The impact of tension between Vietnam and China

The Ron Sauer blog
Published:  15 May, 2014
Ron sauer

The shoe industry in Vietnam has been directly impacted by the initial political problem with China as was reported on May 14 by TheSauerReport (TSR). The incident is getting lots of coverage in world news continuing today (May 15). What is not on the TV is the photo of a burning Taiwanese owned shoe factory, which we have received from our correspondent who is on the spot and has also been reported by the BBC.

Also shoe giant Yue Yuen (Puma, Adidas and others), who recently experienced the large strike that I wrote about last week in TSR have now also announced that they are temporarily suspending their production in Vietnam because of the anti-Chinese protests. The Pou Chen Corporation of Taiwan controls Yue Yuen. There is no damage to the Yue Yuen factory yet the company’s share price continues to slide.

Yue Yuen, one of the worlds biggest shoe makers, produces about 100 million pairs per year in Vietnam (about 1/3 of its global production) but sources inside the management say they do not expect a major impact in the long run on their business because of the present tension and that the production suspensions should only last a matter of days.

We all hope so, but the situation in Vietnam is alarming. We are faced once again with the fact that sometimes political and cultural differences are very capable of poisoning the business climate and make investors’ change their mind. On the other hand the people in Vietnam will sooner or later realise that their jobs may be at stake if the violence continues.

At this very moment (May 15) this morning I have received news that two large and well known tanneries in Vietnam have suspended production and that transport to China is interrupted. One already wonders if this is connected to the Vietnam political and civil problems (probably temporarily) or is related to the news about reduced sales by the worlds biggest sports shoe makers (maybe not so temporarily). Lots of unanswered questions?

Burning shoe factory

Other sources note that political problems in South East Asia and especially in the South China Sea could influence transport of products from Asia, increase transport insurance premiums and thus increase another part of final production costs.

Ron Sauer

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