PwC recently noted that Southeast Asia will become the “first growth pole” for Chinese enterprises going overseas over the next three years. What are the key drivers behind this outbound investment boom?
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| Angela Yang, partner at PwC Vietnam |
There are several structural factors underpinning this trend. First and foremost, de-risking pressures and rules-of-origin requirements driven by United States and EU tariff regimes have pushed midstream and upstream Chinese manufacturers to establish production capacity in ASEAN countries such as Vietnam, Thailand, Malaysia, and Indonesia. This enables them to sustain access to Western markets.
A clear indication of this shift is seen in trade data as from January to November 2025, China’s exports of intermediate goods to Vietnam surged by 32 per cent on-year, reflecting upstream relocation and deeper integration into ASEAN supply chains.
Secondly, the China+1 supply chain diversification strategy continues to gain momentum, supported by ASEAN’s proximity to China, cultural and business familiarity, and improving logistics infrastructure. Independent analyses show that Vietnam and Indonesia are leading the manufacturing and trade-flow shifts, with rising greenfield foreign direct investment and export volumes. What was once a contingency strategy has now become mainstream.
Thirdly, domestic push factors in China are becoming increasingly pronounced. Intensifying competition, slower domestic growth, and margin compression have made overseas expansion a necessity rather than a choice. Surveys of Chinese corporates consistently show that more than 80 per cent plan to expand overseas within the next three years, with ASEAN firmly established as their top destination.
Finally, policy tailwinds and favourable site economics are reinforcing this movement. ASEAN’s free trade agreements, combined with tax incentives and macroeconomic stability, are attracting firms to the region.
Our PwC research also highlights that global competition has shifted away from simple “lift-and-shift” manufacturing towards holistic transformation. Winning locations now require strong ecosystems, digitalisation, and access to suppliers and talent, rather than cost advantages alone.
How do you assess Vietnam’s position within this outbound investment wave, and what resources are Chinese enterprises most interested in?
Following a year of strong growth in 2024, Vietnam’s economy has continued to demonstrate solid momentum, with growth reaching 7.85 per cent on-year in the first nine months. This performance has been supported by public investment, export growth, and credit easing, although achieving the government’s full-year target of 8.3-8.5 per cent remains challenging.
Vietnam has emerged as one of the top ASEAN destinations for China-linked capacity shifts. At the same time, China remains Vietnam’s largest source of imports, accounting for approximately 40 per cent of the total, followed by South Korea at around 13 per cent. The two largest import categories are computers, electrical products and parts, and machinery and equipment.
In the first nine months, capital inflows into Vietnam were led by China and Hong Kong, which together accounted for 31 per cent, followed by Singapore with around 28 per cent. Chinese investors are particularly focused on manufacturing platforms located close to global customers and export corridors serving the US and EU markets.
They are also targeting industrial park land with modern infrastructure and multimodal logistics connections linking northern manufacturing belts such as Bac Ninh province and Haiphong with southern hubs including Ho Chi Minh City and Dong Nai province.
Skilled assembly labour with rising productivity remains a key attraction. However, operating costs and rents in prime industrial areas are now comparable to those in Suzhou and Dongguan, which is shifting the emphasis away from low costs towards productivity, ecosystem density, and operational efficiency.
Which industries do you see as Vietnam’s key advantages for Chinese investors?
Electronics and consumer technology are among the most prominent sectors, particularly components, audio equipment, and connectors. Vietnam has formed dual clusters spanning labour-intensive manufacturing and consumer electronics, especially during the 2019-2024 period.
Green energy and the electric vehicle value chain also present strong opportunities. This includes solar and wind engineering, procurement and construction (EPC), batteries, and related components, aligned with Vietnam’s Power Development Plan VIII and its net-zero commitments.
Chinese companies bring clear advantages in terms of cost competitiveness and scale in these segments. Supporting industries such as metal and plastic parts, packaging, and tooling play a critical role in anchoring export-oriented original equipment manufacturer (OEM) ecosystems and improving localisation ratios across manufacturing value chains.
What overseas entry strategies do Chinese companies typically prefer when investing in Vietnam?
Greenfield manufacturing projects in industrial areas remain the most common approach, particularly in electronics, consumer technology, and electric vehicle components. This model allows for fast execution, vendor clustering, and proximity to OEM customers.
In energy and infrastructure, EPC, turnkey, build-operate-transfer, and independent power produce models are widely used, especially by state-owned enterprises and large engineering groups. These projects are often backed by concession structures, financing syndicates, and Sinosure support.
Another increasingly popular strategy is supplier-led clustering or micro-region development, where companies follow anchor OEMs and build modular ecosystems to navigate geopolitical risks and tariff pressures. Selective mergers, acquisitions, and joint ventures are also on the rise in Vietnam. However, Chinese investors often manage risks through build-operate models or minority stakes, particularly in sensitive sectors subject to ownership restrictions.
What shortcomings do Chinese enterprises often encounter when investing in Vietnam, and what recommendations would you offer?
One major weakness among Chinese enterprises is inadequate upfront corporate structuring and incentive planning. Many companies move too quickly with suboptimal group structures, which later results in missed tax incentives for high-tech, research and development, and green projects, as well as withholding tax frictions. A joint NUS-Cambridge study also highlights the under-utilisation of incentives and weak long-term planning among Chinese investors.
Compliance complexity remains another key challenge. Although Vietnam is undergoing significant structural reforms that are gradually easing procedures, investors still face a relatively burdensome tax system, complex labour regulations, and new regulatory requirements related to data protection and internet services, all of which increase compliance costs and operational risks.
Localisation and talent bottlenecks also constrain expansion. Many enterprises lack a strong pipeline of Vietnamese managers, while language and cultural gaps affect day-to-day operations. Limited deep-tier capabilities, particularly in precision manufacturing and automation, also remain a well-documented constraint across the region.
In sensitive sectors such as energy and EPC, insufficient stakeholder engagement poses further risks. Projects can face community opposition or environmental scrutiny if environmental and social planning is weak, as seen in past controversies surrounding coal-fired power projects, which have led to both reputational and regulatory exposure.
To address these challenges, we recommend that enterprises design their investment structures early, typically through a model involving an overseas HQ plus Vietnamese operating company. This allows companies to ring-fence operational risks, align global minimum tax modelling, and put in place appropriate transfer pricing policies.
Investors should map VAT and foreign contractor tax implications for cross-border transactions and ensure full readiness for Vietnam’s e-invoicing requirements.
Rather than focusing solely on incentives, investors should apply a site-selection ecosystem scorecard that evaluates supplier density, talent pipelines, logistics connectivity, data regulations and the energy mix. In many prime industrial zones, rents and operating costs are now comparable to those in major Chinese manufacturing hubs, shifting the focus from low cost to productivity and ecosystem completeness.
Enterprises should also establish a comprehensive data governance programme in Vietnam, including transfer impact assessments, data mapping and classification, and hybrid or local data-storage solutions to meet requirements under the personal data protection decree and related data laws.
Environmental, social, and governance (ESG) should be treated as a growth enabler rather than a compliance burden. Companies are advised to align with the United Nations Guiding Principles, establish Scope-3 baselines, strengthen supplier training and audits, and prepare for relevant reporting. PwC research shown that firms embedding ESG and digitalising supply chains can reduce supply chain costs by 6.8 per cent while increasing revenues by 7.7 per cent, with an average payback period of around 22 months.
