The Vietnamese Boom Is a Lie (and it's worse than you think) transcript

Vietnam's economy is growing faster than almost every country on the planet. We're talking 8% growth, while most of the rich world is happy to scrape past 2% growth. The stock market jumped more than a third in twelve months. Total trade blew past 930 billion dollars. Foreign money keeps flooding in, factories keep going up, poverty has fallen through the floor, and a real middle class is spending real money for the first time.

On paper, Vietnam looks unstoppable! Except… There's a catch! Almost every company driving the exports is foreign. The factories run on Chinese parts, and the growth holding everything together leans on debt climbing faster than the economy itself. In this video I'll tell you what is really happening in Vietnam. I'll give all the data and information you need to decide by yourself if Vietnam is really the next place to be, or just a fragile boom dressed up as a miracle.

My name is Bertrand, I've been doing business in Asia for 26 years. I'm not guessing how things work here, I deal with them every week. That's why I created this channel: to share my perspective from the inside. If that's useful to you, subscribe. 50 years ago, Vietnam was one of the poorest countries on earth, flattened by war, importing food it couldn’t grow. People were rationing rice. The average person earned a few hundred dollars a year, and the country sat near the bottom of every list you’d never want to be on.

But things have changed… And fast… Today the average Vietnamese earns around 4000 dollars a year, and the economy has pushed past Malaysia and the Philippines to become one of the biggest in Southeast Asia. Manufacturing made up less than 10% of the economy in 1990. Now it's more than a quarter, and the factories there build the laptops, phones and game consoles that end up in living rooms across America and Europe. And it keeps speeding up instead of cooling down.

Last year, the economy grew a little faster every single quarter, finishing the year stronger than it began. You can feel it on the ground. I went over for my own business, sat down with an entrepreneur who runs factories there, and asked how long it takes to get something off the ground. He laughed at me. In Vietnam, people get a project approved in 6 months and finished in 12, a speed that would take years almost anywhere else.

The biggest names in tech keep planting factories, Samsung, Apple's suppliers, Nintendo… All treating the country as the place where production moves when China gets too expensive. Vietnam has signed off on a 67 billion dollar high speed railway to connect its two biggest cities. And it's pouring another 25 billion into airports before the decade ends. Hanoi wants 10% growth a year by 2030. From the outside it looks like a place that worked out the formula everyone else lost.

Every number points up, every crane on the skyline tells the same story. Vietnam is booming! But if you ask one boring question… …The whole thing stops to make sense. Who actually owns all these factories? The answer is that hardly any of them are Vietnamese. Close to 80% of everything Vietnam exports comes from foreign companies that set up on Vietnamese soil and run the operation themselves. Samsung alone accounts for roughly a fifth of the country's entire export volume.

Vietnam has become the second largest smartphone exporter on the planet. But the phones are not Vietnamese, and neither are the factories stamping them out. Here's the cleanest way to see the problem. On the one hand, foreign companies sell the world far more than they buy from it, generating a surplus of around 50 billion dollars. On the other hand, Vietnamese companies buy more than they sell, ending with a deficit of around 30 billion dollars.

Pull the outsiders out of the picture, and Vietnam buys more from the world than it manages to sell back. And it's not just exports. A third of every formal job in the country is inside one of these foreign companies. Companies that arrived for cheap labour, and can leave the day it stops being cheap. That changes what the growth is worth. When a Japanese or Korean giant turns a profit inside a Vietnamese plant, the money flies back to Tokyo or Seoul at the end of the quarter.

The brand stays abroad, the technology stays abroad, and the thick end of the margin leaves with them. What Vietnam keeps is the wages and the rent on the land, real income for the people earning it, but it's the thinnest slice of a very large pie. I know what you think: What's the problem? Vietnam doesn't own the factories. At least it builds the products… Well… It's more complicated than that… Because the parts inside the “Made in Vietnam” products almost never started out in Vietnam.

Walk through one of those factories and the work you'll see is mostly assembly. The expensive parts, the screens and the chips that actually cost money, turn up at the border already finished, and they come mostly from one country: China. Every day, thousands of trucks cross the Chinese border carrying the parts that keep Vietnamese factories alive. Around 94% of everything Vietnam imports is this kind of thing, parts and components, not finished products for Vietnamese people to buy.

So a “Made in Vietnam” sticker almost always means assembled in Vietnam, out of Chinese pieces. That last step, the clicking-together, is the cheapest part of the entire chain, and it's the part Vietnam landed. China designs the product and builds the bits that matter. Vietnam slots them into place and ships the box. So the country everyone calls the next China sits right at the tail end of China's own supply chain. Vietnamese do the job that pays the least and can't run for a single week without parts crossing the border from the north.

And it gets worse… For a slice of these products, even calling it assembly is generous. Some goods barely pause in Vietnam at all. They arrive from China already finished, pick up a fresh label, and carry on to America as if they had been Vietnamese all along. By Washington’s own estimate, out of every 15 dollars of goods Vietnam sells the US, around 5 is simply Chinese products passing through. To legally wear a “Made in Vietnam” tag, roughly a third of a product’s value is supposed to be created inside the country, and plenty of exports fail to meet that bar, adding next to nothing before moving on.

Washington took notice. Anything it now suspects of being Chinese goods in a Vietnamese costume is taxed at 40% instead of the usual 20%. And the rule is loose enough that a single Chinese chip buried in your product can drag the whole thing into that higher bracket. Chinese companies that rushed into Vietnam to dodge American tariffs in the first place are already canceling new factories and backing out. So the model has a crack in it, and that one comes from outside.

But there's a second crack, this one from Vietnam, the electricity bill. Last year Vietnam's economy grew 8%, but the amount of electricity it used barely moved, up less than 5%. In a country that runs on factories, power and growth rise together, because making things consumes electricity. For years Vietnam's power use actually climbed faster than its economy. But that stopped last year. Hanoi has an explanation. Milder weather, more rooftop solar that never touches the national grid, and a building spree of roads and bridges that eats less electricity than heavy industry.

Fair enough. But follow that logic all the way down, and it turns into an admission. If the growth is coming from pouring concrete rather than running production lines, then the engine of this miracle is not the high tech manufacturing. It’s construction. Yes, roads, apartment towers and airports absolutely create GDP. The difference is that unlike export factories, they don't generate foreign currency. Someone has to pay to build them first.

And in Vietnam, that “someone” is increasingly the banking system. Which is the real problem underneath all of this. The boom runs on borrowed money. Total credit in Vietnam now sits around 136% of the size of the entire economy. It's higher than almost any country at its income level, and last year it grew another 18%. So where is all that borrowed money actually going? Not to millions of small businesses. A huge share ends up in property... and in a handful of giant conglomerates building apartments, malls and hospitals.

The biggest of them all is Vingroup. Vingroup is the closest thing Vietnam has to an empire. It started selling instant noodles in Ukraine in the 90s, came home, and now builds apartments, schools and electric cars. Now Vingroup share makes up more than 18% of the VN-Index. With the other big listed companies in the group, you're close to 30% of the country's benchmark market. All that resting on one family of businesses.

So when those few names have a good run, the market climbs with them, even while most other stocks are falling. Last year proves it. The index jumped more than 40%, the kind of number that makes Vietnam look like the hottest market in Asia. Strip out the Vingroup stocks and that 40% collapses to about 12%. That's what happens when one group becomes this dominant. When the loans flow and prices keep rising, it looks like growth.

When they stop, it looks like 2008. That's the bargain Vietnam has made. Tie the economy to a small group at the top. It's a dangerous game. A game that, I have to admit, is working well for now! Last year the average income climbed more than 9%. Extreme poverty, which sat near 14% just over a decade ago, has dropped below 4%. People who grew up with nothing are buying motorbikes, then cars, then sending their kids to schools their parents could never have afforded.

What's even more interesting is how evenly it’s spread. The gap between rich and poor comes out close to Singapore's. Lower than the Philippines or Malaysia. There's no class of century old family empires sitting on top of everything. The growth reached the street, not just the penthouse. You can feel it in a young population that truly believes next year will top this one. But to catch up with the rich nations, Hanoi would need to roughly triple income per person, and hold 6% growth for two successive decades.

Something almost no country has ever pulled off. And the clock is ticking. Vietnam started growing old in 2015, and by 2050 more than a quarter of its people will be over 60. The usual path is to get rich first, and grey later. Vietnam is greying while it is still poor, with a shrinking window of young cheap workers to finish the job. And those workers are already getting more expensive. Now, the lowest end of the manufacturing is leaving for Cambodia and Bangladesh.

So Vietnam is in a race. And if you're thinking of pointing your own business at this country, you're standing in the exact same race, whether you realize it or not. Say you sell physical products and your supplier sits in China. The tariffs have made that painful, so you do the thing every consultant recommends, and shift production to Vietnam. On paper, problem solved. Then you read the fine print on that 40% rate.

If too much of what goes into your product still comes from China, your goods can be reclassified as Chinese in disguise and your tariff doubles. Nobody has published a clear line about this, so you'd be betting your margin on a rule that hasn't actually been written down yet. And that's not your only problem. The north of the country runs dangerously low on power in the dry months. A stretch of shortages three years back cost the economy around 1.4 billion dollars.

Factories in the north supplying Samsung and Foxconn went dark with only a few hours’ notice. Not really the kind of things you want to worry about I guess… And there is the money problem. Getting cash into Vietnam is the easy part. Getting it back out is another story. The whole setup is built to welcome money in, and make leaving with it slow and painful. Plenty of entrepreneurs only find that friction the day they try to send their own profits home.

At Statrys we run into this constantly, people who fell hard for the growth story, and never paused to ask the dull question behind it. How do I actually get paid, and how do I get my money back out when I want it. None of this is a reason to stay away. It's a reason to walk in clear-eyed, because the people selling you the Vietnam dream are rarely the ones who have to live with the parts of it that don't work. So back to the question you came here with.

Is Vietnam the next place to be? The honest answer is that it depends on you. Vietnam isn't the next China. It's becoming China's workshop. Whether that's enough to become rich is the biggest economic experiment of the next twenty years. Nobody knows which way it breaks yet. What we do know is that the version of Vietnam being sold to you online, the unstoppable miracle, the easy win, doesn't exist. If you’ve sourced from Vietnam, set up a business there, or watched this kind of boom play out somewhere else, tell me in the comments.

I read them all. If this video gave you a clearer picture of what's actually going on in Asia, subscribe. I drop two videos a week, sharing what I see running a business in Asia from the inside. See you in the next video.