“China Plus One” is the strategy of keeping an existing manufacturing or sourcing base in China while adding at least one additional production location in another country. It began as a hedge against rising Chinese labour costs, accelerated sharply with the US-China tariff war from 2018, and has become standard board-level policy since the pandemic exposed how fragile single-country supply chains can be. Vietnam has been the single biggest beneficiary. This guide explains what the strategy involves, why Vietnam has become the default “plus one”, how it compares with the alternatives, what a Vietnam expansion actually requires, and the mistakes companies make when they treat Vietnam as simply a cheaper version of China.
What is the China Plus One Strategy?
China Plus One is not about leaving China. For most companies the Chinese operation remains the largest, most mature and best-integrated node in their supply chain, serving both export customers and China’s own domestic market. The “plus one” adds a second footprint that reduces concentration risk, diversifies tariff and trade-policy exposure, and captures lower costs for labour-intensive stages of production. In practice, companies pursue it in one of three ways:
- Diversified sourcing: qualifying suppliers in a second country for components or finished goods that were previously bought only in China.
- Parallel manufacturing: setting up an owned or contracted plant outside China that duplicates a product line, often for export to markets that impose tariffs on Chinese-origin goods.
- Staged relocation: moving final assembly or labour-intensive processes to the new country while keeping upstream components, tooling and engineering in China.
The common thread is that the China operation and the “plus one” operation are designed to work together. Components still flow from China’s supplier ecosystem, engineering and product development often stay in Shenzhen or Suzhou, and the new location adds capacity, resilience and a different customs origin.
Watch: Is Vietnam the Best China Plus One Destination?
Prefer to watch rather than read? In this short video, MSA Asia looks at why so many manufacturers have chosen Vietnam as their China Plus One location, where the trade-offs lie, and what to check before committing.
Why Vietnam Has Become the Default “Plus One”
Vietnam attracted more than USD 25 billion of realised foreign direct investment in 2025, the bulk of it in manufacturing, and has been the top destination for factories relocating from China for most of the past decade. Several factors explain the pull:
- Proximity to China. Northern Vietnam’s industrial belt around Hanoi, Bac Ninh, Bac Giang and Hai Phong is a day’s truck drive from Guangdong and Guangxi. Components, moulds and engineers can move across the border quickly, which keeps the two operations tightly linked. No other “plus one” candidate offers this.
- Labour cost and availability. Manufacturing wages in Vietnam are roughly one third to one half of those in coastal China, and the country has a workforce of about 55 million with a median age in the early thirties.
- Trade agreements. Vietnam is party to 17 free trade agreements including the EU-Vietnam FTA, the UK-Vietnam FTA, the CPTPP and RCEP, giving tariff-free or reduced-tariff access to most major markets, provided rules of origin are met.
- Political and macroeconomic stability. Vietnam has delivered 6 to 7% annual GDP growth for most of the past twenty years, with a consistently pro-FDI government and steadily improving infrastructure.
- An established ecosystem. Samsung, Apple’s suppliers (Foxconn, Luxshare, Goertek), Intel, LG, Canon, Nike and Adidas suppliers, and hundreds of Japanese, Korean and Taiwanese component makers are already there. A new entrant is joining a cluster rather than pioneering.
- Open ownership rules. 100% foreign ownership is permitted in almost all manufacturing, and industrial parks can license a project in weeks.
Vietnam vs Other China Plus One Destinations
Vietnam is not the only option, and for some products it is not the best one. The table below compares it with the main alternatives.
| Country | Strengths | Weaknesses | Best suited to |
|---|---|---|---|
| Vietnam | Closest to China’s supply chain; deepest electronics and footwear clusters; strong FTA coverage; fast licensing in industrial parks | Rising wages and land costs in prime parks; power constraints in the north; heavy US trade scrutiny of transshipment and rules of origin | Electronics, furniture, textiles and footwear, consumer goods, component assembly feeding China-based supply chains |
| India | Huge domestic market; large engineering talent pool; government production-linked incentives | Slower approvals, complex state-level regulation, weaker logistics, distance from China’s component base | Companies targeting the Indian market itself; pharmaceuticals, automotive, smartphones at scale |
| Thailand | Mature automotive and electronics base; excellent infrastructure; BOI incentives | Higher wages than Vietnam; ageing workforce; smaller labour pool | Automotive, higher-value electronics, food processing |
| Indonesia | Large workforce and market; abundant raw materials, especially nickel | Bureaucracy, infrastructure gaps outside Java, local-content rules | Resource-linked manufacturing, EV batteries, products for the domestic market |
| Malaysia | Semiconductor back-end expertise; English-speaking workforce; strong IP protection | Higher costs; labour shortages | Semiconductors, medical devices, precision engineering |
| Mexico | USMCA access to the US market; nearshoring for North American customers | Far from Asian component supply; security concerns; higher wages than Vietnam | Products sold mainly in North America with bulky logistics |
The pattern is clear: Vietnam wins where the product still depends on China’s component base and speed of set-up matters; India, Indonesia and Mexico win where the target market is the destination country itself; Thailand and Malaysia win for higher-value, capital-intensive production.
How to Execute a China Plus One Strategy in Vietnam
1. Decide what moves and what stays
Start with a product-level analysis. Which SKUs face tariffs or customer pressure to diversify? Which stages of production are labour-intensive enough to justify the move? Most successful projects shift final assembly, packaging and testing first, while keeping tooling, injection moulding and precision components in China until Vietnamese suppliers are qualified.
2. Choose the entry mode
Companies typically choose between contract manufacturing with an existing Vietnamese or foreign-owned factory (fastest, lowest capital, least control), acquiring or partnering with a local manufacturer, or setting up a wholly foreign-owned manufacturing company, usually a limited liability company leasing a ready-built factory in an industrial park. Many groups start with contract manufacturing to prove the product, then build their own plant once volumes justify it.
3. Select the location
Northern Vietnam (Bac Ninh, Bac Giang, Hai Phong, Hung Yen, Vinh Phuc) is the natural choice for electronics and any product with heavy Chinese component flows, because of road access to Guangdong and the Hai Phong port. Southern Vietnam (Binh Duong, Dong Nai, Long An) has deeper labour pools for furniture, garments, footwear and consumer goods and better access to Cai Mep deep-water port. Central Vietnam offers lower costs and strong incentives but a thinner supplier base.
4. Set up the Vietnamese entity
A foreign-owned manufacturing company requires an Investment Registration Certificate and Enterprise Registration Certificate (typically four to eight weeks in total), followed by a direct investment capital account, tax and customs registration, and, depending on scale, environmental and fire-safety approvals. Companies that will export virtually all output can register as an Export Processing Enterprise and import materials and machinery free of duty and VAT.
5. Get rules of origin right
The most important, and most misunderstood, part of a China Plus One project is customs origin. Moving final assembly to Vietnam does not automatically make a product Vietnamese-origin. Each FTA and each importing country applies its own rules, usually a change in tariff classification or a minimum regional value content of 35 to 45%. US customs in particular has stepped up enforcement against Chinese goods that are merely relabelled or lightly processed in Vietnam, and Vietnamese authorities now actively police “origin fraud”. Products that still consist largely of Chinese components may not qualify for tariff relief, so the bill of materials must be redesigned with origin thresholds in mind, and origin documentation must be kept from day one.
6. Build the local supply chain
Localising components is what turns a “plus one” assembly site into a genuinely resilient second base and what unlocks preferential origin. Vietnam’s supporting industries are developing quickly, especially in plastics, metal stamping, packaging, cables and printed circuit board assembly, but qualifying local suppliers takes time. Many manufacturers encourage their Chinese suppliers to open Vietnamese plants alongside them, which is how the northern electronics cluster was built.
7. Manage the two operations as one system
Transfer pricing between the China and Vietnam entities, intercompany supply agreements, shared tooling ownership, dual-country payroll and expatriate assignments all need to be documented properly. Vietnam applies OECD-style transfer pricing rules with annual local-file requirements, and the tax authority pays close attention to loss-making foreign-invested manufacturers that buy from related parties in China.
Costs, Incentives and Timelines
- Time to production: 4 to 6 months in a ready-built factory; 12 to 20 months for a purpose-built plant.
- Labour: monthly factory wages including social insurance typically USD 350 to 550 in the main industrial provinces, compared with USD 900 to 1,200 in the Pearl River Delta.
- Factory rental: USD 4 to 6 per square metre per month for ready-built space in prime parks.
- Corporate income tax: 20% standard rate, with a 10% rate for 15 years plus tax holidays for high-tech, supporting-industry and large-scale projects, and 17% for projects in disadvantaged districts, under the CIT Law effective from October 2025.
- Import duties: exemption on machinery and equipment forming fixed assets; full exemption on inputs for Export Processing Enterprises.
Risks and Challenges of China Plus One in Vietnam
- Trade-policy exposure. Vietnam’s large trade surplus with the United States has drawn tariff threats and anti-transshipment measures. Products with high Chinese content face the greatest risk, which makes real localisation, not just relabelling, essential.
- Capacity constraints. Prime industrial land in Bac Ninh and Binh Duong is scarce and expensive, power supply in the north has been rationed during peak summer demand, and skilled technicians and middle managers are in short supply. Wage inflation runs at 6 to 8% a year.
- Supplier depth. Vietnam still imports most high-value components from China, Korea and Japan. Companies that need a complete local supply chain on day one will be disappointed.
- Compliance complexity. Vietnamese Accounting Standards, monthly tax filings, a mandatory Chief Accountant, customs finalisation reports and transfer pricing documentation are more demanding than many newcomers expect. Getting these wrong is the most common cause of tax penalties for foreign-invested manufacturers.
- Cultural and management differences. Vietnam is not China with lower wages. Labour law is strongly protective of employees, union structures differ, and management practices imported wholesale from Chinese plants often cause friction and turnover.
Is Vietnam the Right China Plus One Destination for You?
Vietnam is the right answer for most companies whose products are labour-intensive, export-oriented and still tied to China’s component base, and who need to be in production within a year. It is a weaker fit for companies whose main goal is a large new domestic market (India or Indonesia), who need advanced semiconductor or precision capabilities (Malaysia, Thailand), or whose logistics economics favour nearshoring to North America (Mexico). Many groups ultimately pursue a “China Plus Two” model, with Vietnam handling Asia-linked export production and a second location serving a specific regional market.
Frequently Asked Questions
Does China Plus One mean closing our China factory?
No. The strategy assumes the China operation continues, typically serving the Chinese domestic market and supplying components to the new location, while the “plus one” site diversifies risk and captures lower costs or tariff advantages.
Will goods assembled in Vietnam avoid US tariffs on Chinese products?
Only if they qualify as Vietnamese origin under US customs rules, which generally require a substantial transformation in Vietnam. Simple assembly or repackaging of Chinese components does not qualify and is actively targeted by both US and Vietnamese authorities.
How long does it take to set up a factory in Vietnam?
Licensing a foreign-owned company takes four to eight weeks. Production can start in four to six months in a leased ready-built factory, or 12 to 20 months for a purpose-built plant.
Can we use our Chinese suppliers in Vietnam?
Yes, and many companies do, either by importing components from China (subject to duty unless the company is an Export Processing Enterprise) or by encouraging key suppliers to set up alongside them in the same industrial park.
What is the biggest mistake companies make?
Treating Vietnam as a low-cost extension of the Chinese plant rather than a separate jurisdiction with its own labour law, accounting standards, tax rules and customs regime. Under-investing in local compliance and management is the most common cause of delays and penalties.
Build Your China Plus One Strategy in Vietnam with MSA
MSA has advised international companies on doing business in China since 2011 and operates from Ho Chi Minh City, Shanghai, Hong Kong and Singapore, which means we work on both sides of a China Plus One project. We help groups structure the Vietnamese entity, select and negotiate industrial park space, obtain investment and enterprise licences, set up capital accounts and customs registration, design intercompany arrangements between the China and Vietnam operations, and run accounting, tax and payroll compliance once the plant is live.
Get in touch with MSA’s Vietnam market entry experts to assess whether Vietnam is the right “plus one” for your products and to plan a realistic timeline for your expansion.
