China’s loss, Vietnam’s gain

KUCHING: One man’s loss is another man’s gain as the saying goes. That aptly sums up the situation Vietnam is now in, gaining from China’s loss of its share in the US furniture market as the world’s two largest economies are tangled in a trade war.

And as an added bonus, Vietnam is benefiting from a surge in the inflow of new foreign direct investment (FDI) in wood processing projects from China.

Due to the imposition of tariffs, China, the largest supplier of furniture to US, is feeling the heat as this has hit its export volume.

“In the first seven months of 2019, China’s share of the US furniture market fell sharply while Vietnam gained market share.

“Vietnam’s exports of wood products to the US are around US$3-4 billion annually and Vietnam is the second largest supplier to the US after China,” according to International Tropical Timber Organisation (ITTO) in its latest tropical timber report (Oct 1-15).

Vietnam’s Deputy Minister for Industry and Trade Tran Quoc Khanh was quoted as saying that the loss of China’s furniture market share in US provides an opportunity for Vietnamese firms to fill the gap in US imports.  

But he said this would require companies to address their productivity, marketing and procurement policies.

Since 2018, the Vietnam Chamber of Commerce and Industry, in conjunction with the Customs Department, has inspected several Vietnam-based enterprises from which there was a sudden and sharp increase in export volumes of their products. The inspection, reported ITTO, is intended to uncover fake labelling.

The US Customs Service has also sent a team in Vietnam to investigate the sudden rise in wood product exports, seemingly originating in Vietnam which raised suspicions of cross-border trade between Vietnam and China for re-export.  

The ITTO report said the surge in the number of new FDI projects into Vietnam’s wood processing sector is continuing.

“Xuan Phuc (Forest Trends) has reported that most of the incoming investments is from China. In the first five months of 2019, there was a total investment of over US$50 million from China, 1.7 times the amount in the same period in 2018. 

“Most of the investments are in woodchip production, processing industry services, wooden pallet production and composite panel products.”

In the Binh Dinh province in Vietnam’s south central coast region, its wood furniture manufacturing industry index rose by nearly seven percent in the first nine months of 2019 from the corresponding 2018 period while the index for other wood products soared by 27 percent.

During the same period, furniture exports reached over US$340 million, up 20 percent and accounting for 51 percent of the province’s total exports, according to the country’s Trade and Industry Department.

There are more than 100 major wood processing plants in Binh Dinh and they are exporting to over 80 countries and territories.

Despite the high export growth rates, the production of export wood processing enterprises in the province are facing many difficulties in obtaining raw materials’ supplies.

“The local producers and exporters had to import more than 80 percent of raw wood materials with many risks about legality and origins.

“Under these circumstances, it is very challenging to manage production costs and maintain competitiveness in the global market,” said Binh Dinh Timber and Forest Products Association chairman Le Minh Thien.     

Every year, local manufacturers import more than 200,000 cubic metres of wood raw materials, of which sawn wood accounts for around 85 percent, with the balance being logs and
composite panel.

To address the shortage supply of local raw materials, there are plans to develop large scale timber plantations in Binh Dinh by 2025 to meet 50 percent of raw wood materials demand for the province’s wood processing industry.

Investment in tree plantations, according to Industry and Trade Department director Ngo Van Tong, would continue until these contribute around 80 percent of the raw material requirements of factories in the province.

In Quang Nam province, there are about 200,000 ha of forest plantations which produce some one million tonnes of acacia (a fast growing commercial timber species) a year.

Vietnam’s exports of wood products to the US are around US$3-4 billion annually and Vietnam is the second largest supplier to the US after China.