Investment frenzy
Xiao's company was among a host of Chinese manufacturers who were forced to move to Vietnam after the global financial crisis in 2008, when many firms were struggling with rising labor costs in China, appreciation of the yuan and a decline in export orders.
Compared to China, Southeast Asian countries like Vietnam and Myanmar have cheaper labor, electricity and raw materials. In the 1990s, the Vietnamese government also started offering preferential policies to attract foreign capital, such as tax exemptions for companies in industrial development parks across the country and zero import and export duties.
"Apart from the low costs, many Chinese firms set up factories in Vietnam as a strategic plan to diversify the location of their operations to combat rising trade protectionism from the US and European countries," said Wang Yiyong, manager of the Import-Export Department of Texhong Renze Textile Joint Stock Company (Vietnam).
The US and EU tend to levy steep anti-dumping and countervailing duties on imports from China to protect domestic manufacturers as their economy is facing a downturn, but operating in Vietnam can help Chinese manufacturers avoid the pressure of this protectionism, Wang said.
By 2010, China's direct investment in Vietnam reached $365 million, a surge of 74.3 percent year-on-year, data from the Foreign Investment Agency of the Ministry of Planning and Investment of Vietnam showed.
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