Market Report: Japanese Investments in Vietnam

As of 11M2021, Japan remains Vietnam’s second-largest foreign investor by cumulative foreign direct investment (FDI), mainly in the industrial/manufacturing, power, and real estate sectors. Vietnam remains an attractive investment destination for Japan, given its access to the South China Sea (one of Japan’s most important maritime lanes), affordable and trained labour force, relative economic and social stability, and strong political relationship with Japan. Notably, Japan’s average FDI to Vietnam per project is USD 13.4 million (vs Vietnam’s average FDI per project of USD 11.8 million).

The US-China trade tension and continuing COVID-19 lockdowns in China also made Vietnam one of the benefactors of the “China +1” strategy. As China faces continuous COVID-19 lockdowns and escalating trade tension with the US, many Japanese companies have begun moving out of the country to diversify their supply chain to SEA.

According to JETRO, Japanese businesses have seen an improvement in business conditions and have become more optimistic about their future in the country.  The proportion of Japanese enterprises in Vietnam registering a profit in 2021 was up 4.7 percentage points YoY; 56.2% of Japanese enterprises in Vietnam forecasted an increase in operating profit for 2022 (vs 2021), compared to just 31.4% in the previous year; and 55.3% of Japanese enterprises in Vietnam planned to further expand their business over 2022–24     (+8.5 percentage points YoY)

Japan has invested in many Vietnamese sectors, such as education, health, natural resources and energy, urban and rural development, and climate change. JICA is a key backer of the country’s most prominent overseas development assistance (ODA) infrastructure projects. Japan is also an active investor in the Vietnamese startup ecosystem, ranking 6th amongst the largest foreign investors in the space since 2008.