This Vietnamese town boomed as factories left China. Now it’s asking
what’s next?
[January 05, 2026] By
ANIRUDDHA GHOSAL and CHAN HO-HIM
BAC NINH, Vietnam (AP) — The transformation of Vietnam's Bac Ninh is
evident in the signs above its shops and the spicy Chinese and Korean
dishes on its tables.
Once known for its rice fields and the love duets of its centuries-old
Quan Ho folk songs, the city just north of Hanoi has become one of
Vietnam's busiest factory zones, reflecting a surge of investment,
hastened by President Donald Trump’s tariff hikes, that are reshaping
the region.
The economy has profited from friction between Washington and Beijing as
factories shifted out of China, joining earlier waves of foreign
investment by the Japanese and South Koreans that have made Vietnam a
global manufacturing hub. But rising labor costs, worker shortages and
inadequate infrastructure are exposing the limits to its rapid rise.
With rivals like Indonesia and the Philippines competing hard for new
projects, Vietnam is trying to climb into higher-value manufacturing and
expand export markets to maintain that momentum. That effort is evident
in Bac Ninh.
Vietnam is building more capacity
Traditionally a center for artisans, Bac Ninh’s first boom began around
2008 when Samsung built its first phone factory there, turning Vietnam
into its largest offshore manufacturing base.
Now, Chinese companies are pouring in as they diversify their factory
locations to skirt U.S. tariffs and other trade restrictions. After
Hanoi and Beijing normalized ties in the 1990s, inflows of Chinese
investment began to pick up as Chinese firms in places like Bac Ninh
tapped Vietnam’s electronics supply chain, labor force and supportive
local governments, often aided by Chinese-speaking intermediaries who
smooth paperwork and logistics.
But Vietnam is too small to replace China, whose economy is 40 times
larger, as the world's factory floor. To try to keep up, its leaders are
building new infrastructure, including a highway to the Chinese border
that has cut travel time by more than an hour. A railway will connect
Hanoi to Haiphong — Vietnam’s largest seaport — and then the border town
of Lao Cai.
On Dec. 19, Bac Ninh broke ground on the expansion of an industrial zone
for high-tech manufacturing, including electronics, pharmaceuticals and
clean energy. It's part of a synchronized nationwide push in which
Vietnam launched 234 major projects worth more than $129 billion just
weeks before a pivotal National Party Congress in January, when leaders
will decide the country’s political leadership and economic direction.
The China factor collides with reality
In Bac Ninh's downtown, a convenience store bears the name Tmall, after
Alibaba’s flagship online marketplace. Signs in Chinese advertise
services for investors. Chinese–Vietnamese language schools have opened
to help locals and Chinese to learn each others' languages.
But as Chinese companies compete for the best labor and other resources,
costs are rising for the “China plus one” strategy of moving factories
out of China to other locations, for example, Apple's shift into India.
“It is becoming difficult to recruit workers,” said Peng, who works at a
telecoms equipment company that moved from China’s southern technology
hub of Shenzhen. He gave only one name because he was not authorized to
speak to the media.
Labor costs have jumped 10%–15% since 2024, he said, "And we expect them
to keep rising.”
Vietnam still need technology, equipment and expertise from China, which
had created "the best manufacturing ecosystem," said Jacob Rothman,
co-founder and CEO of China-based Velong Enterprises, which makes grill
tools and kitchen gadgets and has shifted some production to Southeast
Asian countries including Cambodia and Vietnam.
Supply chains and manufacturers in China have benefited from decades of
government support, large-scale investment and its huge population,
Rothman said. “You can’t recreate that overnight.”
Brian Bourke, global chief commercial officer at U.S.-based SEKO
Logistics, said while factories making footwear, furniture and
technology are still relocating to Vietnam, it lags China in
infrastructure and logistics capabilities.
[to top of second column] |
A woman rides past a recruitment poster outside a company at Tien
Son Industrial Park in Bac Ninh province, Vietnam, on Dec. 26, 2025.
(AP Photo/Hau Dinh)
 Some of those limits are surfacing
in boomtowns like Bac Ninh, where firms are trying to lure workers
with higher wages and bonuses, a box of instant noodles on their
first day and bus fares if they commute from another city, according
to state media.
Vietnam faces competition from its neighbors
Few countries have benefitted more from Trump's trade war than
Vietnam, whose biggest export market is still the U.S. In 2024,
Vietnam ran a $123.5 billion surplus with the U.S., the third
largest behind China and Mexico. That irked Trump, who threatened a
46% import tax on Vietnamese goods before settling on 20%.
The two countries are still working toward a deal to keep most
tariffs at 20%. Vietnam has offered broad preferential access for
U.S. products, the White House said in October. So far, it has
largely absorbed the tariffs, running a trade surplus of $121.6
billion in January-November 2025.
The agreement in October by Trump and Chinese leader Xi Jinping to a
year-long trade truce and lower average tariffs on Chinese exports
to the U.S. to about 47% helped ease some concerns. But persisting
uncertainty over tariffs and other trade restrictions means
companies aren’t just trying to shift factories out of China but to
spread them across several countries, said Frederic Neumann, chief
Asia economist at HSBC.
Even with lower U.S. tariffs on China, the calculus still favors
moving to Southeast Asia where manufacturing inefficiencies add only
about 10% in cost. But while large corporations can shift production
easily, smaller firms may struggle to fit a new factory with
expensive equipment.
“(The) race to move outside of China is still happening, and it's
accelerating,” Rothman said.
Vietnam is still attracting ample foreign investment. Cumulative
foreign investment topped $28.5 billion as of September, up 15% from
last year. But scrutiny of Vietnam's role as a hub for
tariff-dodging transshipments has some manufacturers hedging their
bets.
One of SEKO Logistics' customers has shifted some of its furniture
making to India, not wanting to “put all their eggs in Vietnam,”
Bourke said.
Countries like Indonesia and the Philippines, which missed the early
gains Vietnam captured, are promoting themselves as alternative
manufacturing bases. In the Philippines, a new law allows foreign
investors to lease private land for up to 99 years to attract
long-term commercial and industrial investment.
Vietnam as a ‘tiger economy’
Vietnam has a goal of becoming rich by 2045. It aims to become
Asia's next “tiger economy,” following export powerhouses like South
Korea and Taiwan by shifting from low-cost assembly work to
manufacture higher-value products like electronics and clean energy
equipment.
It's offering incentives like tax breaks on imported machinery and
discounted rents to help factory suppliers upgrade and modernize.
About a third still use non-automated equipment and only about 10%
use robots on their production lines.
The country also is trying to reduce its dependence on the U.S.
market by expanding exports to the Middle East, Latin America,
Africa and India. Overseas trade offices have been asked to share
market intelligence and promote products made in Vietnam.
Vietnam knows that rising costs and tougher competition will test
how far it — and places like Bac Ninh — can climb. Announcing
hundreds of projects in December, Prime Minister Pham Minh Chinh
framed the stakes: Vietnam must “reach far into the ocean, delve
deep underground and soar high into space.”
___
Chan reported from Hong Kong. Associated Press researcher Yu Bing in
Beijing contributed.
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