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TheStreet Open House

Will Mob Violence Stop China's Electronics Exodus to Vietnam?

Stocks in this article: SSNLF

BEIJING (TheStreet) -- News that Vietnamese mobs are burning foreign factories over an international territorial dispute Thursday came two days after the head of a Beijing trade group predicted an exodus of electronics makers from his country to Vietnam.

Whether that prediction holds true may depend on how the spat between China and Vietnam plays out for manufacturers now in the bull's-eye of mob action.

"In as few as two and no more than three years, the trend of factories leaving China for Vietnam will probably accelerate," said Gao Shiwang, deputy secretary-general of the China Chamber of Commerce for Import and Export of Machinery and Electronic Products. "The main reason is that Chinese workforce costs are rising."

Gao, whose comments were widely reported in Chinese state media, singled out the case of Samsung (SSNLF) and its plans to shift smartphone production from the mainland to a $2 billion plant in Vietnam. The Samsung plant recently opened and is expected to produce 40% of the South Korean company's smartphones when it reaches full capacity by 2015, Gao said.

For the foreseeable future, China will continue its reign as the world's largest computer producer and exporter, Gao said, adding that more than 80% of all desktop computers, notebooks and tablets are assembled on the mainland.

But that percentage will likely decline as more companies take advantage of Vietnam's less-expensive labor. For example, the number of tablets and notebooks shipped to the United States from Vietnam will top two million this year, Gao said, up from "a few hundred thousand" last year.

Of all laptop computers sold in the United States last year, Gao said 87% came from China compared to 95% the year before. In the first quarter of this year Chinese tablet and notebook exports to all countries fell 7% from the same period 2013.

The Chinese government's customs agency recently reported 2013 laptop and tablet exports by monetary value fell 2.6% from the year before to $110.8 billion. It was the first year-on-year decline since 2008. But Vietnam as well as India, Mexico, Poland and Turkey saw computer exports rise last year.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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