Illustration: Luo Xuan/GT

Vietnam's export revenue in the first five months of 2019 has seen a 6.7 percent increase year-on-year. Against the backdrop of a global economic slowdown and sprawling trade protectionism, this export performance has outshone other countries. In contrast, China's exports within the same period have been fluctuating and waning. Some are worried about industries withdrawing from China. However, there is no need to get too anxious. 

First, the statistics of Vietnamese exports may have been exaggerated. According to data from the General Statistics Office of Vietnam, Vietnam's exports to the US went up 28 percent in the first five months this year, taking up almost 80 percent of the total export increase. Meanwhile, Vietnam's industrial production scale expands at an annual speed of 10 percent. Considering that one fourth of the Vietnamese products are shipped to the US, a country with a population of less than 100 million cannot hold up the huge demand increase. 

Vietnam functioning as a "transfer terminal" has become the primary cause of the strong export growth. The increased amount of Vietnam's exports to the US matches the large import spike from China in the first five months, compared with the trade volume change between Vietnam and other trade partners. It indicates the possibility that a great deal of Chinese products are exported to the US through Vietnam. 

In fact, it's not only Chinese companies that transfer from Vietnam and export to a third country. The US Commerce Department levied punitive tariffs on corrosion-resistant steel and cold-rolled steel products from South Korea and China's Taiwan in 2016. Later, large amounts of these products were processed in Vietnam and then exported to the US to dodge the tariffs. Manufacturers in South Korea, Japan and China's Taiwan, which have seen their products on the US tariff blacklist, also have the incentive to first export to Southeast Asia to bypass the tariffs.

The "exaggerated" Vietnam trade statistics will not last long. On the one hand, the US has become wary of the efforts to avoid tariffs. The US has put Vietnam on the currency manipulator monitoring list as the country's trade surplus with the US has surged. This way, it pushes Vietnam to take the initiative to investigate fake made-in-Vietnam labels. Steel products could face tariffs of up to 456 percent when entering the US, which will affect the operating chain.  

On the other hand, re-exports are just a way to deal with the sudden change in the international trade system. Some companies are relocating their manufacturing to countries including Vietnam and are building up a new production chain. Vietnam's exports in June dropped 1.4 percent compared to the previous month, which is not in line with seasonable fluctuations before. It means the export data is stabilizing. 

Also, in the medium to long run, it will be difficult for Southeast Asia to replace China's role as a global manufacturing export base. One reason is that there is a gap of economic sizes between Southeast Asia and China. China's merchandise export volume is far ahead of ASEAN countries. Since 2000, the compound annual growth rate of China's manufacturing exports has been above 10 percent. Even if Southeast Asia can match that speed while China's growth rate drops, it would still take 10 years for Southeast Asian manufacturing countries to catch up with China.

Without taking the impact of the trade friction into account, the supply and cost of labor is the driver of industrial relocation, especially for labor-intensive industries. China has 170 million manufacturing jobs. Even though one-third of the positions are gone following industrial relocation, it is unlikely that ASEAN countries will fill up those vacancies.

Moreover, companies need to think carefully when deciding to relocate. With more global trade information, widely spreading automatic technologies, a complete production chain and a good business environment have replaced labor costs as the factors that should be considered the most. 

The rather low education level of the local labor force, geographical dispersal and inferior infrastructure also act as restraints for industries in ASEAN countries.

Industrial relocation is a general trend with a limited scale. The relocation may accelerate, but it should not cause worry. It is imperative for China to keep its own pace, marching toward opening-up with high quality. It has been proved that foreign investment prefers China as usual while the world economy faces headwinds.

The United Nations World Investment Report indicates China's foreign direct investment grew faster than the US and Europe in last year. 

China will soon become the world's largest consumption market. The country has an intact production chain, and the resulting cost savings can counter increasing labor costs. Foreign investment values China's stable political environment. Thus, China has long term attraction for foreign investment. 

Problems such as high tariffs, low internationalized capital account and excessive regulation for foreign investment in the services sector could affect the confidence of foreign investors. China should take the chance amid the China-US trade friction to move forward in opening-up.

The author is chief economist with JD Finance. bizopinion@globaltimes.com.cn