Japan overtakes Korea in FDI in Vietnam

By Lee Kyung-min

Japan retained the number one spot in the 2018 foreign investors' list in Vietnam, routing Korea for two consecutive years, data showed Sunday.

According to the National Assembly Budget Office, Japan's foreign direct investment (FDI) in Vietnam reached $8.6 billion (9.6 trillion won) last year, accounting for 24.2 percent of the Southeast Asian nation's total FDI.

The figure is well above Korea's FDI in Vietnam of $7.2 billion, which captured 20.3 percent.

The 2018 data indicates that the gap between the two neighboring nations in FDI has been widening.

In 2017, Japan accounted for 25.4 percent of the total FDI in Vietnam, compared to Korea's 23.7 percent.

Japan's increased investment in Vietnam over the past two years is part of efforts to reduce its heavy reliance on Thailand, thereby diversifying its overseas market base.

Tokyo, which has been the largest foreign investor of Thailand for the past decade, is seeking to establish another manufacturing base in another country to enhance risk management.

The move is expected to prompt Korea to come up with a corresponding measure to diversify its manufacturing base in case competition among foreign investors becomes intensified in Vietnam.

Vietnam is the third-largest trading partner of Korea following China and the U.S.

Trade volume between the two has increased over seven-fold to $68.2 billion in 2018 from $9.5 billion in 2009.

Korea's export of semiconductors to Vietnam jumped nearly four times to $11.2 billion in 2018 from $2.9 billion in 2013.

The sales of flat-panel display also soared to $3 billion from $800 million.

Over a 30-year span, Korea still remains the largest foreign investor in Vietnam, with FDI reaching $62.6 billion between 1988 and 2018. Japan invested a total of $57 billion over the same period.

Experts said that Korea should come up with measures to encourage Korean firms to diversify their production bases because competition with Japan is expected to further heat up in Vietnam.

They pointed out that Vietnam is very vulnerable to external shocks because of its high reliance on foreign-invested companies and rising labor costs.