BAC NINH, Vietnam (AP) — The transformation of Bac Ninh, Vietnam, is evident in the signs above shops and the spicy Chinese and Korean dishes on the tables.
The city north of Hanoi, once known for its rice paddies and love duets of ancient Guan Hoa folk songs, has become one of Vietnam’s busiest factory districts, reflecting an investment surge accelerated by President Donald Trump’s tariff hikes that is reshaping the region.
Vietnam’s economy has benefited from friction between Washington and Beijing as factories moved out of China, joining an earlier wave of foreign investment from Japan and South Korea that turned Vietnam into a global manufacturing hub. But rising labor costs, worker shortages and inadequate infrastructure have exposed the limits of its rapid growth.
Vietnam is trying to maintain the momentum by moving into higher-value manufacturing and expanding export markets as rivals such as Indonesia and the Philippines compete fiercely for new projects. Such efforts are evident in Bac Ninh province.
Vietnam is building more production capacity
Traditionally a hub for craftsmen, Bac Ninh’s first boom began around 2008, when Samsung built its first mobile phone factory there, turning Vietnam into its largest offshore manufacturing base.
Now, Chinese companies are flocking to diversify their factory locations to circumvent U.S. tariffs and other trade restrictions. After Hanoi and Beijing normalized relations in the 1990s, inflows of Chinese investment began to increase as Chinese companies in Bac Ninh and other places took advantage of Vietnam’s electronics supply chain, labor force and local government support, often with the help of Chinese-speaking intermediaries to smooth paperwork and logistics.
But Vietnam is too small to replace China’s status as the world’s factory, which is 40 times the size of its economy. To keep up, Chinese leaders are building new infrastructure, including a highway to the Chinese border that cuts travel time by more than an hour. A railway will connect Hanoi to Haiphong, Vietnam’s largest seaport, and then to the border town of Lao Cai.
On December 19, the expansion project of the high-tech manufacturing industrial zone for electronics, pharmaceuticals, clean energy, etc. in Bac Ninh Province broke ground. It’s part of a synchronized nationwide push that will see Vietnam launch 234 major projects worth more than $129 billion in the weeks ahead of a crucial national party congress in January, where leaders will decide the country’s political leadership and economic direction.
The collision between Chinese factors and reality
In downtown Bac Ninh, a convenience store is named “Tmall” after Alibaba’s flagship online marketplace. Chinese signage serves investor promotion. Sino-Vietnamese language schools have been opened to help locals and Chinese learn each other’s languages.
But as Chinese companies compete for the best labor and other resources, the costs of the “China plus one” strategy of moving factories elsewhere, such as Apple’s move to India, are rising.
“It’s becoming increasingly difficult to recruit workers,” said Peng, who works for a telecommunications equipment company that moved from Shenzhen, China’s southern technology hub. He gave only one name because he was not authorized to speak to the media.
Labor costs have risen 10% to 15% since 2024, he said, “and we expect they will continue to rise.”
Jacob Rothman, co-founder and CEO of China-based Velong Enterprises, said Vietnam still needs technology, equipment and expertise from China, which has created “the best manufacturing ecosystem.” The company makes barbecue tools and kitchen utensils and has moved some production to Southeast Asian countries such as Cambodia and Vietnam.
Rothman said China’s supply chains and manufacturers have benefited from decades of government support, massive investment and a large population. “You can’t recreate it overnight.”
Brian Bourke, global chief commercial officer of US-based SEKO Logistics, said that although footwear, furniture and technology factories are still moving to Vietnam, Vietnam lags behind China in terms of infrastructure and logistics capabilities.
Emerging cities such as Bac Ninh are facing some restrictions, and companies there are trying to lure workers with higher wages and bonuses, a box of instant noodles on the first day and bus fare to commute from another city, state media reported.
Vietnam faces competition from neighboring countries
Few countries have benefited more from Trump’s trade war than Vietnam, whose largest export market remains the United States. In 2024, Vietnam’s surplus with the United States will be US$123.5 billion, ranking third after China and Mexico. This angered Trump, who threatened to impose a 46% import tax on Vietnamese goods, but ultimately decided to impose a 20% import tax.
The two countries are still trying to reach an agreement to keep most tariffs at 20%. The White House said in October that Vietnam offers broad preferential access to U.S. products. So far, China has basically digested the tariffs, with a trade surplus of US$121.6 billion from January to November 2025.
Trump and Chinese leader Xi Jinping agreed to a one-year trade truce in October and lowered average tariffs on Chinese imports to about 47%, which helped ease some concerns. But Frederic Neumann, chief Asia economist at HSBC, said ongoing uncertainty over tariffs and other trade restrictions means companies are not only trying to move factories out of China but also spread them across multiple countries.
Even if the U.S. imposes lower tariffs on China, it still tends to shift to Southeast Asia, where manufacturing inefficiencies only increase costs by about 10%. But while large companies can easily shift production, smaller companies may struggle to equip new factories with expensive equipment.
“The race to move out of China is still on and accelerating,” Rothman said.
Vietnam continues to attract ample foreign investment. As of September, cumulative foreign investment exceeded US$28.5 billion, an increase of 15% over last year. But scrutiny of Vietnam’s role as a transit hub for tax avoidance has some manufacturers hedging their bets.
Bourke said one SEKO Logistics client had moved some furniture production to India and did not want to “put all its eggs in Vietnam.”
Countries such as Indonesia and the Philippines missed out on Vietnam’s early gains and are promoting themselves as alternative manufacturing bases. In the Philippines, a new law allows foreign investors to lease private land for up to 99 years in a bid to attract long-term commercial and industrial investment.
Vietnam is an “economic tiger”
Vietnam aims to become rich by 2045. It aims to become Asia’s next “economic tiger”, following export giants such as South Korea and Taiwan in shifting from low-cost assembly work to manufacturing high-value products such as electronics and clean energy equipment.
It offers incentives such as tax breaks on imported machinery and rental discounts to help factory suppliers upgrade and modernize. About one-third of companies still use non-automated equipment, and only about 10% use robots on their production lines.
The country is also trying to reduce its dependence on the U.S. market by expanding exports to the Middle East, Latin America, Africa and India. Overseas trade offices are asked to share market intelligence and promote products made in Vietnam.
Vietnam knows that rising costs and tougher competition will test how far it — and places like Bac Ninh — can go. Vietnamese Prime Minister Pham Minh Chih announced hundreds of projects last December and raised the stakes: Vietnam must “go deep into the ocean, deep underground, and soar into space.”
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Chan reported from Hong Kong. Associated Press researcher Yu Bing in Beijing wrote.
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