22 Asia The EconomistApril 14th 2018
1T
HE Samsung Electronics factory in Thai
Nguyen, in northern Vietnam, employs
more than 60,000 people. Its three can-
teens serve some 13 tonnes of rice a day. It
churns out more mobile phones than any
other facility in the world. It and Samsung
Electronics’ other factories in Vietnam pro-
duce almost a third of the firm’s global out-
put. The company has invested a cumula-
tive $17bn in the country.
But Samsung is as important to Viet-
nam as Vietnam is to it. Its local subsid-
iary’s $58bn in revenue last year made it
the biggest company in Vietnam, pipping
PetroVietnam, the state oil company. It em-
ploys more than 100,000 people. It has
helped to make Vietnam the second-big-
gest exporter of smartphones in the world,
after China. Samsung alone accounted for
almost a quarter of Vietnam’s total exports
of $214bn last year.
All this has been a huge boon to Viet-
nam’s economy.Despite unflattering re-
ports about working conditions in Sam-
sung’s factories, Thai Nguyen and another
nearby province that hosts one, Bac Ninh,
have become two of the country’s richest.
Restaurants, shops and hotels have mush-
roomed around their industrial zones. The
number of local firms listed as important
suppliers to Samsung has increased seven-
fold in the past three years.
And Samsung is just the biggest South
Korean investor in Vietnam. Of the $108bn
of foreign direct investment (FDI) Vietnam
has received since it joined the World Trade
Organisation (WTO) in 2007, a third origi-
nated in South Korea. LGElectronics, an-other South Korean giant, makes television
screens in a $1.5bn factory in the port of
Haiphong. Lotte, a South Korean conglom-
erate, owns a string of supermarkets.
Vietnam receivedFDIworth 8% ofGDP
last year—morethan double the rate that
went to comparable economies in the re-
gion. Foreign-owned firms now account
for nearly 20% of the country’s output.
They have grown more than twice as fast
as state-owned enterprises over the past
decade, despitethe country’s nominally
communist government. The economy
grew at 7.4% year-on-year in the first quar-
ter of 2018, one of the fastest rates in Asia.
For Samsung, Vietnam provides an at-
tractive alternative to manufacturing in
China. Its workforce is young, cheap and
plentiful. That once was China’s appeal,
but its workers are now seven years older,
on average, and more thantwice as expen-
sive as Vietnamese ones. The cheap labour
lowers costs in Samsung’s factories, giving
the smartphone-maker an edge over Apple
in less expensive handsets. Other coun-
tries in the region tendto export raw mate-
rials or components to China, where they
are assembled into other products. Viet-
nam exports mainly finished goods.
Vietnam is also a valuable hedge
against Chinese administrative caprice.
Last year the Chinese government organ-
ised a boycott of South Korean firms and
products to punish the South Korean gov-
ernment for deploying an American mis-
sile-defence system. Although the system
was intended to protect against an attack
from North Korea, China complained it
could be used to undermine China’s de-
fences too. The boycott, although now
over, alarmed South Korean investors.
Vietnam, in contrast, is liberalising its
economy to welcome foreign industry. In
2015 the government opened 50 industries
to foreign competition and slashed regula-
tion in hundreds more. It sold a majority
stake in the biggest state-owned brewer,
Sabeco, to a foreign firm last year. Viet-nam’s enthusiasm for free-trade deals has
made it especially alluring to foreign inves-
tors. It is a founding member of the Trans
Pacific Partnership, a multilateral trade
agreement that includes Australia, Canada
and Japan, among others. It is due to sign a
trade pact with the European Union soon.
The deal it signed with South Korea in 2015
has made it South Korea’s fourth-biggest
trading partner.
Moon Jae-in, the president of South Ko-
rea, visited Vietnam last month, with busi-
ness delegates from Samsung and other
companies in tow. It was his second trip to
the country in less than a year in office.
Presidential advisers have expressed the
idea that South Korea should not content it-
self with being a “shrimp among whales”
such as China and Japan, but instead be-
come a regional power by embracing
smaller allies. That, they claim, would
make South Korea more of a “dolphin”, in
command of its own fate. In Vietnam, at
least, this plan is going swimmingly. 7Investment in VietnamPhone home
South Korean firms are transforming
the economyThey give Samsung an edgeT
HE view from the top of Marina Bay
Sands, a giant hotel, mall and casino,
takes in the skyscrapers of Singapore, the
fleets of ships entering and leaving the
city’s ports, the scattered tropical islands of
the Singapore Strait and the crowds of sog-
gy but determined selfie-takers trying to
capture a perfect image of it all from the
enormous infinity pool. Among the celeb-
rities the hotel has lured for a damp snap
are Jing Boran and Fu Xinbo, Chinese film
and music stars. China Daily, a Chinese
state-owned newspaper, has declared the
spot the eighth most romantic in the world.
The place displaysitself all over Chinese
social media and offers special discounts
and packages to visitors from China.
Such spin is increasingly important.
Last year, for the first time, China was the
biggest source of tourists to Singapore, ac-
counting for 3.2m of its17.4m visitors. Be-
tween January and September alone they
spent more than S$3bn ($2.3bn).
All across South-East Asia, tourism is
booming. The numberof visitors jumped
by 49% between 2010 and 2015, to more
than 109m. Tourism in Asia and the Pacific
is growing faster than anywhere else in the
world. The region receives a quarter of the
world’s holidaymakers (Europe’s share is
still a half).
South-East Asia’s Edenic islands, an-
cient temples and delicious food are strongTourism in South-East AsiaChina whirl
Singapore
Travellers are flocking to the region,
especially from China