Investing in Vietnam’s Northern Key Economic Region

Vietnam, thanks to its economic resilience, has emerged as a bright spot for foreign investors in the Asia Pacific Region, being listed by the Financial Times as one of the seven better performing economies this year, with an expected GDP growth rate of 7.2% in 2022. Socio-political stability, a young population, and cheap labour force, are just some of the drivers of Vietnam’s remarkable growth, making the country as an attractor of foreign direct investments (FDI).

Over the past twenty years, Vietnam has established four Key Economic Regions (KERs): Northern, Central, Southern and Mekong Delta regions, which comprise the main investment and economic zones of the country. During the following article we will focus on the Northern KER, which is one of the most dynamic and important economic hubs of Vietnam, covering the provinces and cities of Hanoi, Hai Phong, Quang Ninh, Hung Yen, Bac Ninh, Hai Duong, and Vinh Phuc, including an area of 15,594 m2, that hosts around 17% of Vietnam’s total population and which is roughly equal to 4,7% of the total landmass of the country.

Northern KER’s economy and the China Plus One Strategy (“China+1”)

In the past few years, the Northern KER’s economy has been booming, with a GDP growth of 9% in the period 2016-2020 and an expected growth rate of 8,7% for the period 2021-2030, with the industrial sector accounting for the 49.1% of the total GDP of the region. Considering its socio-economic situation, we can say that one of the main strengths of the Northern KER is the highly skilled, well-trained labour force, as well as the highest presence of university graduates in the country.

Looking at its position, we can observe that the Northern KER is in a strategic area: it shares its borders with the Chinese provinces of Guangxi and Yunnan, to which it is well connected thanks to the presence of a developed infrastructure system of roads, railways, and ports. For these reasons, the Northern KER is particularly interesting for manufacturing companies that want to continue operating in China while diversifying their portfolio through investments in Vietnam as part of a China +1 Strategy, moving part of the production in this country and taking advantage of the ASEAN-China Free Trade Area (ACFTA). On a large part of products traded between China and Vietnam, this operational structure would benefit of tariffs cut up to 0%, as analysed in our previous article “The Certificate of Origin (Form E) in The Context Of The ASEAN-China Free Trade Area (ACFTA)”.

Investing in the Industrial Zones (IZs) in Hai Phong and Quang Ninh

Among the most interesting areas of investment within the Northern KER we can find the industrial city of Hai Phong and the province of Quang Ninh.

Hai Phong is the third largest city in Vietnam, after Ho Chi Minh City and Hanoi, and a fast-growing industrial, economic, scientific, commercial, and technological centre in the Northern KER. It is home to the busiest and biggest container port in northern Vietnam, which is part of a developed infrastructure and transportation network that has been a game-changer in attracting FDIs and has made this city a crucial centre in Northern Vietnam for trading with China, Southeast Asia, and global markets. In addition, most of the IZs of Hai Phong are located in the Dinh Vu – Cat Hai economic zone, one of the 15 major economic zones in Vietnam, where new investment projects can be fully exempted from Corporate Income Tax (CIT) for the first 4 years (usually fixed at 20%) and enjoy 50% CIT reduction for the next 9 years, according to Article 16 of Decree 218/2013 / ND-CP. Among the companies that have invested in Hai Phong IZs we can see big players from the automotive and electronics industries such as Bridgestone, Pegatron, LG and the Vietnamese full-fledged carmaker Vinfast, which is one of the main protagonists of the Vietnamese automotive market that, according to a report published by the Belgian industrial zones operator Deep C, is expected to dramatically grow in the future. In fact, the Vietnamese government’s Industrial Policy and Strategy Institute predicts 750,000 to 80,000 cars will be sold annually by 2025 and by 2035 the annual sales will be between 1.7 million and 1.8 million: Hai Phong with its IZs are on the track to become a fundamental car manufacturing hub in this context.

Besides Hai Phong, the Northern province of Quang Ninh, which shares both land and sea borders with China, has also attracted a lot of attention from investors in recent years, especially as a manufacturing hub that could be extremely convenient for companies adopting the China+1 Strategy. Quang Ninh’s strength is its infrastructure, which is becoming more and more developed: Quang Ninh is currently the province that possesses the longest highway system in Vietnam, which connects it to Hanoi and Haiphong, enhancing the Northern economic triangle of Hanoi – Haiphong – Quang Ninh, and shortening the travel time to the China border. Finally, with the establishment of the Quang Yen Coastal Economic Zone in 2020, Quang Ninh is expected to boost economic, trade and services connections with other provinces and become a centre of industry, services, logistics and a modern urban area.

In conclusion, we can observe that Hai Phong and Quang Ninh are imposing themselves as two of the most attractive key points for foreign investors in Vietnam, especially for their developed and tax friendly IZs, infrastructure well-connected to China, and the availability of a highly skilled labour force. Furthermore, the stable presence of the automotive and electronics industries’ giants is paving the way for many other companies willing to discover the incentives of this strategic region and diversify their supply chain in a magnificent emerging country permeated with a positive business atmosphere.