Chinese firms that fled to Vietnam say the escape route is closing

'China Plus One' strategy under strain as US targets transshipment routes; Chinese companies pull back investments; experts warn there is no next safe haven without genuine localization

US President Donald Trump and Chinese President Xi Jinping leave the venue after their bilateral summit at Naraemaru, inside the Air Mobility Wing base in Busan, last year. [Yonhap]

By Seo Ji-yeon, The Herald Business

Chinese companies that relocated their production bases to Vietnam to avoid US tariffs on Chinese goods are rethinking their strategy, as Washington's trade pressure extends to Vietnam and the once-reliable "China Plus One" approach no longer looks safe.

A growing sense that Vietnam is no longer a tariff-free haven has spread through Chinese manufacturing circles, the South China Morning Post reported Friday.

When the US-China trade war erupted during Donald Trump's first term in 2018, Chinese companies moved their production facilities to Vietnam en masse to sidestep steep American tariffs. The typical workaround involved importing components from China, assembling them in Vietnam and then exporting the finished goods to the United States.

Vietnam quickly emerged as the premier production hub for Chinese firms, drawing on its low labor costs and easy access to the US market, and became the poster child of the China Plus One strategy.

The situation has since shifted sharply. The United States has launched a Section 301 trade investigation targeting Vietnam over intellectual property, production capacity and labor practices. Washington is also pursuing additional tariffs on goods with a high proportion of Chinese-made components that enter the US via Vietnam.

By going after not just China but also the transshipment routes Chinese goods travel through, the US has significantly eroded the tariff-avoidance benefit that Vietnam once offered.

Chinese textile maker Jasan has already scrapped plans to build a new factory in Vietnam. The company had intended to produce 60 million pairs of socks annually for export to the United States but pulled the investment, citing delays in securing land and mounting uncertainty in the export environment.

Solar energy giant Jinko Solar also sharply scaled back its Vietnam investment plans before ultimately canceling the project altogether. Analysts attribute the move to the US beginning to apply anti-dumping tariffs to products made in Vietnam.

Anxiety is also growing among Chinese companies that already operate factories in Vietnam.

An aerial view of an industrial complex in Haiphong, northern Vietnam. Haiphong is considered a key production base for Chinese companies and a critical logistics hub for exports to the United States. [Getty Images]

Zhou Libin, head of Tianshu Mechanical Technology, a Chinese machinery firm that has operated a factory in Haiphong since 2018, told the SCMP that even if US-China relations improve, Vietnam's advantages could disappear if Washington intensifies trade pressure on Hanoi. "It might be better to just stay in China," he said.

Experts say the United States is no longer targeting specific countries but is now going after transshipment itself as a practice.

Dan Martin of international consulting firm Dezan Shira & Associates said Vietnam, Thailand, Malaysia, Indonesia, India and Mexico could all come under scrutiny if they are seen as vehicles for tariff avoidance through simple assembly.

"Companies need to move away from the mindset of finding the next loophole," he said, adding that the strategy of relocating factories merely to change a label is unlikely to work much longer.

Chinese companies are adjusting their strategies accordingly.

Rather than simply moving factories, some are localizing production by sourcing raw materials locally and building out supply chains in host countries, while others are diversifying exports away from US dependence toward Southeast Asia, the Middle East and other markets.

Vietnam is also adapting. While continuing to court Chinese investment, Hanoi is tightening rules of origin and expanding crackdowns on transshipment to address US concerns.

Experts broadly expect that simply relocating a production base will no longer be enough to escape US tariffs.

The China Plus One strategy that worked during Trump's first term is entering a new phase, the SCMP said, arguing that companies must now shift from hunting for "the next Vietnam" to building genuine global operations — with real local production and supply chains — from the ground up.

sjy@heraldcorp.com