Vietnam's economy lacks momentum. On September 29, Vietnam announced that its real gross domestic product (GDP) growth rate for July-September 2023 was 5.33% year-on-year. Although Vietnam's economy is slowly recovering from the COVID-19 pandemic, its main manufacturing sector is not performing well and exports continue to grow negatively. To achieve the full-year growth target of 6.5% to 7.0%, the current situation is grim.

Foreign companies such as Japan and South Korea have been building factories in Vietnam as an alternative to China, the world's factory. However, given political issues such as corruption, companies are likely to be cautious about additional investment in the future.

"A recovery is unlikely until 2023," says one steel industry source. About 80% of Vietnam's steel demand is used in construction, but key construction needs are still declining.

The Taiwanese shoe company Baoyuan Vietnam has laid off workers four times since 2023. Some 9,000 people were laid off. "By the end of this year, more garment companies will close down," said an operator of a sewing factory. This lack of sense of economic recovery is echoed on the production front.

Before the COVID-19 pandemic, Vietnam's economy had maintained a growth rate of 6-7 percent. After undergoing strict lockdown measures, Vietnam's economy recovered for a time, but the slowdown became apparent again from the second half of 2022. The growth rate from January to June 2023 is only 3.7 percent. The deterioration of the domestic property market, coupled with slowing global demand, has also reduced exports.

The growth rate from July to September has increased year-on-year for two consecutive quarters, showing signs of recovery. The services sector, consisting of retail and tourism, is the pulling force. More than 3 million foreign tourists visited Vietnam during the same period, about 2.5 times that of the same period last year.

However, manufacturing sectors such as mining and construction, which account for nearly 40% of GDP, remain in the doldrums. Exports are also sluggish, falling about 10% from January to June compared with the same period last year. Growth remained negative from July to September, and a real recovery in personal computers and clothing, which are big exporters, is still far off.

The World Bank forecast in August that Vietnam's GDP would grow by 4.7% in 2023. It is expected to improve slowly, but is not expected to reach the pre-pandemic level of 6.0% until 2025. The Vietnamese government has proposed an average growth rate of 6.5-7.0% for 2021-2025, but this target is becoming a mere fantasy.

Vietnam s entry into the World Trade Organization (WTO) in 2007 has led to a surge in imports and exports. At that time, labor costs in China continued to rise, and foreign companies seeking cheap labor accelerated their entry into Vietnam. In particular, South Korea's Samsung Electronics built a mobile phone factory in Vietnam in 2009. Half of Samsung's smartphones are now made in Vietnam.

Vietnam buys raw materials from China, the largest source of imports, and sells finished goods to the United States, the largest export destination. Triangular trade between the two powers has been the source of Vietnam's high growth rate. With its increased dependence on trade, Vietnam is also more directly affected by the world economy.

To return to growth, new investment needs to be attracted. Governments are pinning their hopes on semiconductors and artificial intelligence (AI).

On September 19, "Please build a factory in Vietnam", Vietnamese Prime Minister Pham Minh Thien met with Nvidia CEO Huang Yan Hsun in the United States, the destination of his visit, and strongly requested investment in Vietnam. He also held talks with Microsoft founder Bill Gates and senior executives of the Space Exploration Technology Corporation (SpaceX).

From the point of view of economic security, Europe and the United States are building supply chains that do not depend on China. Vietnam has become a destination, seeking to reap the benefits of fishing. In fact, investment in northern Vietnam is increasing in order to shift production and diversify bases from China.

Vietnam still faces challenges in expanding foreign investment. One is rising Labour costs.

In the summer of 2023, Luxshare is recruiting workers in the northern region of Vietnam. The condition is a maximum of 12 million dong (about 3,600 yuan) per month, much higher than the statistical average salary (7.1 million dong). A growing number of voices suspect that "the government is making the statistics appear lower in order to attract foreign companies."

In addition, power struggles within the Vietnamese government have made foreign investment cautious. In 2022, high-ranking officials were arrested, and the second-ranked president, Nguyen Xuan Phuc, was effectively replaced. Delays in administrative procedures and the frequent solicitation of bribes by civil servants required political and administrative rectification.