Made in Vietnam: US-China tensions spark a manufacturing shift but not without growing pains

• Companies are starting to question whether it’s time to shift production out of China due to the ongoing trade war between Washington and Beijing.
• Many firms are already making the move to other countries, with Vietnam as a major beneficiary of tensions between the world’s two largest economies.

By Jessica Bursztynsky

Multinational companies are starting to question whether it’s time to shift production out of China due to the ongoing trade war between Washington and Beijing.
Many firms are already making the move to other countries, with Vietnam as one of the major beneficiaries of tensions between the world’s two largest economies.
President Donald Trump is set to meet with Chinese dictator Xi Jinping at the G-20 summit in Japan later this week, where the two leaders are expected to restart stalled trade talks.
However, if talks were to prove unsuccessful the White House has threatened to place 25% tariffs on an additional $300 billion worth of Chinese goods, essentially all remaining imports into the U.S. from China.
Some companies, such as Brooks Running — which is part of Warren Buffett’s Berkshire Hathaway — are not waiting to see if the additional China tariffs will go into effect. 

CEO Jim Weber said back in May that Brooks would be “predominantly in Vietnam by the end of the year.” 

He also said about 8,000 jobs will move there from China.
Such relocation plans raise the question of whether Vietnam can become the new China. 

CNBC’s Carl Quintanilla reports from Hanoi, ahead of the Trump-Xi meeting, with a look at Vietnam’s manufacturing boom and whether it can be sustained.

Vietnamese firms are starting to grow to try to accommodate the influx of companies, mostly apparel and shoe makers.
Textile firm TNG Investment & Trading told Quintanilla that it’s never seen an expansion like this before. 

Last year, the firm hired 3,000 employees, bringing its total to 15,000.
TNG’s Linh Nguyen said it had to build an apartment complex just to accommodate the additional employees. 

“In order to grow the business, it’s more important for us to build a home for the people than actually building a factory.”
The demand for technical skills is growing in Vietnam, and the Vietnamese government has a goal of training 2 million people in vocational schools.
More than 90% of students trained in technical skills, such as welding or making electronics, can get hired, said professor Nguyen Quang Huy. 

He told CNBC that it’s “very easy to get a job, and a lot of companies need more people.”
However, Vietnam still lacks much of the infrastructure that has enabled China to become a manufacturing epicenter.
Ramping up the ability to transfer goods from Vietnamese factories to ports will be key. 

Across the country, railroad lines are sparse compared with China’s, highways are smaller, and it’s still an agrarian economy largely focused on rice.
Vietnam is building a deep-water port that can make transfers easier, but that won’t open for another three years.

China's Paranoia

Here’s Why China’s One Belt, One Road Is Doomed To Failure
By George Friedman

One Belt, One Road (OBOR) is China’s ambitious initiative unveiled in 2013. 

In fact, it’s two plans combined to form a larger framework of new trade routes.

The first of these is One Belt (the orange line in the above map). 

It refers to the development of new infrastructure—particularly railroads and highways—to connect China’s interior provinces with Europe by way of Russia, Central Asia, and the Middle East. 

It’s a tall order, and expectations are low that China would be able to build them.
The bigger problem with One Belt is geopolitical. 

Eurasia is in a state of crisis. 

Central Asia in particular is one of the world’s most politically unstable places. 

The region is a patchwork of states whose borders were drawn to make the countries more easily controlled from Moscow during the Soviet era. 

It is hardly a promising market for Chinese goods.
The other trade route is One Road. 

It’s essentially a new Maritime Silk Road.
This part of the plan is meant to create more Chinese ports in countries along maritime routes. 

Which makes sense: About 80% of global trade by volume and over 70% of global trade by value is conducted by sea, according to the United Nations Conference on Trade and Development.
So far, One Road has been a mixed bag for China. 

It has secured contracts to build ports in Myanmar and Sri Lanka, but a deal with Bangladesh fell through in 2016 when Dhaka opted for an offer from Japan instead.
From a US perspective, China’s projects along the Maritime Silk Road are overblown. 

Constructing ports will not provide China with permanent bases for Chinese destroyers or armies—the countries in question have yet to agree to host them.
More important, the Chinese navy is still not capable of extended, long-term deployments in countries far from the mainland.
In short, OBOR matters relatively little.
The initiative itself is ill-defined and has done very little for China since it was announced. 

Even if it’s successful, OBOR won't swing the global balance of power. 

But if OBOR is to be truly transformative, it will have to do what it was meant to do: right the wrong of the Chinese economy. 

Whether it can remains an open question.

Japan to expand Djibouti military base to counter Chinese influence

By Nobuhiro Kubo
Japan's Defence Minister Tomomi Inada (front, R) is briefed by senior Self-Defense Forces personnel about their anti-piracy mission off Somalia, in Djibouti, August 15, 2016. 

TOKYO -- Japan will lease additional land next year to expand a military base in Djibouti, eastern Africa, as a counterweight to what it sees as growing Chinese influence in the region, three Japanese government sources said.
China is seeking closer ties with African nations that could help it gain access to natural resources and provide new markets.

Beijing said late last year it would pump $60 billion into development projects on the continent, cancel some debt and help boost agriculture.
Earlier this year, Japan also pledged to increase its support to infrastructure, education and healthcare projects in Africa, committing an extra $30 billion in public and private support.
"China is putting money into new infrastructure and raising its presence in Djibouti, and it is necessary for Japan gain more influence," said one of the sources, with knowledge of the plan.
China in February began construction in Djibouti of its first overseas military facility, a coastal logistics base that will resupply naval vessels taking part in peacekeeping and humanitarian missions.
Djibouti, which is about the size of Wales, is strategically located at the southern entrance to the Red Sea on the route to the Suez Canal. 

The tiny, barren nation sandwiched between Ethiopia, Eritrea and Somalia, also hosts U.S. and French bases.
Since 2011, a Japanese Self Defence Force contingent of 180 troops has occupied a 12 hectare (30 acre) site in Djibouti, next to Camp Lemonnier, the U.S. base at the country's international airport.
From there, the SDF have operated maritime patrol aircraft as part of an international force, including China, that hunts pirates in the seas of the Gulf of Aden and off the coast of Somalia.
A Japanese Defence Ministry spokesman confirmed discussions were taking place.
"In addition to the land Japan has borrowed, it is considering leasing the neighboring land to its east," the spokesman said in response to a Reuters query. 

"Japan is now in negotiations with Djibouti government."
Asked about the plans, Chinese Foreign Ministry spokesman Geng Shuang said Japan's military and security policies had garnered attention in Asia for historical reasons.
"We hope Japan can draw lessons from history, conform with the times, and truly follow the path of peaceful development," Geng told a daily news briefing in Beijing.
Japan is considering deploying C-130 transport aircraft, Bushmaster armored vehicles and extra personnel to the base but has not yet decided on how many, the sources said.
The size of the extra leased land would be smaller than the existing base and was expected to cost around $1 million a year, they added.
Tokyo will justify the expansion of personnel and aircraft in the Horn of Africa by pointing to a need to have aircraft there to evacuate Japanese citizens from nearby trouble spots or areas hit by natural disasters, the sources said.
Minister of Defence Tomomi Inada traveled to Djibouti in August, where she said Tokyo was considering expanding the "function" of the Japanese base. 

She didn't, however, indicate that new land would be added.
A month earlier Japan sent three C-130 aircraft from Japan to stand by in Djibouti for the evacuation of Japanese citizens trapped by fighting in South Sudan's capital, Juba.
The mission, only the second ever undertaken by SDF transport aircraft, showed the increasing ability of Japan's military to conduct operations far from home.
Prime Minister Shinzo Abe is seeking to give the SDF a greater regional and global role as his nation steps back from seven decades of state pacifism.