China Set to Lose Out to Vietnam as U.S. TPP Deal Looms

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Feb. 6 – The Trans-Pacific Partnership trade bloc that the United States has entered into with 10 nations and of which China has been highly critical, is set to bite into China’s textiles industry later this year when U.S.-Vietnamese negotiations over tariffs and tax rates are concluded. The TPP – which includes the United States, Vietnam, Japan, Australia, Chile, Singapore, New Zealand, Brunei, Peru, and Malaysia – specifically excludes China as the United States wishes to assist with the development of other manufacturing markets as alternatives to China.

In Vietnam’s case, for example, the TPP seeks to encourage an upgrading of many Vietnamese manufactured products which currently fail to meet U.S. standards. In Vietnam, 80 percent of the country’s textile fabrics fail to meet U.S. quality standards and are forbidden for export to America. One expected impact of the TPP Agreement is increased investment by the United States into technology and manufacturing knowhow, which will assist Vietnamese companies upgrade and meet international quality standards. That opens the American market more fully to Vietnamese companies, which have until now traditionally concentrated on supplying lower quality goods to China, whose own quality control standards are notoriously lower.

As numerous countries – including many of China’s neighbors – seem increasingly wary of allowing their China trade to overly dominate their political leverage with Beijing, alternatives for upgrading manufacturing and supply chain facilities elsewhere are gaining ground. This has particular resonance when viewed against the backdrop of what is increasingly being perceived as a systematic failure by Chinese suppliers to consistently deliver both safe and quality products to international standards. Alternative supply chains are being developed.

Another signal that Vietnam is getting serious about hedging its own trade deficit with China and moving to attract more foreign investment in manufacturing is the expected introduction of a lower corporate income tax rate than China has – with the Vietnamese Ministry of Finance recently drafting legislation that would reduce the country’s CIT rate to 23 percent from Jan. 1, 2014 compared to China’s current 25 percent rate.

This, together with still lower tax rates and VAT exemptions in Vietnam’s export processing zones, can be expected to provide serious competition for export-driven manufacturing goods for delivery to North American markets; an economic loss of some significance to China. The Vietnamese-U.S. TPP Agreement is expected to be fully negotiated and signed off later this year, a situation that will increase competition between Chinese manufacturers and Vietnamese manufacturers in the textiles industry, many of which are foreign-funded. This will also likely trigger increased foreign investment into Vietnam’s export processing zones rather than what has until now been almost exclusively a China play as concerns exports to the U.S. market.

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7 thoughts on “China Set to Lose Out to Vietnam as U.S. TPP Deal Looms

    JL says:

    It is in best interests of America, Japan, and EU to assist Vietnam and other ASEAN nations in manufacturing and process technologies as an alternative to an unfriendly china. In return, Vietnam and others ASEAN countries will invest in western defense technologies to protect themselves from chinese further aggression and to cut off chinese greedy tongue on West Phillippines Sea and to assist maintain freedom sea navigations. The world has witness china is a very unstable and erratic country does not has any good intentions and motives toward its neighbors and the world. China is undoubtly serious threat to peace and security not only to Asia but western nations. China must be contain and break up into smaller states.

    Well I don’t think we’ll see China break up into smaller States, however I agree that China has not been very mature in much of its political foreign policy, or in much of its business sense, where price sensitivity comes before quality. Manufacturers can always say no. As a result they’ve got themselves into a bit of a problem with many of their neighbors, who mresent having trade used as a political weapon, and with many of their customers, who are getting fed up of being ripped off and not seeing any quality upgrades in product value. This has affecting China’s traditional export markets who now want to lessen China’s influence. That this is happening I agree is largely a problem of China’s own making and foreign policy immaturity. – Chris

    bob smith says:

    Without china, tpp will fail

    DT says:

    I just can not stop laughing those people who really believe TPP. before you make comments to support TPP, do some research to find out what the real deal has been made so far on TPP discussion table. I bet all of you will be shocked if you can take a close look at it without any discriminate view.

    TPP is designed by Obama, and it is purely for the his political interests, it will wipe out all the trade interests from TPP members with other nations, and drag them into economic chaos in very short period of time, which will include USA itself.

    I agree China leaders keeps cool head to refuse to join in TPP.
    See APP facts in this page:

    http://dissidentvoice.org/2013/10/the-trans-pacific-partnership/

    @DT – Interesting comments. However one thing – China hasn’t refused to join the TPP. It’s just that they haven’t been invited. There are some schools of thought that suggest they should be.
    – Chris

    TPP update here: http://www.aseanbriefing.com/news/2014/04/02/tpp-agreement-facing-negotiation-challenges.html

    Some views it may be best to merge it with the RCEP negotiations.
    – Chris

    Andy says:

    With China the TPP is crewed. Wait until the Chinese add the environmental cost to their manufaturing cost. The time for them to make a quick dollar without any regards to their healthy living conditions are now peaked. Also The quotes below nailed it on the exclusion of China head decision head.

    “That opens the American market more fully to Vietnamese companies, which have until now traditionally concentrated on supplying lower quality goods to China, whose own quality control standards are notoriously lower.” and

    ” As numerous countries – including many of China’s neighbors – seem increasingly wary of allowing their China trade to overly dominate their political leverage with Beijing, alternatives for upgrading manufacturing and supply chain facilities elsewhere are gaining ground. This has particular resonance when viewed against the backdrop of what is increasingly being perceived as a systematic failure by Chinese suppliers to consistently deliver both safe and quality products to international standards. Alternative supply chains are being developed”

    Just ask all the ASEANs..

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