[081214.EN.SEA] HSBC: Growth of Global Factory Market Share Speeds Up in Vietnam

HSBC latest purchasing manager's index (PMI) shows manufacturing has been migrating from China, much of it to neighbouring Vietnam, a process that appears to be accelerating.

Factory output in China during November was at its lowest level since May, with the PMI falling to 50. Anything above 50 indicates growth, with contraction scoring below that.

By contrast, the Vietnam PMI showed its sharpest rise since April, reaching 52.1 in November as growth in the manufacturing sector gained momentum. It signalled the most marked improvement in business conditions in five months, with stronger operating conditions recorded in each month since September 2013.

"The sharp rise of the PMI index in November reflects our view that Vietnam manufacturing sector is competitive. Thanks to lower labour costs than China, Vietnam manufacturing is gaining global market share," said HSBC Asia economist Trinh Nguyen.

Manufacturing production in Vietnam increased for the 14th successive month in November, with the rate of growth quickening to the fastest since April.

To the north, China manufacturing is heading the other way, say HSBC analysts. Domestic demand expanded at a sluggish pace while new export order growth eased to a five-month low.

"Today's data suggest that the manufacturing sector lost momentum and point to weaker economic activity in November," said HSBC chief China economist Hongbin Qu.

"The People's Bank of China's rate cuts, delivered on the November 21, will help to stabilise property and manufacturing investment in the coming months."

Labour costs in China have risen sharply in the past few years as Beijing tries to force production up the value chain.

Many manufacturers have moved away from the traditional manufacturing centres of the Pearl River and the Yangtze, either shifting to factories inland at places such as Chongqing, or moving out of the country.

Vietnam has been able to capture a growing market share of the migrating factories that have been attracted by the lower labour costs. Financial incentives have also been offered by the government to further sweeten the pot.

But the export-led economy of Vietnam is not only focusing on the low end of the manufacturing business. Vietnam also wants to evolve into a top exporter of high-tech goods, particularly electronics.

In recent years, the country has succeeded in attracting investment from Microsoft, Samsung and Intel, making Vietnam a major link in their global manufacturing networks.

Source : HKSG.