With increasing discussions about Vietnam's "miracle growth," a Vietnamese image of aggressive economic development has gone viral on social media in recent days. Various financial media have analyzed the country from the perspectives of setting up factories, investing in real estate and other sectors to lavishly tout the high investment returns and encourage domestic capital to invest in Vietnam. Although Vietnam has undoubtedly seen substantial economic achievements and social progress since its "renovation and opening-up," and the country has maintained a relatively high economic growth rate, investors should not take for granted that setting up factories or investing in real estate in the country can just generate high returns, as there are still many uncertainties.

Since its "renovation and opening-up" in the 1980s, Vietnam's comprehensive economic growth rate has been around 7 percent, the fastest among ASEAN countries and second only to China in Asia. The reason Vietnam was able to maintain such a rapid rate of economic growth is not only because of its rapid development during the primary stage of industrialization, but also due to its active participation in regional integration and globalization since the 1990s.

Vietnam's rapid economic development is a result of riding on the Chinese "fast train." For a long time, China has maintained its status as Vietnam's largest trading partner. With bilateral trade reaching $106.7 billion in 2018, China became Vietnam's top trading partner, with the bilateral trade volume exceeding $100 billion. In the meantime, more and more Chinese companies have invested in Vietnam, creating a large number of jobs.

Vietnam's rapid economic development is also thanks to the evolution of the regional division of labor and the distribution of global industry. In terms of investment sources, South Korea, Japan, Singapore, the Chinese mainland and the island of Taiwan are the most important sources of foreign investment in Vietnam. In terms of investment distribution and industries, South Korean and Japanese companies usually invest in the relatively high-end electronics industry, Taiwan-based companies appear to be interested in the original equipment manufacturing (OEM) business, and mainland companies generally make investments in textiles, clothing, shoemaking and agriculture. Thus, most of the foreign investment in Vietnam comes from the Asian region, and industries that see foreign investment are generally at the low end and labor intensive. As regards investment incentives, China's industrial development and upgrading, being able to avoid trade barriers and other advantages of primary industrialization like cheap labor costs are the main reasons behind the "investment fever" in Vietnam.

Frankly speaking, the investment boom in Vietnam is actually the result of profit-seeking by capital in low-end industries, which also attracts small- and medium-sized enterprises (SMEs) from the Chinese mainland. In the short run, companies are interested in investing in Southeast Asian countries like Vietnam, which could be seen as one of their countermeasures to the US-China trade rows and challenges. However, it is worth noting that investors may face bottlenecks and risk challenges in the process of investing in Vietnam. As an ideal place for low-end industrial capital investment, Vietnam indeed has advantages in terms of labor and land, but with economic development and social progress, the local costs of labor and land are also on the rise. Moreover, the low education level of local workers actually poses challenges for business operation and management. At the same time, due to the country's strict regulations on environmental protection and employment sources, companies also need to pay a high price in the aspects of production facilities and hiring procedures. In this sense, investors should have their own strategic vision for the long term when it comes to whether to invest largely in low-end industries or in upgrading low-end industries.

With media speculation over the investment boom in Vietnam, companies should not be short-sighted or eager for quick success. They are advised to comprehensively evaluate the investment projects and risks in Vietnam and plan for their industrial development and investment in the medium and long run. After all, pursuing profits in low-end industries cannot be a permanent strategy.

By Ge Hongliang - Global Times (.cn) - March 7, 2019