Increasing machinery imports signal strong investment

Increasing machinery imports signal strong investment

A significant jump in machinery and equipment imports in the first months of the year shows businesses are picking up the pace of modernising production facilities.

In recent years, Vietnam has principally imported machinery and equipment from China, the Republic of Korea (RoK), Japan, Taiwan, and Germany, with China topping the list of suppliers.

High demand from FDI businesses

Vietnam Customs statistics show in the first 7 months of the year, machinery and equipment imports from China reached US$4.38 billion, Japan (US$2 billion), the RoK (US$1.73 billion), Taiwan (US$808 million), Germany (US$652 million), the US (US$483.5 million), Italy (US$227 million), Malaysia (US$245 million), Singapore (US$176 million) and Thailand (US$359 million).

Import values from these countries have been on a steady but gradually uptrend. For instance, imports from China alone experience growth of more than US$1 billion on-year.

Increasing imports of machinery and equipment are directly attributable to a concurrent rise in demand for technological renovation of domestic businesses and a corollary accretion of foreign direct investment (FDI) inflow into Vietnam.

The Ministry of Planning and Investment (MoPI) reports in the first eight months of the year, the RoK ranked first among foreign investors in Vietnam with total registered capital of US$3.22 billion, accounting for 31.5% of total foreign capital into the country, following by Japan with US$1.27 billion (comprising 12.5%).

The movement to install advanced technologies in all stages of production across all sectors has also driven machinery and equipment imports up. Currently, import markets for both new and used machinery and equipment have expanded.

On the one hand, new technological products generally have preeminent features such as energy saving, smaller and improved automation, but on the other hand are more costly than used equipment.

In emerging countries, businesses tend to choose second-hand machinery and equipment as the increased cost of the brand-new doesn’t outweigh the benefits.

Precautions warned

Businesses must be cautious when importing second-hand equipment. Imports are bound by regulations and in particular environmental regulations. Legal guidelines on importing second-hand equipment are being promulgated, so importers should exercise due caution.

Nguyen Chien Thang, Director of the Scansia Pacific Company, says China manufactures machinery and equipment for the timber processing sector. Compared to developed countries, it is closer to Vietnam in proximity so maintenance, repair and replacement services can be done more quickly.

This is one of the advantageous factors domestic businesses often choose Chinese partners as main suppliers, Thang says.

Local businesses have many choices. In addition to acquiring new machinery and equipment from regional suppliers, they can optionally import equipment purchased, oftentimes at bargain basement prices, from businesses in other countries that are going out of business and closing their doors.

A case in point is the situation in Italy. There are now huge imports coming into Vietnam from Italy. Due to economic difficulties, many Italian businesses are closing and there are exceptional deals on equipment as a result.

One of the complaints lodged against domestic machinery and equipment is that it has a high price and the quality is not consistent. Thus most domestic businesses are choosing to import machines and equipment, instead of purchasing locally.

Do Phuoc Tong, Vice President of the Ho Chi Minh City Association of Mechanical Engineering, says most local mechanical engineering businesses are small and medium in scale.

The lower quality in domestic machinery and equipment results from the fact the local engineering firms have insufficient funds to invest in newer technology, Tong says.

Compounding the problem for domestic engineering is that materials, components, and tools for mechanical engineering production are subject to higher Vietnam import taxes, making it impractical if not impossible for them to effectively compete.

vietnamnet