Vietnam clashes threaten supply lines for companies

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By Demetri Sevastopulo and Julie Zhu in Hong Kong and Michael Peel in Ho Chi Minh City

Violent anti-China protests in Vietnam yesterday forced factories serving retailers such as Walmart and Nike to close for a second day, underscoring the increasingly difficult environment for global companies that rely on the region to make cheap consumer goods.

Local mobs have been ransacking factories near Ho Chi Minh City since Tuesday in protest at China’s decision to drill for oil in disputed waters in the South China Sea.

Li & Fung, the world’s biggest sourcing company, which supplies retailers such as Target and Walmart, warned of possible shipment delays after it halted work at its factories in south Vietnam as a precaution. Yue Yuen, the sports shoe manufacturer that supplies Nike and Adidas, also suspended production for a second day.

The disruption is a problem for multinationals that turn to countries such as Vietnam for the cheap production of everything from smartphones to sweatshirts. Global retailers already face supply chain issues that include rising labour costs in China, safety concerns in Bangladesh and political risk in Thailand. Yue Yuen was last month hit by China’s biggest strike in decades as 40,000 workers refused to man its production lines.

The violence in Vietnam was sparked by a Chinese decision to move a deep-sea oil rig to the Paracel Islands, in what the US said was a “provocative” move.

China took control of the islands in 1974 following a brief conflict with Vietnam. Scores of Chinese and Vietnamese ships have been engaged in a stand-off near the rig.

The spat is the latest escalation of tensions in the South China Sea where Beijing is in dispute with the Philippines, Taiwan, Malaysia and Brunei. China has also sparred with Japan recently over disputed islands in the East China Sea.

A spokesperson for the industrial park where the worst riots occurred on Tuesday, said there were no signs of protest in the area yesterday and half of tenants had resumed operations.

While the Vietnam protests are aimed at China, Taiwanese factories have borne the brunt of the violence. Formosa Ha Tinh Steel said one Chinese worker was killed in demonstrations that began after Vietnamese workers called a strike. Tsai Chih-fa, a senior executive at the steel mill, said: “I don’t know when we will restart production. It depends on when the local government can control the situation.” (FT)

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