China Looks to Vietnam for Lower-Cost Labor

Earlier this year we blogged about the rise in labor costs in China, where wages grew 16 percent in 2006, up from the more typical 3 percent to 5 percent increases of previous years.

The steep increases have prompted Chinese manufacturers to look elsewhere for lower-cost labor. A newly popular destination is nearby Vietnam, according to the Taipei Times, where wages are up to 30 percent cheaper than in China.

Chinese investment in Vietnam totaled $312 million in 2006, up from $66 million in 2005. Chinese firms are comfortable doing business in the fellow Communist country due to its close geographic proximity and close cultural connections.

While in some cases the Chinese firms are outsourcing the production of goods that are then exported to the West, a number of companies like the motorbike manufacturer profiled in the Taipei Times piece are trying to capitalize on Vietnam's growing appetite for consumer goods. An executive from Chongqing Dongli Manufacturing likens Vietnam’s economy to that of China a decade ago.

Vietnam is also a key destination for China’s burgeoning demand for natural resources like coal and bauxite.

Although the biggest investors in Vietnam are South Korea, Singapore, Taiwan and Japan, it is also earning attention from non-Asian countries like the U.S. and the UK.