VNDIRECT: Vietnam is ready to become an alternative production center besides China

Industrial park developers with large land bank are still promising because of the sharp increase in industrial land demand after the Covid-19 pandemic.
VNDIRECT: Vietnam is ready to become an alternative production center besides China
The US-China trade war has many positive changes in the second half of 2019, causing FDI inflows to Vietnam to slow down and slow the trend of relocating factories from China.

However, the outbreak of the Covid-19 epidemic had a strong impact on the world economy, disrupting the global supply chain and causing the trend of factory relocation from China to restart. According to VNDIRECT Securities Joint Stock Company, the demand for land lease in industrial parks (IPs) in Vietnam will increase sharply after the epidemic. VNDIRECT believes that Vietnam is ready to become an alternative production center thanks to its proximity to China and its low-cost workforce.
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Table 1: FDI inflows slowed down from June 2019
In fact, Vietnam remains an attractive location for industrial shift from China thanks to its low operating costs and tax incentives. Compared to regional countries (Philippines, Indonesia, Malaysia, Thailand and Myanmar) in terms of industrial attraction, Vietnam is still a potential location for companies' transformation thanks to land rents, labor costs, energy and low factory.

According to the Ministry of Planning and Investment, Vietnam's land area of ​​industrial parks (IPs) reached 65,900ha at the end of 2019, an increase of 1,900ha compared to the end of 2018. Among 330 industrial parks nationwide, there are 258 IPs are in operation, up from 250 IPs at the end of 2018. The national average occupancy rate reached 74.3% at the end of 2019, an increase of 1.3% compared to the end of 2018.
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Table 2: Area of industrial park and nationwide occupancy rate in 2015 Q1
In addition to low operating costs, Vietnam reduced its corporate income tax from 22% to 20% in 2016 for all domestic and foreign companies to increase production attraction. Companies in IPs also enjoy many incentives, such as tax exemption / reduction and visa exemption. Tax incentives for companies in IPs include tax breaks for two to four years, tax breaks for three to 15 years, and import tax exemptions.

Along with that, FTAs ​​will be the main factor promoting industrial zone real estate development in the next period. On February 12, the European Parliament ratified the Vietnam-EU Free Trade Agreement (EVFTA) and the EU-Vietnam Investment Protection Agreement (EVIPA), bringing the total number of FTAs ​​in force to November. 3/2020 to 12. Export tax on goods from Vietnam to the European Union will be eliminated as soon as EVFTA takes effect or shortly thereafter (maximum 7 years).

Industrial zone development enterprises with large land bank will capture the demand of factory movement wave

According to JLL, the available land for lease in industrial parks is expected to be put into operation in the second quarter of March-2020 with approximately 1,890ha, equivalent to 4% of the total industrial land area in 2019. Land fund This new / expansion is mainly in the southern provinces, mostly in Binh Duong, which is running out of supply. The supply of industrial land is still limited in the period of 2020-21, so companies with large land availability will have the opportunity to grow in the next wave of factory relocation.

In the South, Ba Ria - Vung Tau is becoming an industrial hotspot since the new highway system has been promoted, connecting Cai Mep - Thi Vai deep water port with Ho Chi Minh City, Dong Nai and Binh. Yang. In the North, industrial zones in Hai Duong and Bac Giang will develop thanks to the Bac Giang - Lang Son highway, reducing travel time from Hanoi to the border of Lang Son area by an hour compared to before.

VNDIRECT believes that industrial zone development enterprises are still promising due to the strong increase in industrial land demand. However, each business has different characteristics with each unique challenges and opportunities.

Based on 2 criteria: (1) having a large land bank in prime locations and (2) having a strong customer portfolio, VNDIRECT assesses businesses such as SZC, KBC, PHR, VGC and BCM will have Great advantage to seize opportunities from the shift of FDI inflows.

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