The Great Offload: How Chinese Entrepreneurs Flood Vietnam With Surplus Inventory?

How are Chinese entrepreneurs rushing to offload surplus inventory in Vietnam? China's poor CPI, factory gate deflation disappoint analysts. Population data from 28 Chinese provinces show a deepening crisis. Fire breaks out in a 25-story residential building in Chongqing. Fujian enacts legislation allowing wives to check spouses' assets, sparking hot searches. It's all covered in today's China Truths. How are Chinese entrepreneurs rushing to offload surplus inventory in Vietnam? Chaitan Sagal, portfolio manager at Franklin Templeton's Emerging Markets Fund, told the Financial Times, China will be exporting deflation to the rest of the world, and you will find various countries dealing with the fact that China has built up overcapacity. Vietnam is, without a doubt, the greatest victim of this crisis, suffering from both surplus and deflation. While we're no economic experts like Mr. Sagal, it's clear that China's surplus inventory crisis will adversely affect economies such as Vietnam's. The immediate effect is visible. Cheap Chinese products are flooding the market, undercutting local private companies and exacerbating the struggles of already troubled businesses. However, beneath the surface, Chinese companies are also covertly aiming to replace Vietnamese firms in key manufacturing sectors. Methodically taking over the export market through CO washing means certificate of origin of goods, transferring the certificate of origin from China to Vietnam. As an average consumer, you might believe that Vietnamese consumers won't buy cheap Chinese goods, or that the government will intervene soon. However, significant governance gaps in Vietnam concerning CO issuance and FDI approvals mean that Chinese companies could quickly take over Vietnam's domestic and export markets. Eventually, products will not remain cheap, and you might find yourself out of a job due to this Chinese dominance. An in-depth investigation by NTDVN reporters, involving logistics managers and domestic economic experts, has highlighted that Chinese businesses are methodically executing this market invasion strategy. Surplus goods, Chinese consumers pull back. The bursting of the real estate bubble is just one aspect of a broader issue. China is dealing with a severe surplus of goods. Mr. P.H., a seasoned manager at a major Vietnamese logistics firm, claims that the surplus is significantly worse than reported by China. His visits to China and video calls with Chinese partners reveal warehouses in coastal cities filled to the brim, with goods spilling out and some even stored outdoors. In an interview with NTDVN, Mr. P.H. noted, China has been experiencing a good surplus for a long time, but from what I can see and understand, this is the most severe phase yet. He elaborated, the situation has deteriorated following three years of COVID-19 lockdowns. Our partners indicate an increase in Chinese shifting from the middle to the low-income bracket, while the wealthy are hoarding cash, fearful of converting it into ECNY, refers to digital yuan, due to concerns over surveillance and expropriation. They're looking to move money overseas and are cutting back on spending significantly. This surplus and the downturn in consumer mood mirror the psychological impacts described by economists for economies entering periods of deflation and recession. As prices, especially real estate, plummet, eroding one-third of their value, assets devalue swiftly, and confidence in future stability wanes, leading to decreased consumption and investment. Companies scale back production to avoid further losses as prices continue to drop. Moreover, China's deflationary period is driven by factors commonly cited in economic theories as below. 1. A prolonged surplus of goods. 2. Waning consumer and business confidence. 3. A spike in bad debts. 4. A long-speculated asset market bursting, notably in real estate, here refers to China real estate. These conditions have exacerbated the overreaction of Chinese consumers and businesses, worse than the situation in Japan in the 1990s. Government trust has plummeted following crackdowns on private enterprise, turning private assets public through shared prosperity initiatives or controlling them by integrating party branches within businesses. Interestingly, Mr. P.H. also highlighted that not only are the Chinese middle class and wealthy cutting back on spending, many of his contacts, primarily Chinese business people, prefer keeping cash at home over banks, prioritizing foreign currency and gold. They regard the digital yuan as a financial snare, a trap for their assets. The lingering question is, how will Chinese firms offload inventories that the domestic market cannot absorb? Their search for new markets and developed economies, battling for these export markets, appears to be the only survival strategy currently. Clearly, Vietnam is one of the primary prey for these excess inventories. E-commerce dominance in the domestic market. By the end of 2022, according to an article cited by Cafe F, a Vietnamese economic information channel, from Finance China, 80 billion parcels had been shipped both domestically and internationally within the first nine months of the year. This equates to one in every five Chinese individuals sending or receiving a package daily. On platforms like Taobao, Shopee, or Lazada, delivery times range from one to five days, and shipping rates start as low as 3 yuan, about 41 cents. Vietnam's consumer goods market is particularly vulnerable to Chinese e-commerce because of its ultra-competitive shipping costs and the low price of goods, a result of overproduction. Moreover, sophisticated and aggressive online advertising on platforms such as TikTok and Facebook have really defeated local products. The control of Vietnam's consumer market is likely to further deteriorate as Chinese businesspeople, possibly masked by investments from Singapore, Thailand, etc., could come to own local e-commerce platforms. Such control could lead to Vietnamese goods being effectively eradicated from the domestic marketplace if high discounts are offered on made-in-Vietnam products, further compounded by algorithms that favor Chinese goods, enhancing their visibility and accessibility to local consumers. Vietnamese enterprises are steadily losing their grip on the domestic market, especially as they currently lack protective tariffs and non-tariff barriers. Exploiting the export market through dirty FDI Foreign direct investment, FDI, is a crucial metric for gauging the growth potential of economies and a key component of investment, which in turn influences GDP growth. Good, clean FDI introduces new products, generates jobs, and facilitates technology transfer, laying the groundwork for future economic expansion. Conversely, dirty FDI, which neither imparts knowledge nor creates jobs and exploits fiscal and land concessions while undermining local exporters, has long been a concern. This type of dirty FDI from China into Vietnam is becoming increasingly sophisticated. Mr. P.H. explained to NTDVN that Chinese companies are thoroughly examining Vietnam's primary export industries, from wood processing to seafood and farming, areas where Vietnam excels. These companies adjust their product lines while making similar investments in Vietnam. Initially, using a Vietnamese Certificate of Origin, or CO, they employ predatory pricing tactics on exports. Unable to match these undercut prices, local businesses are driven to bankruptcy or forced to scale down. How can Chinese businesses so readily deploy predatory pricing on Vietnamese-made goods? Due to numerous multilateral and bilateral trade agreements Vietnam is involved in, importing countries accept a Vietnamese CO with only a 30% domestic value-added content requirement for most local products, per the Ministry of Industry and Trade. This threshold is markedly lower than in Switzerland, which stands at 60%, or the U.S. at 50%. This leniency has attracted FDI seeking to evade taxes and sidestep trade sanctions from China and those aiming to dominate Vietnam's export market through CO manipulation. With 70% of production processes and technologies based in China, Vietnamese products cannot compete on price. Moreover, China's surplus inventories allow its FDI companies in Vietnam to buy goods cheaply and on extended credit terms, undercutting prices to compete against both other foreign investors and local exporters. Here, the question is, can Vietnam halt dirty FDI? While theoretically numerous strategies exist to detect, validate, audit, and exclude dirty FDI, practically, it's a challenging task. Provinces contending with annual GDP growth objectives face significant hurdles. Political pressures and the terms of local leaders spur intense competition among regions for FDI capital, facilitating avenues for dirty FDI to permeate industrial zones across the country. Local authorities, as per Vietnamese law, hold the approval rights for most FDI initiatives. Ms. H., an economist, spoke to NTDVN and highlighted a significant gap. While local governments are empowered to handle FDI approvals, there is no comprehensive legal framework at the national level to weed out detrimental or unethical FDI, nor are there sufficient oversight, auditing, or accountability measures in place. Consequently, driven by growth targets and sometimes corruption, provinces continue to enthusiastically accept FDI without adequate evaluation. China's Poor CPI, Factory Gate Deflation Disappoint Analysts According to National Bureau of Statistics NBS data on April 11, China's Consumer Price Index, CPI, a main gauge of inflation, edged up 0.1 percent in March from a year earlier. This was compared to a 0.7 percent rise in February when it had climbed above zero for the first time in six months during the Chinese New Year holiday. Analysts polled by Reuters had hoped that the March CPI would rise at least 0.4 percent, year-on-year. The increase in inflation observed during the February holiday season, coupled with a resurgence in tourism, had sparked optimism that Chinese households were rekindling their inclination to spend. NBS data showed that on a monthly basis, however, the CPI went down 1 percent in March. China's Producer Pricing Index, PPI, which measures the costs of products at the factory gate, fell 2.8 percent year-on-year in March. NBS statistician Dongli Juan attributed the changes in CPI data to seasonal easing of consumer demand and generally sufficient market supply in the month after the spring festival. Analysts said that the persistence of easing consumer prices underscores the fact that deflationary risks still stalk the world's second-largest economy. According to Alicia Garcia-Herrero, the chief economist for Asia Pacific at the French investment bank Natixis, persistently low prices also imply that export prices will remain soft, which is another indication of industrial overcapacity across all sectors of China. Population data from 28 Chinese provinces show a deepening crisis. In 2023, 28 Chinese provinces released their population statistics, revealing a widespread decline in permanent residents and birth rates. The news made headlines on April 11, as analysts suggest these figures indicate profound, persistent issues. Out of the provinces that disclosed their data, only nine, including Zhejiang, Guangdong, Hainan, Shanghai, Jiangsu, Xinjiang, Guizhou, Beijing, and Tianjin, reported an increase in resident population. Birth data released by provinces such as Guangdong, Hunan, Shandong, and Sichuan show varying figures, with only Guangdong recording over a million births for the fourth consecutive year. However, most provinces have seen a drop in both births and birth rates, particularly Shandong, which experienced a reduction of 400,000 in its resident population in 2023 alone. Shandong's population has been decreasing since 2022, accelerating last year due to outmigration and a higher death rate than births. Similarly, Hunan reported a decrease of 200,000 permanent residents in 2023, continuing a trend that began in 2021. Hunan's recent data completes the picture for the central provinces, all of which show a significant decline, summing up to a loss of over 1.33 million. Most of the provinces are experiencing negative natural population growth. Migration trends indicate a movement towards economically thriving regions like the Yangtze River Delta and the Pearl River Delta, as well as from smaller towns to major cities within the provinces. The release of this population data has sparked extensive concern and debate. The migration patterns to more prosperous areas may appear positive but are symptomatic of broader issues such as regional imbalances and unsustainable development. This pattern highlights the lack of development in other regions, pushing populations towards a few flourishing areas and turning the rest into population deserts. The decline in birth rates further accentuates the challenges, as economic pressures deter young families from having children. High living costs, such as housing, education, and healthcare, are formidable barriers, impacting personal decisions and broader societal progress. The self-media blogger Don't Make a Trouble remarked that the population statistics released are more than mere numbers, they unveil underlying societal issues and challenges that provoke both anger and concern. The trends in population mobility and birth rates only scratch the surface. Our focus should be on encouraging equitable development across different regions, reducing childbirth costs, and enhancing the quality of life and happiness for the people. These steps are essential for genuinely sustainable social development. In 2023, China's population plunged by an alarming 2.08 million, highlighting a demographic trend. This sharp decline was driven by a significant drop in births, which decreased to 9.02 million, 540,000 fewer than the previous year, and a rise in deaths, which increased to 11.10 million, up by 690,000 from 2022. This dramatic fall in birth rates has ignited widespread concern across the mainland, as citizens grapple with the reality of an accelerating population shrinkage. Senior financial journalist De Liu described the situation starkly, China's population decline is like a house already ablaze, anxiety is now redundant. He argues that the population crisis has become an unsolvable problem due to its deeply entrenched cyclical nature. If China had relaxed its birth restrictions back in 2000, more than two decades ago, it might have avoided this predicament. However, the decision to allow families to have two children starting only in 2016 came too late. De Liu believes that regardless of any measures now implemented or discussions held, China's demographic slide is destined to continue for at least another 20 years with no relief or revival in sight. Fire breaks out in a 25-story residential building in Chongqing. At around 11.35am on April 11, a fierce fire broke out in a 25-story residential tower at Chongqing City Plaza, producing dense smoke and intense flames captured in online videos. The videographer exclaims, everyone above and below, run fast, oh my god. On the mainland internet, comments from the public reflected concern and fear. The blaze was extinguished by 1.10pm on the same day, marking a duration of over an hour and a half with no reported casualties. A local merchant informed Beijing Youth Daily that the fire erupted in an apartment on the 14th floor of the building, where she observed flames while positioned downstairs. The incident prompted the evacuation of both residents and businesses within the building to safer ground. The entire building has been sealed off, and commercial operations have been suspended. This incident is part of a worrying trend of frequent fires across mainland China. Recent tragic events include a deadly fire in a Guangxi supermarket that claimed a family of five, including a pregnant woman and a child, on April 8. Additionally, a fire beneath a tutoring center in Hefei, Anhui, on April 7, resulted in at least one death and 11 injuries, primarily among students. On April 4, a fire in a Dongguan nursing home led to at least three fatalities and 10 injuries, mostly affecting the elderly. Late March also saw multiple fires in Xiamen, Wuhan, and Yang, with one incident in Xiamen resulting in four deaths and one injury. Fujian enacts legislation allowing wives to check spouses' assets, sparking hot searches. Under CCP rule, as moral standards rapidly decline in traditional Chinese society, marital and family disputes are increasingly common. According to the paper, on April 11, the Fujian Provincial Women's Rights Protection Regulations were passed by the Fujian Provincial People's Congress Standing Committee and will be implemented from June 1. The regulations clearly allow women, with the required identification documents proving their marital status, to apply for information on their spouses' assets from the appropriate departments, which must not only accept these requests but also provide the necessary written documentation. The news rapidly gained traction online. Netizens commented, it should be mutual, not one-sided. Furthermore, there have also been local government regulations allowing one spouse to check the other's financial status with proper documentation. For instance, Jinan's municipal government issued several provisions on the protection of women's rights in January 2011, which state that one spouse, with the proper identification documents, can inquire about the other's property status at various administrative departments. These rules came into effect on May 1, 2011, without a specified expiration date. In 2012, Xiamen City in Guangdong Province also introduced regulations on the protection of women's rights, allowing one spouse to apply for information on the other's assets from designated departments, which must legally provide the information requested. However, such regulations have not fundamentally resolved substantial marital dispute cases in mainland China. In recent years, trends like registering children born out of wedlock and the controversial practices of keeping the child but not the father have become popular, with some even studying how to exploit these loopholes to gain assets through marriage and child custody systems. Essentially, the property gained by one spouse is often at the expense of the other. There was a case in Jiaxing, Zhejiang, where a woman, pregnant by her lover, deceived an honest man into believing he was the father and marrying her. After giving birth during the breastfeeding period, she requested a divorce. Later, the man was informed that he had been a mere stand-in, and the child was not his. Following legal mediation, the woman returned part of the dowry, minimizing the man's loss. The publication Vision Times has commented on why human nature has degraded to such an extent. If this state continues in mainland China, honest people will eventually be extinct, overwhelmed by outdated thinking patterns and modern, flawed marital systems. Don't forget to leave a comment in the section below to share your opinions on today's topic with us. Make sure to like and subscribe to see more interesting topics from China Truths.