President Joe Biden’s go to to Hanoi on September 10 inaugurated deeper ties throughout the board between the USA and Vietnam, however nowhere did the 2 nations have extra concrete successes to laud than within the semiconductor business. American chip executives appeared on as Biden announced AI tasks by Nvidia and Microsoft, new semiconductor design facilities in Ho Chi Minh Metropolis by Synopsys and Marvell, the October opening of a $1.6 billion Amkor chip packaging facility close to Hanoi, and a brand new U.S.-Vietnam chip partnership to “help resilient semiconductor provide chains.”
Many of those expansions proceed a development of American and different main chip corporations diversifying their provide chains away from China. Whereas Vietnamese leaders definitely acknowledge this development, it could be hasty to deem Vietnam as exploiting China-U.S. decoupling. It will even be hasty to color Vietnam as blindly doling out subsidies to draw no matter low-level manufacturing overseas chipmakers hope to outsource.
As Hanoi policymakers spend billions of {dollars} in subsidies to improve the nation’s economic system, they’re strategically constructing foundational provide chains and infrastructure. They hope that these foundational investments will facilitate Vietnam’s rise to larger worth chipmaking and past. Simply as Vietnam comes into its distinctive position in China-U.S. relations, the nation’s policymakers are additionally discerning the area of interest it would fill within the international semiconductor business.
Bouncing Again
Vietnam’s chip business dates to 1979, when the federal government established the Vietnam Semiconductor Z181 Factory. Spun off from a physics lab of Vietnam’s Army Technical Institute, this state-owned facility produced two product strains: 1) chip elements like transistors, diodes, and sensors; and a pair of) gear to fabricate semiconductor supplies.
Although comparatively behind in its technological capabilities, the Z181 Manufacturing facility was a microcosm of the Chilly Battle semiconductor race between the Soviet Union and the USA, greatest recounted in Chris Miller’s book “Chip War.” Its raison d’être was partly to supply gear and elements to Soviet amenities in Czechoslovakia and Poland between 1979 and 1989. Simply because the Chilly Battle led to Z181’s rise, nonetheless, it additionally spelled the manufacturing facility’s fall. The collapse of the Soviet Union and American economic sanctions minimize off Z181’s key clients, ending Vietnam’s first foray into the semiconductor business by the early Nineties.
After a two decade hole, Vietnam stepped again into the worldwide chip business, with FPT Semiconductor offering VLSI companies in 2014 and the Viettel IC Design Center opening in 2017. These two corporations, nonetheless, solely conduct design and manufacturing work for a limited set of telecommunications and medical system use-cases, and no combination of purely Vietnamese teams is but able to conceiving and producing a completed chip.
The rise of Vietnam’s digital business owes its success significantly to the over 30 foreign companies finishing up IC design, meeting, and testing within the nation. To Vietnamese policymakers’ concern, these overseas chipmakers have a hand in almost all of the semiconductors that enter completed Vietnamese electronics exports, a sector that accounts for one-third of the nation’s complete commerce quantity.
Biden’s go to to Hanoi underscored the uncomfortable actuality that overseas corporations maintain a lot of the keys to Vietnam’s chip business. From the USA, Intel is about to expand its already large chip meeting, testing, and packing (ATP) website. Amkor can even develop its present ATP facility, and Synopsys is shifting EDA design exercise from China to Vietnam. From South Korea, Samsung invested almost $1 billion in a semiconductor elements facility in 2022, and it plans to develop this Thai Nguyen province facility to provide completed chips by 2023. Lastly, dozens of Dutch suppliers to ASML have been courting Vietnam as a spot to shift manufacturing towards from China.
Many push and pull components have impressed the rise of overseas chipmaking in Vietnam. Following China’s harsh COVID-19 lockdowns and the worsening of China-U.S. relations, corporations more and more pursue “China plus one” methods that hope to diversify manufacturing to places like Vietnam which might be close to however politically separate from China. Overseas governments typically encourage this shift as a means of lowering nationwide reliance on Chinese language manufacturing; U.S. Treasury Secretary Janet Yellen’s suggestion that Vietnam may gain advantage from the CHIPS and Science Act’s $500 million international supply chain security fund is testomony to this. Lastly, the Vietnamese authorities has itself spent closely to draw overseas funding, however Hanoi policymakers wish to guarantee overseas corporations bolster Vietnam’s home technological capabilities.
Constructing Blocks
The largest problem Vietnam has needed to overcome over the previous decade is that it lacks semiconductor clusters. The largest worth of getting clusters of economic and tutorial amenities in a small geographic space is that newcomers can leverage present infrastructure and expertise, reasonably than expensively constructing a chip business from scratch.
As they got down to incentivize semiconductor and different expertise industries within the early 2010s, Vietnamese businesspeople and officers recognized that they have to first develop the “supporting industries” that manufacture supplies and elements for different completed items. Critically, officers view success within the chip business not as an finish in itself, however because the “help” for improvement of Vietnam’s electronics business writ massive. The nation’s leaders hope to observe the trail of different East Asian tigers in attracting decrease worth manufacturing with an eye fixed towards a complicated technological future.
After figuring out “digital microchips” as one of many nation’s 9 industrial priorities in 2010, Vietnam handed two main tax incentives for investments in high-technology industries in a 2015 decree. (As a baseline, Vietnam’s standard corporate income tax rate is 20 p.c, and property taxes vary from 0.03 p.c to 0.15 p.c.)
First, Vietnam affords a preferential company earnings tax price of 10 p.c for 15 years. This incentive applies to investments in each analysis and the development of amenities for top expertise fields, with semiconductors being a precedence business. It additionally seeks to decrease the price of financing for budding Vietnamese companies by permitting enterprise capital corporations investing in excessive expertise fields to qualify.
Second, Vietnam offers an exemption or discount of the property tax (land hire). Firms and analysis organizations that construct scientific analysis amenities are exempt from property taxes for his or her full land lease time period if the amenities are used for analysis, enterprise incubation, or prototyping.
Vietnam’s largest metropolis, Ho Chi Minh Metropolis, has an additional program the place it subsidizes half or the entire curiosity on loans for specific funding tasks. It should subsidize 50 p.c of the curiosity on R&D amenities for “help industries,” 70 p.c of the curiosity on primary manufacturing actions, and 85 p.c of the curiosity on expertise and superior gear purchases – for a complete of as much as $8.8 million per mission. This program helps serve the town’s Microchip Industry Development Program.
To encourage corporations to rent Vietnamese engineers, the standard value-added tax (VAT) of 10 p.c for companies is lowered to a 5 p.c VAT for scientific actions in high-technology fields, like semiconductors. Eligible actions range from analysis to expertise switch consulting and technical coaching.
Moreover, Vietnamese economists have lamented that at the same time as overseas high-tech funding grows, Vietnam solely captures a small share of worldwide expertise provide chains’ complete worth added. The nation’s leaders wish to improve their technical capability to seize a bigger share of the revenue from final products Vietnam produces for corporations like Samsung and Canon. To that finish, the Ministry of Business and Commerce encourages overseas corporations – particularly these receiving authorities subsidies – to arrange joint analysis applications with native establishments.
Shining examples of this are the chip design training agreement between Synopsys and Saigon Hello-Tech Park and Samsung and the Ministry of Business and Commerce’s domestic supplier development program. State-backed enterprise funds just like the National Technology Innovation Fund and the Vietnam-Korea IT Incubator additional serve Vietnam’s effort to transition towards larger worth contributions to international chip provide chains.
When growing economies interact in industrial coverage, they typically deploy import substitution applications to discourage imports that compete with dearer home alternate options. Whereas these insurance policies do help home suppliers of much less superior items, additionally they make larger worth downstream actions dearer.
Vietnamese policymakers acknowledged the adversarial downstream impact of import substitution, in addition to the truth that chipmakers in Vietnam need supplies and gear that home suppliers can not cost-efficiently present. Slightly than collapse to the impulse to guard their home enter suppliers, they’ve astutely prioritized decreasing the price of inputs for science and expertise enterprises. Particularly, under Clause 13, Article 16 of the Law on Export Tax and Import Tax, such corporations have a five-year exemption from import taxes on materialized, specialised gear, and scientific reference supplies for which there is no such thing as a viable home different.
A Sovereign Vietnam in a Multipolar World
As overseas chip corporations enhance their presence in Vietnam and the federal government itself subsidizes these newcomers, Hanoi is fulfilling a two-pronged, long-term technique: sustaining technological sovereignty and discovering its area of interest in international tech provide chains.
Despite the fact that Vietnam has opened its doorways to funding from the USA, South Korea, and different superior Western economies, the communist nation stays concerned that it may someday face U.S. trade restrictions just like these at the moment hindering Chinese language tech corporations. Although Vietnam maintains a sure ambivalence towards China, Hanoi policymakers wish to hedge their bets by lowering their reliance on imported chips for Vietnam’s electronics exports.
Vietnam can be conscious that it not solely has a nascent chip business however that it’s also at most a center energy on the worldwide stage. A senior official on the Ministry of Data and Communications acknowledged that Vietnam is unlikely to develop cutting-edge chips at a business scale like Taiwan or South Korea, so it ought to discover niches in supporting particular product strains like energy administration chips, analog chips for Web of Issues use instances, and system on a chip purposes. This form of technique is just like that of different center powers, like France, which acknowledge niches the place they are often globally aggressive with the assistance of modest industrial coverage.
Vietnam has a protracted method to turning into a complicated chip-making economic system, however its policymakers are well leveraging its geopolitical independence and overseas funding to construct the foundations for a technological powerhouse. It’s nicely price maintaining a tally of Vietnam usually, and its semiconductor business particularly, to see the way it rises within the multipolar world to come back.
