Introduction | The “China Plus One” strategy refers to the practice of maintaining business operations in China while relocating part of a company’s production capacity to other countries in order to reduce dependence on a single manufacturing base. First proposed by Japan in the early 21st century, the strategy gained momentum after the US–China trade war began in 2018 and accelerated further following the COVID-19 pandemic. Vietnam, India, Malaysia, Thailand, Cambodia and other countries in Southeast and South Asia became the main recipients of this industrial relocation.

The shift initially focused on labour-intensive industries such as textiles and furniture, but has gradually expanded into electronics, solar energy and automobiles.

New variables emerging in 2026 are rewriting the cost calculations behind the strategy. “China Plus One” has evolved from a 1.0 model centred on outsourcing the final stages of production into a 2.0 model involving the construction of complete overseas industrial chains.

Beginning today, we are launching a new series, “Winners of the China Plus One Strategy,” examining the countries and regions that have benefited from this structural transformation and the different roles they now play in a changing global division of labour.

Vietnam: The Biggest Winner Faces Growing Pains

By Wan Ge in Tokyo

Vietnam delivered a set of economic results in the first half of 2026 that drew envy from across Southeast Asia.

Gross domestic product expanded by 8.18%, the fastest first-half growth rate since 2011. Industrial value added rose by 9.86%, while manufacturing and processing grew by 10.23%. Total merchandise trade reached US$549.69 billion, up 27.1% year on year. Disbursed foreign direct investment increased by 11.2% to US$13.03 billion.

The World Bank, International Monetary Fund and Asian Development Bank all expressed confidence in Vietnam, describing it as “one of Asia’s best-performing economies.” Malaysian economist Shan Saeed went further, arguing that Vietnam is evolving from “a beneficiary of supply-chain relocation” into “a highly attractive long-term destination for manufacturing investment.”

The figures are difficult to dispute. Vietnam has emerged as the clearest and most comprehensive beneficiary of the “China Plus One” strategy.

Why Is Vietnam the Biggest Winner?

Vietnam has gained from the relocation of manufacturing capacity on three levels.

First, It Moved Early

Vietnam was among the first countries to absorb the initial wave of “Plus One” production capacity.

Samsung was one of the earliest multinational companies to establish a large-scale presence in the country. As its mobile-phone production lines in Tianjin and Shenzhen were gradually closed, more manufacturing was concentrated in northern Vietnam. Samsung has now invested more than US$22.4 billion in the country, establishing eight production facilities and a research and development centre.

Samsung’s early move triggered the relocation of an entire supply chain linked to China. Foxconn, LG, Luxshare Precision and Goertek—companies that had originally supported Samsung and Apple from manufacturing bases in China—subsequently expanded into Vietnam.

From finished devices to components, a relatively complete electronics manufacturing chain began to take shape in northern Vietnam.

Vietnam’s early advantage lies in having secured a head start during the first wave of the “China Plus One” strategy.

Second, It Built a More Complete Ecosystem

Vietnam is no longer merely an assembly workshop for “China Plus One.” It is becoming an ecosystem capable of accommodating a broader range of production activities.

The country has developed increasingly complete industrial chains in electronics, textiles and solar energy. Northern Vietnam has become a major global centre for consumer-electronics manufacturing, with an ecosystem that extends from multinational brands to a wide range of suppliers.

Between January and May 2026, exports of electronics, computers and components reached nearly US$56.2 billion, while exports of mobile phones and related components totalled US$26.37 billion. Electronics are playing an increasingly important stabilising role in Vietnam’s foreign trade.

The significance of this more complete ecosystem is that industrial relocation to Vietnam is no longer simply a matter of moving factories. It increasingly involves replicating entire supply networks.

Vietnam is becoming a new industrial node in the regional economy.

Third, It Is Moving Deeper into Higher-Value Production

Vietnam is now absorbing more valuable parts of the “China Plus One” strategy.

In the past, the “Plus One” component mainly involved relocating low-end assembly work. That is no longer the whole picture.

More than 300 Chinese listed companies have invested in manufacturing facilities in Vietnam, covering electronics, textiles, automobiles, household appliances and other industries.

Haier produces air conditioners and refrigerators in Vietnam. Hisense is expanding television capacity, Midea has established air-conditioner production lines, and TCL has incorporated Vietnam into its global television manufacturing network.

Sunwoda has invested in mobile-phone and laptop battery production in Bac Giang Province. Luxshare Precision has established a large-scale presence in the same province and is deeply integrated into Apple’s supply chain. Highpower Technology is building a lithium-battery plant in Hai Phong and announced an additional RMB760 million investment in April 2026 to expand capacity.

Vietnam’s manufacturing landscape has evolved from an “assembly workshop” into a significant industrial-chain node.

The deeper significance is that “China Plus One” has progressed from a 1.0 model based on outsourcing the final stages of production to a 2.0 model involving more complete overseas industrial chains. Vietnam is increasingly taking on the higher-value parts of that transition.

The Winner’s Growing Pains

But even winners face difficulties.

Concern One: A US$16.65 Billion Trade Deficit

Vietnam recorded a trade deficit of US$16.65 billion in the first half of 2026. Exports increased by 21%, but imports grew even faster, rising by 33.4%.

What is Vietnam importing? Much of it consists of raw materials and components needed for manufacturing, data centres and AI-related investment.

The fact that imports are rising faster than exports indicates that Vietnam’s manufacturing expansion remains heavily dependent on external supply chains. China is the country’s largest source of intermediate goods.

Bui Minh Giap, principal country economist at the Asian Development Bank’s Vietnam office, said the figures highlighted “the Vietnamese domestic economy’s high dependence on imported intermediate goods.”

The World Bank offered an even more direct assessment: Vietnam’s exports remain heavily reliant on imported components, while domestic supply chains and component-manufacturing capabilities are still underdeveloped.

Export growth therefore does not necessarily translate into an equivalent increase in domestic value added. GDP may be rising, but a considerable share of the resulting income continues to flow elsewhere.

Concern Two: US Tariffs and Mounting Trade Pressure

An even greater challenge is emerging from the United States.

Vietnam’s trade surplus with the US surged to US$75.3 billion in the first half of 2026, an increase of more than 21% year on year. During the same period, its trade deficit with China reached US$77.3 billion, up nearly 39%.

This triangular structure—importing raw materials and components from China, processing them in Vietnam and exporting the finished goods to the United States—is central to repeated US criticism.

Vietnam has found itself on the front line of US–China trade tensions. The Office of the United States Trade Representative designated Vietnam a “Priority Foreign Country,” the first time in 13 years that any country had received that label.

Vietnam is currently the only country facing three simultaneous US Section 301 investigations, covering intellectual property, forced labour and excess production capacity. Three forms of trade pressure are now being applied at the same time.

When combined with the previously imposed 40% punitive tariff on transshipped goods, the effective overall tariff burden on some Vietnamese exports could exceed 27.5%.

Analysts at a British risk consultancy have warned that Vietnam may face increasingly severe tariff pressure. On July 28, Bloomberg reported that US customs officials had conducted surprise on-site inspections at several Vietnam-based factories linked to Chinese companies.

The United Nations Development Programme previously warned that Vietnam’s exports could contract by 19.2% if US tariff measures were fully implemented.

Concern Three: Rising Costs Are Eroding Vietnam’s Advantage

Vietnam’s low-cost advantage is beginning to fade.

In 2026, the minimum wage in the country’s highest-wage Region I reached VND5.31 million per month. The Vietnam General Confederation of Labour has advocated replacing the minimum-wage system and shortening the standard working week to 40 hours, adding further pressure to labour costs.

Labour expenses have already risen by between 10% and 15% since 2024.

More companies are also leaving the market. During the first half of 2026, an average of approximately 25,200 businesses exited every month.

Chinese contract manufacturers that had previously benefited from the “China–Vietnam–United States” triangular trade model are accelerating their withdrawal. Orders in textiles, footwear and low-end electronics are quietly returning to China.

What Comes Next for the Winner?

While remaining optimistic about Vietnam, international institutions have issued remarkably similar warnings.

In its July 2026 World Economic Outlook, the International Monetary Fund raised its forecast for Vietnam’s 2026 economic growth to 7.5%, saying the country would remain among Asia’s fastest-growing economies. At the same time, it urged Vietnam to continue focusing on macroeconomic stability, inflation control, financial security and energy security.

The Asian Development Bank has warned that Vietnam must move from growth driven by quantity to growth driven by quality.

ADB Country Director for Vietnam Chakraborty said the country must reduce its dependence on capital investment, low-cost labour and foreign direct investment, and shift towards a new growth model driven by productivity, skills, technological innovation and a stronger domestic private sector.

The World Bank has formally reclassified Vietnam from a lower-middle-income country to an upper-middle-income country. But the upgrade itself is also a warning: Vietnam’s low-cost advantage is disappearing, and the country must find a new source of growth.

The winner’s next step is not to continue winning through relocation, but to win through upgrading.

Vietnam is already trying to make that transition.

In 2026, the country set an economic growth target of more than 10% and launched an unprecedented push into high-technology sectors such as semiconductors and artificial intelligence. It is also becoming more deeply integrated into regional production networks for electronics, machinery, components and technology.

The transformation, however, will not happen overnight.

Malaysian economist Shan Saeed offered perhaps the most balanced assessment: Vietnam’s next stage will require it to “continue raising productivity, improving capital allocation, developing human resources and increasing its value within the supply chain.”