VIETNAM–CHINA Tension: Politics, Protest and the Property Market

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It’s All About Confidence, Grab your Chance!

May 22, 2014

SUMMARY: On May 1st, China deployed the Haiyang Shiyou-981 offshore drilling rig in the East Vietnam Sea, in a location 70 miles inside Vietnam’s Exclusive Economic Zone. Since that date, China has sent a number of military ships and aircraft to guard the rig. Chinese ships have rammed or fired water cannons at Vietnamese vessels tasked with requiring them to leave Vietnam’s waters. On the mainland, many Vietnamese have peacefully marched to object to the deployment of the oil rig. However some people have taken advantage of peaceful marches to incite protesters to riot, cause public disorder and instability in Binh Duong, Dong Nai and especially in the central province of Ha Tinh where the Taiwanese Formosa Steel Plant was heavily attacked. A number of foreign factoriesweredamagedandhadtoshutdowntemporarilyduetothe riots.

The escalating tension with China caused the biggest retreat in the Vietnam stock market since 2001, with the VN-Index plunging 9% sincethebeginningofMay.

Vietnam has long been renowned as a safe investment destination, now that reputation is under threat. We have seen foreign developers, owners, investors and occupiers becoming more cautious, with some of them adopting a wait-and-see approach. The fact that some property investors from China, Hong Kong and Singapore have become reluctant to visit Vietnam as planned exemplifies this trend. While some foreign investors view the protests as potentially catastrophic, most regard this as a temporary issue which will soon be resolved. Strong fundamentals helped save the Vietnam property market in 2013. The question now is: what will happen to Vietnam’s property market for the rest of 2014 and which sector might be impacted the most due to the chaos?


Businesses in the supply chain were the first to feel the impact of riots and mob violence as Vietnam has become a crucial link in the global supply chain. Anti-China demonstrators ransacked scores of factories in various industrial parks in the Southern Key Economic Region, where a number of well-known spare parts manufacturers are located. However, no major disruption to the supply chain has been reported so far though some companies are closing plants temporarily to protect their workers. Foxconn, the Taiwanese electronics manufacturer which produces iPhones and iPads for Apple, halted work for three days as a precaution. Yue Yuen, the world’s biggest sports-shoe maker which supplies Nike and Adidas, also shut-down operations. However, these shut-downs are short-term and disruption costs are likely to be minimal.

With almost all factories in industrial parks having already resumed operations, it is believed that there will be limited impact on Vietnam’s ability to provide components and manufactured goods for global consumers.


Chinese tourists comprise the largest proportion of foreign tourist arrivals in Viet Nam, accounting for about 25% of total arrivals. Last year, Viet Nam received 7.57 million foreign tourists, 1.9 million of whom were from China. Since May 1st , when China illegally deployed the oil rig in Vietnam’s waters, the number of visitors from China has fallen significantly.
VNAT forecasts that there will be fewer Chinese arrivals to Vietnam via land borders from June onwards, which is likely to cause a significant loss in tourism revenue from Chinese tourist spending. Tourists from other countries, especially from Chinese-speaking markets like Singapore, Taiwan, Macau and Hong Kong are also concerned about visiting Viet Nam. A number of chartered flights from Hong Kong, and Macau to Da Nang, a central coastal city in Vietnam, may be cancelled.

It is also reported that a number of Chinese nationals have fled to Cambodia from Vietnam via the Bavet International checkpoint and are staying at guest-houses and hotels in Phnom Penh and Bavet town.

VNAT has been quick to confirm that it will apply all necessary measures to prevent aggressive, discriminative and unfair treatment of Chinese tourists. VNAT has affirmed that so far, ongoing tensions in the East Sea have had no reported negative effect on Vietnam’s tourism activities on land and in coastal areas.

The Vietnam tourism industry has endured a great deal over the past ten years or so. We have made it through the crisis in 1998, SARS and bird flu in 2003 and another financial crisis in 2008-2009. However, we may see a tough year in 2014. The tourism sector’s target this year is 8.3 million foreign visitors, but given that Chinese tourists account for about 25% of the total, this may be difficult to achieve.


While we believe that small-scale protests of short duration will not have a significant impact on FDI inflow to Vietnam, the riots have created a lack of confidence in the country’s ability to foresee and manage crises. Overseas firms have chosen to invest in Vietnam because they count on the stability that the government ensures. For this reason, foreign investors, especially those from China, Taiwan, Hong Kong and Singapore, are likely to hold on to their money until they are certain of a completely secure environment.

Earlier this year we forecast a possible surge in real estate investment from mainland China and Taiwan to Vietnam in 2014. This is unlikely to happen following the protests. This is particularly frustrating as the real estate market, especially the residential sector, have experienced healthy growth over the past six to twelve months. Prior to the current tension, a number of foreign visitors have returned to Vietnam, considering the residential market as a potential investment sector.

Most of them will now apply a wait-and-see approach.
Forward-thinking real estate investors, however, will see the current issues as purely temporary and those looking to buy in prime locations will continue to include Vietnam in their long term investment plans.
Investors say that they are closely monitoring developments and have put in place contingency plans to get employees to work and supplies into the country if protests escalate.


Investors’ belief in Vietnam’s real estate market appear to be bruised by the protests, but the total effect will depend on how quickly order is restored. If the Vietnamese government can get a grip on the riots soon, the impact on the Vietnamese economy is likely to be limited. Only a small proportion of Vietnam’s thousands of factories have been hit so far and many of the international manufacturers are covered by insurance. On May 20, The Vietnamese Prime Minister Nguyen Tan Dung ordered officials throughout the government to crack down on further riots, punish participants and protect employees and facilities at the foreign businesses that have been attacked. He also offered taxation support for affected companies. Also on May 23, the first two men of more than 700 people accused of sabotaging and looting were sentenced from one to three years.

If the violence spreads further, foreign investors will doubtless have to increase the political risk element in their investment calculations for Vietnam. But there is a distinct lack of other attractive options for investors in Asia, with nearby Thailand in the midst of a military coup and facing an uncertain future. Indonesia has been suggested as a promising destination, but wages in the archipelago have gone up considerably. Cambodia’s average wages are also rising and Myanmar lacks the infrastructure to bring in large scale factories.

We remain positive and upbeat about the market outlook. The fundamental features of the economy have not changed: economic production improved in the second quarter of 2014, inflation remains at a 10-year low and the Vietnamese dong has been the most stable currency in Asia for 2 years. The ongoing restructure of the banking sector and a resumption of the privatisation process will further drive investment and development.

Looking forward, let’s all hope that there will be no further turmoil so that Vietnam can re-assert itself with foreign investors with the real estate industry doing great business as usual. This will be a temporary setback for the Vietnam real estate market which the country will move beyond in six months or less.

Global Research and Consulting
This report was prepared by CBRE Vietnam Research Team, which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe.


All materials presented in this report, unless specifically indicated otherwise, is under copyright and proprietary to CBRE. Information contained herein, including projections, has been obtained from materials and sources believed to be reliable at the date of publication. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. Readers are responsible for independently assessing the relevance, accuracy, completeness and currency of the information of this publication. This report is presented for information purposes only, exclusively for CBRE clients and professionals, and is not to be used or considered as an offer or the solicitation of an offer to sell or buy or subscribe for securities or other financial instruments. All rights to the material are reserved and none of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party without prior express written permission of CBRE. Any unauthorised publication or redistribution of CBRE research reports is prohibited. CBRE will not be liable for any loss, damage, cost or expense incurred or arising by reason of any person using or relying on information in this publication.

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