As the trade war rages on, Chinese companies have sharply accelerated investment in Southeast Asia in a bid to avoid American tariffs, providing an economic boost to these countries but also raising their risk of exposure to U.S. President Donald Trump's ire.
New Chinese foreign direct investment in Vietnam, based on approved projects, swelled 5.6-fold on the year to $1.56 billion between the start of 2019 and May 20. The January-April figure alone surpassed the full-year total for 2018. Should this pace continue, China could lead the full-year list for the first time since Vietnam began disclosing foreign investment data by country in 2007.
South Korea ranks second for this year with about $1 billion in approved spending. Japan, the top investor in 2017 and 2018, has logged only about $730 million in projects so far.
Thailand has also seen an upswing in Chinese capital inflows. In the January-March quarter, approved foreign direct investment from China doubled to 29.3 billion baht ($933 million), Thai government data shows.
The surges come as U.S. tariffs have driven Chinese companies to seek alternate production bases. More than 20 listed Chinese companies have relocated or expanded manufacturing abroad or announced plans to do so since last year.
China "has been tightening its investment links with the rest of developing Asia in recent years, but the trend seems to have accelerated under the trade conflict," the Asian Development Bank wrote in an April report.
These businesses have gravitated toward Vietnam in particular, due to its geographical proximity and cheap labor.
A Nomura Holdings report last Monday named Vietnam as the biggest beneficiary of the trade war, with an economic boost equivalent to 7.9% of its projected 2019 gross domestic product through the first quarter of the year. Taiwan ranked second with a much smaller 2.1% gain, while Chile came in third at 1.5%.
But the production shifts could come at a price if a rise in exports prompts complaints from the Trump administration about growing trade imbalances, which could be followed by more tariffs. Vietnam's exports to America rose 28% on the year in the five months through May.
Chinese investment has jumped in the Philippines as well, owing mainly to a diplomatic thaw under President Rodrigo Duterte. The two sides signed cooperation agreements for 29 projects during a November 2018 visit to Manila by Chinese President Xi Jinping.
China surpassed Japan to become the top country of origin for foreign direct investment in the Philippines last year, with approved spending ballooning more than 20-fold to 50.7 billion pesos ($979 million), according to Philippine government data.
"I see definite concern among Chinese companies over the trade war," said an executive at a logistics company. "They seem to be making preparations so they can move whenever they need."
One such company is Shenzhen H&T Intelligent Control, an electronics manufacturer based in Guangdong Province. The company decided at a board meeting last month to spend $5 million to set up a Vietnamese unit so it can move production of control mechanisms for appliances, among other products.
"We are expanding into Vietnam to globalize, but it also helps us avoid trade frictions between China and the U.S.," said H&T director Luo Shanshan.
GoerTek, which assembles Apple's AirPods, gained approval in January to build a $260 million plant in Bac Ninh Province in northern Vietnam.
TV maker TCL plans to bring a plant online in Vietnam around September capable of producing 3 million units a year. Vietnamese media also report that Lenovo Group is considering building a factory near Hanoi for computer parts intended for the U.S. market.
The trend is only expected to accelerate after Washington raised tariffs on $200 billion worth of Chinese products, including furniture and appliances, to 25% from 10% on May 10. The Trump administration is threatening another round of tariffs that would affect all remaining Chinese exports.
"When tariffs were at 10%, we could get by with a price hike of 3 to 5%, but 25% is a big hit," said a representative at a Chinese manufacturer.
Employment and investment in China would likely be weighed down if more companies move away from the country. Brooks Running, an American shoemaker owned by Warren Buffett's Berkshire Hathaway, decided in January to move running shoes production from China to Vietnam -- a plan that involves the transfer of roughly 8,000 jobs by the end of this year.