Japan’s biggest shipping company is investing in a $1.2bn container port expansion in Vietnam in the latest bet on a gravitational shift of manufacturing from China to South East Asia.
The massive wager by Mitsui OSK Lines follows three years of increasing investment into nations of the 10-member Association of Southeast Asian Nations bloc by Japanese companies as Chinese labour costs surge and disputes with Beijing rumble menacingly in the background.
Mitsui’s symbolic port project in Hai Phong, which is being jointly undertaken by the Vietnamese government and others, will start operations in 2018 and double the capacity of the existing port that serves the growing electronics hub near Hanoi.
In an interview with the Financial Times, Junichiro Ikeda, Mitsui OSK president, confirmed that his company’s decision was a response to the rising number of Japanese manufacturers closing factories in southern China and moving production to the lower-cost hubs of Vietnam.
“It’s not a guess, it’s a fact. I’m 100 per cent sure that Vietnam will be expanding more,” said Mr Ikeda. Previous calculations, he added, had tended to view the region’s manufacturing economy as “China plus one” — the “plus one” being any one of several emerging South East Asian economies.
“That has changed. What is happening now is not ‘China plus one’, but ‘not China’.”
Since anti-Japanese protests thronged the streets of big Chinese cities in 2012, the pace of Japanese investment in Asean has intensified dramatically, some of that at the direct expense of expansion in China. Japanese FDIs into Asean last year were worth more than $20bn, according to government data, and exceeded FDIs into China and Hong Kong for the third year running.
In its wide-ranging annual survey of Japanese companies with overseas operations, the Japan External Trade Organisation found that the proportion of companies with plans to expand operations in China had fallen below 40 per cent for the first time since the survey began in 1998.
A separate report published this year by the Mizuho Research Institute, which surveyed more than 1,000 Japanese manufacturers, found that Vietnam was by far the favourite destination for increased investment among the 12 signatories to the Trans-Pacific Partnership deal.
Vietnam was also the top destination among Japanese companies specifically thinking of shifting manufacturing out of China.
Rajiv Biswas, Asia Pacific Chief Economist at IHS Global Insight, said that Mitsui’s move fitted closely with the broader rethink on investment plans amid forecasts that combined gross domestic product of the Asean nations will rise from $2.6tn now to $5.8tn by 2025.
“Rising labour costs in China are really changing Japanese corporate perceptions of the role of Asean in their global supply chain,” said Mr Biswas, “I would particularly highlight Vietnam as the emerging hub of electronics. It is completely changing Vietnam’s macroeconomic prospects.”
Mr Biswas added that, in addition to its prospects as a hub for exports to Europe and the US, Vietnam would likely find its industry serving the growing end-market of Asean itself — a group whose population is soon expected to hit 700m.