Flashpoints | Economy | Southeast Asia

Vietnam, Rare Earths, and the Evolving China Plus One Strategy

Vietnam has benefited greatly from foreign firms’ desire to de-risk from China. Can it free itself of dependence on the country’s critical rare earth inputs?

Over the past few years, China Plus One has reshaped global production, helping Vietnam emerge as an important manufacturing base. China Plus One involves companies reducing their excessive dependence on a single production base (i.e., China) by adding capacity elsewhere, which many have already done. However, the next stage of this strategy is likely to be more complicated. Export controls and economic security concerns are exposing vulnerabilities further upstream, particularly in industries that depend on critical minerals. This has demonstrated that even if a company can diversify where it manufactures, it may remain dependent on concentrated supplies of the materials, components, and processing capabilities necessary for that production.

Vietnam illustrates this challenge particularly well. China Plus One has brought major investments and increasingly sophisticated manufacturing activities to the country. Amkor Technology, for example, has invested $1.6 billion in a semiconductor assembly, testing, and packaging facility in Bac Ninh province outside Hanoi. Such investments have deepened Vietnam’s links to technologically intensive global supply chains and have made the security of critical inputs increasingly relevant to the country’s economy.

Among the most important of these inputs are rare earth elements. China remains dominant across the rare-earth value chain, accounting for more than 90 percent of global refined output and permanent-magnet production, according to the International Energy Agency. China’s export controls have made this dependence more visible, and highlighted how diversifying the location of factories does not necessarily involve the diversification of the supply chains supporting them. A product assembled in Vietnam may still depend on rare-earth materials, magnets, or other critical inputs processed in China.

If the first phase of China Plus One was largely about finding an additional production base outside China, the next is about strengthening the resilience of those production bases, including via access to critical materials, processing capacity, and strategic technologies.

Vietnam is an interesting example, given its own abundant rare earth deposits. According to the latest U.S. Geological Survey data, the country is estimated to hold around 3.5 million tonnes of rare-earth reserves, a substantial resource base albeit well short of the reserves reported for countries such as China and Australia. While Vietnam is not unique in having significant rare-earth resources – Australia, Brazil and Canada, among others, are also developing alternative rare-earth supply chains – what makes it potentially notable is the combination of these resources with an established low-cost export-oriented manufacturing base. In recent years, the country has developed electronics, automotive and other industries that use components and materials linked to rare-earth supply chains. If Vietnam is able to improve its processing and refining capacity, it could potentially connect its upstream resources with manufacturing activities already integrated into global production networks.

That potential should not be overstated, however. Vietnam’s rare-earth industry remains in its infancy; the country has limited refining capacity, and existing facilities remain concentrated in relatively basic stages of processing. Vietnam Rare Earths operates the country’s only light rare-earth refining facility in Ha Nam province, with an annual capacity of just 5,000 tonnes. Vietnam still lacks the scale of separation and downstream capabilities required for a fully integrated supply chain.

The value of these materials depends on the ability to mine, separate, refine and transform them into........

© The Diplomat