties," with Vietnam keenly interested in attracting American investment while the U.S. leverages its market as a strategic incentive. Both parties seek enhanced strategic coordination amidst evolving global dynamics.
Nonetheless, the relationship is not without its complexities. At a recent meeting with U.S. business representatives, Trong urged American investors to support the plea for the U.S. government to recognize Vietnam's market economy status, which would create more favorable conditions for bilateral business collaboration. On August 2, the U.S. Department of Commerce announced the continuation of Vietnam's "non-market economy" designation.
The absence of U.S. recognition of Vietnam's market economy status has often left Vietnamese products subject to elevated anti-dumping and countervailing duties in the U.S. market. For instance, in 2024, Vietnam’s frozen shrimp is expected to face a 25.76% anti-dumping duty, starkly contrasted with only 5.34% for shrimp imported from Thailand, which is recognized as a market economy.
With the deepening ties between the U.S. and Vietnam reflected, Vietnam has frequently sought to shed its "non-market economy" label. U.S. Treasury Secretary Janet Yellen recognized Vietnam as a key partner for "friend-shoring". Despite earlier indications from the U.S. government about plans to acknowledge Vietnam's "market economy status," these aspirations often collide with present realities. The U.S. Department of Commerce justifies its stance by stating that "the extensive involvement of the Vietnamese government in the economy distorts prices and costs, making them unfeasible for calculating anti-dumping duties in the U.S."
Analysts observe that significant political and economic differences persist between the two countries, with the U.S. remaining skeptical about fully trusting Vietnam. Furthermore, as the U.S. approaches its election year, both political parties aim to showcase their support for American labor interests, especially since there have been vocal objections from voters in the "Rust Belt" against granting Vietnam "market economy status."