Vietnam promotes foreign investment in semiconductors

This decision comes after Vietnam was overlooked by major investors

Vietnam’s ambition to become a semiconductor player has led it to consider approvals and foreign investment tax breaks. In July, Vietnam implemented the OECD-advised 15 percent global minimum tax, which encouraged foreign companies to opt for alternative locations. For example, Austrian semiconductor firm AT&S chose Malaysia over Vietnam when its requests for offsets to minimum tax were not met. Vietnam’s prospective Digital Technology Industry Law (DTI) aims to minimise investor exits by allowing a 150 percent write off on research expenses, expedited visas and 10 years of rent-free land use.

Even with these measures, Vietnam will face challenges in competing with established and rival aspirant semiconductor manufacturing countries like India. These countries are also working hard to attract investors. Even though Vietnam’s incentives are relatively modest by global standards, they are still expected to strain state resources. Vietnam has a budget deficit of four percent of GDP. Chip incentives may limit the amount that can be spent on improving Vietnam’s infrastructure, which is also needed to attract FDI. Vietnam has a less developed road network compared to other competing jurisdictions in ASEAN and continues to face obstacles sourcing reliable power. Weak infrastructure was among the reasons that foreign companies chose to bypass Vietnam after it raised minimum tax rates. A further deterrent was labour skills shortages, with engineers already in hot demand from other industries.

EU report recommends mega mergers to help address concerns over European competitiveness

Proposed reforms face rigorous opposition from some sections of the EU

Former Italian Prime Minister and President of the European Central Bank Mario Draghi tabled his long-awaited report on EU competitiveness to the European Commission this month. The report comes amid longstanding concern among EU member states that the bloc faces stagnant productivity growth and is failing to compete with the US and China. One of the report’s most significant proposals is for the EU’s competition regulator to give more weight to the potential for mergers to catalyse greater European competitiveness with foreign rivals. To date, the EU’s competition regulator has been much more focused on consumer protection and preventing larger European states from unduly dominating the single market.

Draghi suggests that mega mergers would provide EU companies with the necessary scale to innovate on the level of US and Chinese champions such as Apple and Huawei. The Draghi report also recommended that Brussels undertakes larger amounts of borrowing on the EU-level, raise investment levels by €750 billion (US$836 billion) to €800bn (US$892 billion) per year, and prioritise trade agreements with resource-rich countries.

It is far from certain that the report’s recommendations will be implemented. The report’s suggested reforms to competition laws go against the grain of decades of existing practice. In 2019, EU regulators turned down an attempt by France’s Alstom and Germany’s Siemens to merge in attempt to bolster their ability to remain competitive against emerging Chinese rail giant CRRC. Some of the most vocal opponents to competition law reform include smaller EU member states that are concerned it could promote monopolistic tendencies and drive-up consumer prices. The reforms could also face opposition from within the European Court of Justice, which is likely to scrutinise any reinterpretation of competition laws. Nevertheless, the reforms have gained the support of some important players including Germany and France – the bloc’s two most populus countries – as well as many of Brussel’s newly elected trade and security commissioners. Regardless, it is abundantly clear that reforms of some nature will need to be undertaken to reverse the EU’s existing economic malaise.

Hyundai and General Motors forge partnership to enhance EV competitiveness

Latest automotive tie-up is part of a broader industry trend towards consolidation

Korea’s Hyundai and the US’s General Motors (GM) have announced a partnership aimed at squaring the circle – building a supply chain largely bypassing China whilst also producing affordable EVs. This follows recently announced partnerships between Japan automakers Nissan-Mitsubishi-Honda and Volkswagen investment in US carmaker Rivian. In 2023, Hyundai was the world’s third largest vehicle producer and GM was the largest US producer, selling 13 million and 6.2 million vehicles, respectively. However, both companies (although particularly GM) are having difficulty breaking into an EV market dominated by Tesla and BYD. In part, this comes down to their inability to be cost competitive with automakers producing in China who benefit from generous implicit subsidies and highly cost efficient supply chains. Hyundai and GM plan to collaborate to drive down cost on some of the most expensive areas of EVs like software development and battery material procurement. This partnership comes almost a year after GM scrapped its US$5 billion plans with Honda to produce a US$30,000 EV.

The partnership between Hyundai and GM is also aimed at leveraging Korea Inc’s increasingly dominant presence in building out the US’ EV supply chain. South Korea’s three major battery suppliers – LG Energy Solutions, SK On and Samsung SDI – have all announced major battery investments in the US, often in partnership with local automakers. For example, GM recently announced a US$3.5 billion EV battery plant in the US with Samsung SDI. It is hoped that partnerships like these will overcome persistent manufacturing issues. GM had a 40 percent increase in EV sales in the US in Q2, but has faced major production delays, including a recent six-month delay on the roll-out of Buick’s first EV. With the price of GM EVs currently being around US$40,000, GM continues to face struggles developing more affordable EVs. Together, Hyundai and GM make up more than 15 percent of the US’ EV sales (10 and 6.2 percent respectively). Hyundai will be hoping the partnership increases this figure even further.

Chinese companies tip money into politically neutral countries

Investments provide backdoor into Western economies

Investments from Chinese companies are pouring into so-called non-aligned countries, as they set up foreign headquarters and manufacturing bases to circumvent Western trade barriers. Singapore, for instance, has seen a rise in Chinese investment from US$2.64 billion in 2019 to US$4.54 billion in 2023. Many of these investments come from companies like Shein, which almost exclusively buys from warehouses in China but sells much of its inventory to Western customers. Singapore plays a key role in enabling Western military presence in Asia but nonetheless maintains close economic ties with China. Hungary has seen one of the biggest upticks in Chinese investment in recent years, growing from less than US$100 million in 2019 to US$6.42 billion in 2023. Hungary accounted for a massive 44 percent of Chinese foreign direct investment into the EU in 2023. Mexico has emerged as another hot destination for Chinese investment. SAIC, one of several Chinese automakers eyeing investment in Mexico, plans to construct a US$1.5 billion to US$2 billion factory in the country.

The proliferation of investments comes as Chinese companies face increasingly stringent restrictions in accessing Western markets. Singapore, for instance, is a favourable location for Chinese companies aiming to move headquarters to a location less susceptible to Western security concerns. Meanwhile, Hungary has seen an influx of investment from Chinese manufacturers facing EU tariffs on imports of Chinese-made products such as EVs. Hungary has been attractive for Chinese companies in part because of Budapest’s much warmer relationship with Beijing. This month, Brussels will vote on whether the bloc’s provisional tariffs on Chinese-made EVs will be enforced for the next five years. Similarly, some Chinese companies in Mexico have been able to take advantage of the US-Mexico-Canada Free Trade Agreement. The deal provides preferential treatment to a range of Mexican-made products such as TVs and fridges sold in the US, circumventing some of Washington’s tariffs on Chinese products.