This article is reproduced from the author | Li Hanming
Vietnam's experience tells us that the epidemic will endanger the stability of the supply chain, and a country that cannot guarantee a stable supply chain cannot gain the trust of domestic and foreign customers and suppliers.
Two months since the beginning of this year, workers from all over Vietnam have risen to protest the harsh working environment. Inadequate salary, excessive overtime hours, insufficient nucleic acid test for is not frequent enough, and positive employees are not quarantined... All kinds of reasons have caused the working environment of Vietnamese employees to deteriorate sharply with the epidemic in Vietnam. It all started with the epidemic in Vietnam, which has put Vietnam's labor supply into a vicious cycle and is damaging the country's new manufacturing industry.
If you look at Vietnam's GDP and total trade volume, you will find that Vietnam is an active outward economy. In 2020, Vietnam achieved a GDP of US$271.2 billion (growth of 2.91%), but the total import and export was US$543.9 billion (growth of 5.1%), exports were US$281.5 billion (6.5%), and imports were US$262.4 billion (3.6%); in 2021, Vietnam's GDP increased by 2.58%, but the total import and export volume increased by 22.6% (668.5 billion), exports were US$336.25 billion (19%), and imports were US$332.25 billion (26.5%).
divides the total import and export trade by the GDP and gets an indicator called " Foreign Trade Dependence ". China's foreign trade dependence is generally between 30% and 40% (for example, GDP in 2021 is 114 trillion yuan, and the total import and export trade volume is 39 trillion yuan, and the dependence is about 34%). According to this method, Vietnam's foreign trade dependence is 200% - a very high number among countries with a population similar to it.
This reflects that the Vietnamese economy is based on "import, processing, and export". By attracting overseas investors to establish processing plants in Vietnam (in 2021, foreign-invested enterprises accounted for 73.6% of Vietnam's exports), import raw materials from overseas (production materials accounted for 93.5%), use local labor to process (processing industrial products accounted for 89.2% of exports), and then export finished products overseas, Vietnam has begun to accumulate its own economic foundation.
can also see the characteristics of Vietnam's processing trade from the trade objects and trade categories. In terms of trade objects, China is Vietnam's largest trade deficit, followed by Japan, South Korea and ASEAN countries; the United States is Vietnam's largest trade surplus, followed by EU and the United Kingdom. It can be said that Vietnam is the last link in Asia on the chain of “Made in Asia, European and American consumption”. In terms of trade categories, Vietnam's export trade categories are relatively single: in 2021, there are 35 categories of goods with exports exceeding US$1 billion, accounting for 93.8% of the total exports; in total, there are 8 categories of exports with exports exceeding US$10 billion, accounting for 69.7%.
The characteristics of Vietnam's large incoming and outgoing make Vietnam need to maintain a highly stable and predictable delivery rhythm. Considering the shipping schedule from Vietnam to European and American destinations, exported goods need to be completed three weeks before waiting to be loaded. This makes foreign customers generally schedule production orders about six to eight weeks in advance - if there is a problem with the production line within these two months, the customer's solution is very limited: either switch to expensive air cargo or seek other manufacturers.
Like China, Vietnamese leaders know this truth well in front of new crown . This makes Vietnam in 2020 very peaceful. Except for the three weeks in late July and early August, the number of confirmed cases in Vietnam each week was around dozens of times. Considering the existence of an imported epidemic, Vietnam has been "cleared" during this period.
Under the background of "clearing" the economy of Vietnam remained generally stable. Vietnam's manufacturing industry recorded good results in 2020 - exports grew by 6.5% (US$281.5 billion), imports grew by 3.6% (US$262.4 billion), and total industrial output value increased by 3.4%. Although Vietnam's tourism and services suffered huge losses like other countries in the world, Vietnam recorded 2.91% economic growth in 2020, maintaining positive growth amid the recession of a large number of countries.
positive growth also means stabilizing employment for Vietnam - the Vietnamese State Administration of Statistics has counted that the underemployment rate of Vietnam's employed labor in 2020 was 2.4%, which is a good number considering the seasonal unemployment of agriculture.
The economic situation in Vietnam looks very good in 2020. With the signing of RCEP, everyone is full of expectations for Vietnam's economic growth in 2021. Both Vietnamese government and international organizations predict that Vietnam's GDP growth in 2021 will return to the 7% range in 2019. In fact, Vietnam is indeed back on track: GDP grew by 4.72% in the first quarter of 2021 and 6.73% in the second quarter. However, starting from the second quarter of 2021, the raging Delta strain in Vietnam has changed the situation.
In previous articles, I mentioned that the labor-intensive processing industry has a characteristic - it takes up all the "three secrets" that need to be avoided in epidemic prevention and control (confined space, dense population, close contact). In order to ensure the working environment of constant temperature and humidity in the factory, it is generally closed all year round and uses air conditioners to regulate air quality; in order to maximize the use of factory land resources, workers have a relatively high "population density" in the factory; at the same time, if workers do not receive sufficient supply of masks, they are prone to close contact. This makes the processing industry very susceptible to the impact of the epidemic, and there are often super-transmission phenomena - the important manufacturing centers of Suzhou , Xiamen , Dongguan on the southeastern coast of China, and have experienced many experiences of a single factory being affected by "super-transmission".
Vietnam is naturally no exception. In May 2021, the Delta strain infected more than 1,000 people per week in Vietnam; in July, the number of people per week infecting more than 1,000 people per week. Among the infections, factory workers are the majority. Under the severe epidemic, the epidemic has forced the city of big cities such as Ho Chi Minh City and Hanoi to be "locked". During the lockdown period, in order to ensure epidemic prevention safety, factories need to reduce the "population density", which greatly reduces the number of available labor.
These factors were ultimately reflected in Vietnam's GDP, which fell by 6.02% in the third quarter of 2021 and a surge of 5.32 million (from 2.62% in the second quarter to 3.98% in the third quarter).
After spending the chaos of 70,000 confirmed cases every week in the third quarter, Vietnam finally controlled the epidemic to a level of 20,000 cases per week in October. After the chaos, the Vietnamese government began to lift the isolation measures for workers, while enterprises hoped that they could return to production at stations. This kind of hope is very normal: there are still six weeks, which is Thanksgiving; ten weeks, which is Christmas . European and American consumers have high demand for various consumer goods during this period, but suppliers do not want to miss such a profit-making opportunity.
But things were obviously not going well. The workers did not want to return to the station, but began to leave the factory collectively and return to their hometowns to farm, "voluntarily unemployed." According to statistics from the Ho Chi Minh City Industrial Zone Management Committee, the number of people in the Ho Chi Minh City Industrial Zone has dropped from 290,000 before the epidemic to 140,000 in early October - a full half of them. There may be a 2 million abortion in Ho Chi Minh City.
is very easy to understand. During the three months of quarantine, workers have a full understanding of the risk of contracting the new coronavirus in factory life: no one wants to earn wages without medical insurance without medical insurance. Therefore, the strange phenomenon of structural unemployment in Vietnam society was temporarily: on the one hand, the unemployment rate was increased due to statistical feedback, and on the other hand, the labor tension reflected by factories.
In addition, workers returning home on a large scale have caused a side effect - some of the positives have brought the virus to the countryside. Therefore, starting from November, Vietnam's cases reached a new high. In late November, Vietnam's new confirmed cases exceeded its peak in August, and the efforts to "unlock down" can be said to be a failure.
This situation has caused foreign customers to fall to the bottom of their confidence in Vietnam manufacturing and began to transfer orders. As the peak demand season approaches, the reputation of ensuring timely delivery is far more important than the price - so customers start to complain about Vietnam while placing orders from markets with more stable supply.For example, Adidas complained that it lost $600 million in sales due to the shutdown of its Vietnam factory; some CEOs also complained that "the Vietnam supply chain that it established in six years collapsed in six days."
In this series of contexts, Vietnam's GDP grew by only 2.51% in 2021 - far below the government's expectations of 6%. The dissatisfaction of
retail brand customers with Vietnam has put suppliers under pressure to lose orders. In order to avoid orders and customer churn in the context of employee churn, the factory needs to arrange for the remaining employees to work overtime to produce; and the decline in cash flow of and profits caused by order churn brings pressure on the factory to pay employee wages. With the addition of the two, the working environment of Vietnamese workers began to deteriorate. The deteriorating working environment of
makes workers less willing to go back to work. In the two months since 2022, workers across Vietnam have gathered 28 times, complaining about the harsh working environment in the factories and asking for a raise. This puts Vietnamese business owners’ efforts to resume production in a stalemate - it is foreseeable that the Vietnamese economy will face a rather difficult start under the epidemic in 2022.
