China vs. Vietnam vs. India: Where Should Australian Firms Invest?

China vs. Vietnam vs. India is becoming one of the defining investment questions for Australian companies seeking manufacturing diversification, supply chain resilience, and access to Asia’s fastest-growing markets. This two‑part series compares their economic fundamentals and trade ties with Australia, then examines key operational factors shaping investment decisions.

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China, India, and Vietnam are three of Asia’s most vibrant economies and compelling destinations for foreign investors, each offering a distinct combination of industrial strengths, growth potential, and market opportunities. As a party to free trade agreements with all three, Australian companies are well-positioned to establish production for export or gain a foothold in some of the world’s fastest-growing consumer markets.

However, all three economies differ considerably in terms of their industrial maturity, regulatory environments, labor markets, tax regimes, and bilateral trade relationships with Australia, meaning the right choice will depend heavily on a company’s specific sector, strategy, and risk appetite.

In the first article of this two-part series, we compare the strategic strengths of China, Vietnam, and India for Australian investors, examining their industrial positioning, bilateral trade relationships with Australia, and the trade agreements shaping cross-border investment decisions. The second article will explore operational considerations, including labor costs, taxation, and business incentives.

Economy and industrial landscape

China

China continues to be one of the top destinations for foreign investment in Asia. Although the country’s costs of production have risen substantially over the decades, China is still the number one destination for manufacturing in Asia. In Dezan Shira & Associates’ 2026 Asia Manufacturing Index Rankings, China ranked first among 11 Asian economies, due to its unique combination of industrial scale, deeply integrated supply chains, and technological sophistication that few competitors can match.

China is by far Australia’s largest trade and investment partner of the three economies. Two-way trade in 2025 reached almost AUD 300 billion, with imports from China growing 12.2 percent to AUD 123.9 billion. Australia is one of the few developed countries to have a trade surplus with China, which stood at AUD 52 billion in 2025. This is driven largely by the fact that China is a major consumer of Australian energy and agricultural products, in particular natural gas, iron ore, beef, and dairy.

China was the 12th largest destination for Australian foreign investment in 2024, with total ODI flows reaching AUD 58 billion, an increase of 5.6 percent over the previous year.

Despite China’s immense market size, a slowing economy and increasingly saturated consumer markets mean the country may not be able to provide the kind of explosive market growth that once made it such an attractive investment destination. China’s rapidly aging population is also raising questions about the long-term productivity of its workforce.

At the same time, while China has traditionally been a destination for the manufacturing of cheap consumer goods and key industrial inputs, the rising costs of production mean many companies are now relocating production to lower-cost destinations, in particular South and Southeast Asia. This may either be a complete reshoring or as part of a China+1 strategy, in which more labor-intensive production is offshored to neighboring countries.

China is addressing many of these systemic issues by moving its domestic industries up the value chain. Advanced and high-tech manufacturing are becoming increasingly important drivers of economic growth, and the country is investing heavily in sectors such as semiconductors, electric vehicles, and renewable energy technology. In the long term, this means China will shift its production primarily to higher-value goods as lower-cost manufacturing moves elsewhere.

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Despite the concerns over the slowing economy, China’s huge population and growing middle class mean that it will remain a prime destination for Australian companies seeking new consumer markets. Locating production in China is therefore increasingly not exclusively for export purposes, but to place production closer to end consumers.

At the same time, China has become a world leader in R&D and technology innovation, meaning there are endless investment and collaboration opportunities in emerging industries such as biomedicine, robotics, aviation, renewable fuels, new materials, and AI, among many others.

Vietnam

Vietnam is the fastest-growing economy in the ASEAN region, with GDP growing over 8 percent year-on-year in 2025. This economic vitality is being driven by a growing domestic industrial sector, booming international trade, a young, productive workforce, and rising domestic incomes.

The Southeast Asian nation is also increasingly becoming a magnet for foreign investors seeking an alternative to China, in particular for cost-sensitive sectors such as textiles, electronics assembly, and other light industries. Its long coastline and maturing logistics infrastructure are helping to fuel the growth in export-driven manufacturing, with extensive local processing and assembly capabilities.

Vietnam’s rising incomes and growing middle class are also making the country an increasingly desirable target market in and of itself for consumer brands, with possible opportunities for high-quality Australian agricultural products, education services, and tourism.

Beyond light industry, Vietnam is also home to a budding renewables industry, in particular EV, solar, and wind manufacturing.

Although Vietnam’s industrial capabilities have improved significantly, it still lags behind China and India in terms of overall scale and the maturity of its industries and infrastructure. While showing promising signs of growth in newer industries such as green technology manufacturing and electronics, Vietnam’s industrial clusters lack the depth of supplier networks, technical specialization, and domestic R&D capacity that China and India have built over decades, leaving it more dependent on foreign-invested enterprises to drive industrial output and innovation.

Australian companies have a relatively small footprint in Vietnam compared with China and India. As of the end of September 2024, Australian companies had invested in 662 FDI projects in Vietnam worth over AUD 3 billion, according to the Australian Embassy in Vietnam. Two-way trade in 2025 reached AUD 23.1 billion, with imports of goods from Vietnam surging 9.9 percent to AUD 13 billion from the previous year.

While Australian investment in Vietnam is small, there is growing interest among investors, in particular in industries such as agriculture, food, and green energy. Australia and Vietnam have also steadily enhanced bilateral ties and cooperation over the years, and the signing of the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) and its subsequent upgrade, alongside Vietnam’s participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have significantly expanded opportunities for trade and investment.

India

India’s rapidly growing and large economy, with a productive workforce, is among the country’s main allures for foreign investors. The country’s GDP for the financial year 2025 to 2026 is estimated at 7.6 percent over the previous period, driven in large part by a rapidly expanding manufacturing sector and a thriving services industry, particularly in IT and technology.

India is increasingly positioning itself as a manufacturing alternative to China, with the government’s “Make in India” campaign and Production-Linked Incentive (PLI) schemes actively attracting foreign investment into sectors such as electronics, pharmaceuticals, and automotive manufacturing. India’s hourly labour costs are roughly one-third those of China, and by 2027, the country is expected to have the world’s largest workforce.

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Beyond manufacturing, India’s large and fast-growing consumer market presents significant opportunities for Australian companies seeking new markets, particularly in agriculture, education, and financial services. India’s growing middle class and rising urban incomes are driving demand for higher-quality goods and services that Australian companies are well-positioned to fill.

Australia and India have steadily deepened their bilateral trade and investment relationship, most significantly through the signing of the India-Australia Economic Cooperation and Trade Agreement (ECTA), which came into effect in December 2022. Two-way trade reached AUD 32.5 billion in 2025, although Australia’s exports to India fell significantly in value terms as a result of falling commodity prices and reduced demand for input materials in India.

Overall, Australian exports have benefitted from the ECTA since it came into effect, with agricultural, fisheries, and forestry exports to India reaching AUD 3 billion in the financial year 2024-2025, an increase of 88 percent over the previous period, according to the Department of Foreign Affairs and Trade (DFAT).

India is Australia’s 20th largest destination for overseas investment, with total FDI reaching AUD 27.6 billion in 2024.

Despite its strengths, India presents challenges for foreign investors, including infrastructure gaps, bureaucratic complexity, and inconsistencies in regulatory environments across states. However, ongoing reforms and major infrastructure investment programs are steadily addressing these issues, reinforcing India’s position as one of the most compelling investment destinations in Asia.

Trade and investment agreements

Australia has entered into bilateral and multilateral trade agreements with all three economies, achieving significant trade and investment liberalization for Australian companies in the region.

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Both China and Vietnam are covered by multiple trade agreements, with the overlapping provisions meaning that almost all goods are or will be zero-tariff over the course of the next two decades. Under the China-Australia FTA (ChAFTA), China will eliminate tariffs on 98 percent of Australian goods from January 1, 2029 onward, and has already eliminated tariffs on 85 percent of goods as of 2015. China and Australia are also both members of the Regional Comprehensive Economic Partnership (RCEP), a vast trade agreement covering 15 economies and over 30 percent of the world’s GDP. While tariff elimination under this agreement largely overlaps with ChAFTA, the agreement provides additional reductions to trade barriers, such as harmonized Rules of Origin (ROO), as well as streamlined customs procedures and improved investment protections.

Vietnam is covered by three multilateral trade agreements – the 12-member Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), the ASEAN-Australia-New Zealand FTA (AANZFTA), and the RCEP. Under the CPTPP, Vietnam has committed to eliminating tariffs on almost 100 percent of imports from member countries by 2039, while under the AANZFTA, it has already eliminated tariffs on around 92 percent of goods from member countries as of 2022.

The choice of different trade agreements to trade under in the case of China and Vietnam also gives a higher degree of flexibility for companies, as supply chain and logistics strategies can be adapted to a specific framework.

India is covered by only one bilateral agreement, the Australia-India Economic Cooperation and Trade Agreement (ECTA). Under this agreement, tariffs were eliminated on 85 percent of Australian goods as of 2022, a proportion that will rise to 90 percent by 2028.

Double tax avoidance agreements

Australia has signed double tax avoidance agreements (DTAs) with all three economies, generally covering all major income and profits taxes. This means taxes paid by a company with a permanent establishment in one contracting country will not be levied again in the other contracting country (or may be reimbursed through tax credits).

Key takeaway

China, Vietnam, and India each offer compelling but fundamentally different value propositions for Australian investors. China continues to dominate in advanced manufacturing, industrial depth, and innovation capabilities; Vietnam has emerged as a competitive export-oriented manufacturing hub with strong trade integration; while India combines large-scale market potential with a rapidly expanding workforce and services sector.

For Australian businesses, the optimal destination will depend on factors such as industry requirements, supply chain strategy, target markets, and long-term growth objectives. However, strategic positioning is only one part of the investment equation.

In the second article of this series, we explore the operational realities of investing in these markets, including labor costs, tax burdens, social security obligations, and investment incentives that can materially affect business profitability and long-term competitiveness.

As one of Asia’s leading business setup consultants, we help companies structure entities to meet strategic goals and maximize operational efficiency, including cross-border asset transfers, M&A transactions, and corporate relocations.

Allan Xu 

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