Protests Damaging Vietnam Industrial Zones Raise Investor Concerns

By Nguyen Phuong Linh and Michael Gold | May 16, 2014

Dexter Hsu spent Tuesday night barricaded inside his workers’ dormitory in Vietnam’s Binh Duong province. Tables were stacked up against the doors, but he and his dorm-mates were terrified by the shouts and sounds of nearby rioting.

Earlier that day, the Taiwanese product developer at a footwear company saw a mob of some 4,000 angry protesters riding scooters into the industrial park where he worked, smashing windows and breaking equipment.

Now, he’s in hiding in a Ho Chi Minh City hotel, waiting for the order to resume work, although he said he was wondering whether in the long term he should just return home. “I’m totally helpless to control this situation and I feel like my life could come under threat,” he said in a telephone interview.

Tales like Hsu’s risk undermining foreign investment in Vietnam, the lynchpin of its economy.

Industrial parks have been a major driver of the country’s economic growth, accounting for more than 30 percent of Vietnam’s exports and attracting around $110 billion in foreign direct investment.

Setting up shop in one of the 200-odd parks across the country saves foreign companies the bureaucratic headache of obtaining land on their own, as well as giving them easy access to electricity, water supplies and worker accommodation. That’s helped Vietnam and its army of low-wage workers carve out a niche in the global supply chain for textiles and electronics.

Samsung Electronics has just opened the world’s largest smartphone factory in northern Vietnam, Intel Corp has one of its biggest chip plants there, while Nike Inc and Adidas both buy footwear from Vietnamese factories.

South Korea, Taiwan and Singapore in particular have been some of the biggest investors in the parks. That could now change.

“UNDERLYING TENSIONS”

Riots in Vietnam this week, sparked by protests over China’s move to station an oil rig in waters claimed by both countries, have centered on the industrial parks, where thousands of Chinese employees live and work.

Taiwanese or companies owned by Taiwanese in Vietnam are often mistakenly seen as mainland Chinese.

Hundreds of companies have been forced to halt production as factories were looted, torched or damaged in the riots. In the long run, the concern for Vietnam would be that they move away altogether.

“Investors cannot just pay attention to costs or quality of labor, they should also assess the likelihood of nationalist sentiments whipped up suddenly that could disrupt production,” said Leong Wai Ho, an economist for Barclays in Singapore.

“The protests might be one off, but the underlying tensions and sentiments will not go away, and will probably worsen over time,” he added.

Vietnam’s industrial parks employ about 2.1 million people and manufactured products worth $38 billion in exports last year. They have helped provide a bright spot in the $170 billion economy, where growth potential has been hampered by debt-ridden state-owned enterprises and corruption.

A glut of bad debt caused by over-indulgent bank lending and a glacial pace of reform in the state-owned corporate sector mean Vietnam has gone from being one of Asia’s rising stars to one of the region’s biggest underperformers.

NOT FIRST SIGN

This week was not the first sign of unrest at the parks; in recent years workers have been increasingly dissatisfied over labor conditions, although the authorities have until now kept any protests contained.

“Local riots in response to harsh employment conditions have been quickly put down by the government,” said Suiwah Leung, associate professor of economics at Australian National University, and an expert on Vietnam.

Now, the risk is that anti-foreigner antagonism mixed with unhappy workers will be harder to control and will worry foreign companies, even if they have no connection to China and events in the South China Sea.

“The situation that some workers are taking advantage of their right to demonstrate by destroying factories is definitely not good for Vietnam’s investment environment,” said Nguyen Mai, chairman of the Vietnam Association of Foreign Invested Enterprises.

A major downturn in foreign investment would be a big economic blow.

Samsung spent $3.2 billion on its smartphone factory in the northern Thai Nguyen province.

The five Vietnam-Singapore Industrial Parks, two of which were hit by this week’s riots in Binh Duong, say they host around 500 companies and have created more than 140,000 local jobs. Their tenants come from 23 different countries.

The Ha Tinh industrial park in central Vietnam, where a huge steel complex being built by Taiwan’s Formosa Plastics Group was set on fire, is estimated to cost more than $20 billion by the time it is completed in 2020.

For now, signs are that most foreign investors are willing to ride out the unrest.

“This is a very isolated incident,” said Jason Yeo, president of the Singapore Business Association Vietnam, who has been in the country for 17 years. “The Vietnamese government (officials) are very concerned on this issue and will do their best to protect foreign investors in their country.”

A spokeswoman for Singapore’s Ascendas Pte Ltd, which runs a large industrial park with Vietnam’s Protrade in Binh Duong, said that while it has bolstered security and is monitoring events, it still believes in “Vietnam’s long-term growth.”

Hsu, however, is unlikely to easily put behind him the memories of Tuesday’s riots.

“This is a terrifying situation, it’s the first time I’ve genuinely thought about leaving Vietnam,” he said.

(Additional reporting by Andrew Toh in Singapore and Faith Hung in Taipei; Writing by Rachel Armstrong; Editing by Raju Gopalakrishnan)

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