Vietnam's economic rise: ASEAN supply chain restructuring and the challenge of the middle-income trap

From “China+1” to “Vietnam+?”: The Shifting Manufacturing Hub in ASEAN

On the streets of Ho Chi Minh City, VinFast’s electric taxis have become an iconic symbol—representing Vietnam’s ambition to transition from a low-cost assembly base to high-value-added manufacturing. In 2025, Vietnam’s economy leads ASEAN with an 8% growth rate, nearly double the regional average, and a GDP of $527 billion, surpassing Malaysia and the Philippines and approaching Thailand. However, the structural contradictions behind this growth are becoming increasingly pronounced as ASEAN economic integration deepens.

FDI-Driven Growth: The “Assembly Node” in the ASEAN Value Chain

Vietnam has been the largest beneficiary of the “China+1” strategy. Multinational giants such as Samsung, Apple, and Nintendo have established massive electronics manufacturing clusters in northern Vietnam, leveraging their geographical proximity to the Chinese border to assemble components sourced from Chinese suppliers before exporting to markets in Europe and the United States. This model has rapidly integrated Vietnam into global supply chains, but it also brings a key issue: 80% of export value comes from foreign direct investment, while local enterprises only participate in low-value-added stages. As Michael Piro, co-CEO of Indochina Capital, noted: “A large number of foreign factories have not created real wealth for the Vietnamese people; they are just conducting foreign business here.”

From an ASEAN regional perspective, Vietnam’s rise is reshaping the division of labor in Southeast Asia. Thailand has long dominated automotive manufacturing and electronic components, Malaysia holds advantages in semiconductor packaging and testing, and Indonesia focuses on resource processing and labor-intensive industries. With its stable political environment, relatively cheap labor, and proximity to China, Vietnam has attracted a large volume of production capacity relocated from China. However, this relocation has not fully benefited the entire ASEAN region—about 70% of tenants in Vietnam’s industrial parks are Chinese manufacturers, and intra-regional industrial synergies remain insufficient.

Infrastructure and Human Capital: Shortcomings in Crossing the Middle-Income Threshold

The Vietnamese government aims to achieve an average annual growth rate of 10% by 2030 and become a high-income country by 2045 (raising per capita GNI from $4,500 to $14,000). To this end, Hanoi has approved a $67 billion high-speed rail project (Hanoi–Ho Chi Minh City, reducing travel time from 30 hours to 5 hours) and plans to invest $25 billion in airport upgrades by 2030. Resolution No. 68 elevates private enterprises to “the most important driver of the national economy,” targeting a doubling of the number of private enterprises to 2 million by 2030 and cultivating 20 large-scale global private enterprises.However, these ambitions face practical constraints. Vietnam's Gini coefficient is only 0.37, one of the lowest in ASEAN, indicating relatively equitable social distribution, but this also means slow growth of high-income groups and limited potential for consumption upgrades. More critical is human capital: although labor costs are lower than in China, the shortage of skilled workers is becoming increasingly prominent, especially in advanced manufacturing and semiconductors. Viettel's first wafer fab, which started construction in January 2026, aims to mass-produce 32nm chips by 2027, but its technological talent pool still relies on external imports.

Within the ASEAN framework, Vietnam directly competes with Thailand and Malaysia for skilled labor. Thailand has a more mature pool of automotive engineers, while Malaysia has long-standing experience in semiconductor packaging and testing. If Vietnam cannot accelerate the upgrade of its education and vocational training systems, it may encounter bottlenecks in climbing the value chain.

Finance and Capital: Regional Competition over International Financial Centers

Vietnam plans to build international financial centers (IFCs) in Ho Chi Minh City and Da Nang, aiming to attract global capital to serve its domestic enterprises. Da Nang's IFC is positioned as a "regulatory island," offering facilities for multinational financial institutions. This plan will directly challenge Singapore's regional financial center status while competing with offshore financial centers such as Malaysia's Labuan and Indonesia's Batam.

Vietnam's stock market VN-Index has risen over 35% in the past 12 months, and FTSE Russell upgraded it to a secondary emerging market in September this year, potentially bringing billions of dollars in passive inflows. However, the depth of the capital market and the regulatory framework still need improvement. Currently, Vietnam has high credit intensity, and the banking system has significant exposure to real estate and infrastructure projects, which may affect long-term financial stability.

Synergy and Competition from an ASEAN Perspective

Vietnam's rapid industrialization is not an isolated case. Under the frameworks of RCEP and CPTPP, ASEAN is forming a closer production chain network. For example, electronic components imported by Vietnam from China are assembled locally and then exported to the US, while Thailand and Malaysia provide higher-end components and semiconductors. The deep involvement of Chinese capital in Vietnam also creates complex interdependencies within ASEAN under the "China+1" strategy.

However, this model is not without risks. The US imposes a 20% tariff on Vietnam (lower than the 46% threatened in April), but still higher than some ASEAN countries, meaning Vietnam's export competitiveness is to some extent constrained by the Sino-US geopolitical balance. In addition, the economic gap between Vietnam's north and south persists: the north focuses on electronics manufacturing, closely linked to China's supply chain; the south relies on light industry, agriculture, and Ho Chi Minh City's financial and commercial sectors. This "dual-core" structure may weaken the efficiency of a unified national market.

Conclusion: Can Vietnam's Leap Become a Shared Opportunity for ASEAN?Vietnam's economic transformation is at a critical crossroads. If it can successfully build a local innovation system, improve human capital, and deepen financial reforms, it is expected to become the next middle-income economy in ASEAN and drive the regional supply chain upgrade from "labor-intensive" to "technology-intensive." If it fails, it may fall into the "middle-income trap," i.e., capital flight and industrial hollowing-out.

For ASEAN, Vietnam's success means the emergence of a larger consumer market and manufacturing engine in the region, but it may also intensify industrial competition with countries like Thailand and Indonesia. The key to regional synergy lies in whether countries can promote value chain complementarity under the RCEP framework, rather than a zero-sum game. Vietnam's attempt is becoming a touchstone for the construction of the entire ASEAN Economic Community.