South China Sea Turmoil May Disrupt Global Supply Chain

(5/14/2014) The tension between China and Vietnam spread to interrupt the production of some Chinese and Taiwanese business in Vietnam. It started from a Chinese state-owned oil company decided to drill in the disputed area in the South China Sea, which were followed by some water canon fights between Chinese's ships and Vietnam's vessels.

While two governments still cannot find a solution for these political disputes,  the boiling anti-China emotions in Vietnam have triggered groups of mobs in several cities encompassing several factories owned by Chinese and Taiwanese and damaged the facility. Vietnamese mob may not differentiate the difference between Taiwanese and Chinese, or they don't even care.  According to a report from Taiwan, thousands of Taiwanese workers, factory managers and business owners fled away from Vietnam or tried to find places to hide in Vietnam until the turmoils are over. A Taiwanese bicycle maker has more than 1 millions of finished or unfinished bicycles burned on site. The facility damage is estimated to be more than $300 millions USD and the disrupted production will cost another $1.3 millions USD to the firm. Vietnam is seen as another perfect destination for international business to find a cheaper off-shore production base as the production and labor cost in China keeps rising. Now the social turmoils and anti-Chinese emotions are brewing in Vietnam. The violent way that Vietnamese choose to demonstrate their anger will not only discourage Chinese and Taiwanese investors. Many foreign business will think twice before they pour in more money into this country.

Will the global supply chain be further disturbed by the conflict between China and Vietnam? Let's pray. Financial Times has an  analysis on Vietnam's riot and global supply chain (5/21/2014). Several suppliers of Apple, Nike and Adidas were forced to shut down for several days. If the Vietnam cannot restore the trust of foreign investors and buyers, the global supply chain will need some time to adjust and change its supply chain.

Here is an in-depth analysis (in Chinese 只有中文) about this riot in Vietnam. It says there are many investments from China and Taiwan in Vietnam in recent years. Though these investments provide job opportunities to Vietnamese, it also has a deep inequality reflecting the foreigners (Chinese or Taiwanese) are taking advantages of Vietnamese. For example, the executive level administrator in these factories are always Taiwanese or Chinese. To some level, this arrangement is more acceptable and understandable. However, for the mid-level skilled workers, these foreign investment almost only uses Chinese workers via special working VISA (not Taiwanese because the wage is higher than Chinese). So Vietnamese can only get low-pay jobs without opportunity of being promoted even though some of them might be qualified. Here is another example. In an electricity power plant, which is contracted to a Chinese contractor, the contractor 'imports' many Chinese 'experts or technicians' with specialized working VISA for the purpose of management and communications. These Chinese workers are not more qualified than the Vietnamese, but they have better pay checks by abusing the system. All these management styles and 'mis-practices' add more 'fuels' on the anti-Chinese emotions.

Source: http://udn.com/NEWS/NATIONAL/NATS6/8676937.shtml

Source: http://udn.com/NEWS/NATIONAL/NATS6/8676952.shtml