The emphasis of the New Southbound Policy has shifted in the past few years. Rather than focusing primarily on market diversification, it is increasingly understood as part of a broader economic security strategy. This shift reflects a changing environment marked by intensifying geopolitical competition, tighter export controls and continued disruptions in global supply chains. Under these conditions, Taiwan’s external economic engagement is no longer defined simply by trade and investment expansion. It is increasingly directed toward the construction of what policymakers describe as “reliable supply chains.”
This strategic adjustment was clearly articulated in President William Lai’s (賴清德) remarks at this year’s Yushan Forum, where economic partnerships were linked to resilience and closer alignment with like-minded partners in the Indo-Pacific region. At its core, this approach aims to reduce structural dependence on China while embedding Taiwan more deeply in alternative production networks. The scale of this shift is visible in the data. In 2010, more than 83 percent of Taiwan’s outward investment went to China. By last year, this had fallen to about 3.75 percent. Over the same period, investment in Europe rose sharply, while exports to the US increased by 78 percent, making it Taiwan’s largest export market. Exports to New Southbound countries also grew by more than 30 percent, pointing to a sustained — not temporary — reorientation.
Within this broader transformation, Vietnam has emerged as a key partner under the policy. Bilateral trade reached about US$40 billion last year, up from US$28.3 billion in 2024. More importantly, the structure of this trade has changed. About 70 percent of Taiwan’s exports to Vietnam now consist of information and communication technology products, computers and machinery components. This suggests that the relationship has moved beyond conventional trade toward deeper production ties. The relationship is increasingly shaped by functional specialization within global value chains. Taiwan remains concentrated in upstream segments, particularly semiconductor design, advanced manufacturing and high-value electronics.
Vietnam, by contrast, has expanded its role in downstream activities, including assembly, testing and large-scale production. This division of labor has allowed Taiwanese firms to relocate parts of their production while retaining control over core technologies. The expansion of firms such as Hon Hai (also known as Foxconn), Pegatron, Compal and Wistron in Vietnam reflects this trend. Their operations go beyond assembly and increasingly include component manufacturing and process optimization.
However, this process should not be seen as linear upgrading. Vietnam’s integration into high-tech supply chains remains uneven.
While it has made clear progress in electronics manufacturing, its capabilities in semiconductor design, advanced research and development and core intellectual property remain limited. The result is a structural asymmetry: Taiwan provides technological capabilities, while Vietnam primarily offers production capacity. This is better understood as asymmetric interdependence rather than convergence. At the same time, China remains deeply embedded in regional production networks. Despite diversification efforts, many intermediate goods and components are still tied to China-centered supply chains. Therefore, Taiwan’s strategy does not amount to full decoupling. It is better described as a reconfiguration of dependence, where production networks are redistributed across countries but remain functionally interconnected. Vietnam is not a substitute for China but an additional node in a broader regional system.
The financial dimension of Taiwan-Vietnam relations highlights the depth and the limits of this integration. Several major Taiwanese banks, including CTBC, E.Sun, Cathay and Mega International Commercial Bank operate in Vietnam. Their role goes beyond traditional banking and includes trade finance, corporate lending and liquidity management for Taiwanese manufacturers.
A particularly important mechanism is supply chain finance. Through invoice financing and structured credit arrangements, Taiwanese financial institutions provide working capital to Vietnamese suppliers embedded in Taiwan-led production networks. Finance is closely tied to production rather than operating separately from it. It helps sustain cross-border supply chains.
However, important constraints remain. Most transactions between Taiwan and Vietnam are still denominated in US dollars. This reflects continued reliance on the global financial system rather than the emergence of a regional financial architecture. Vietnam’s efforts to develop international financial centers in Ho Chi Minh City and Da Nang are intended to address this gap. In principle, such centers could support supply chain financing, cross-border settlement and risk management for high-tech industries. However, in practice, Vietnam’s financial markets remain relatively underdeveloped compared with established regional hubs. As a result, a gap persists between rapid industrial expansion and the financial capacity needed to support it. Fintech and cybersecurity cooperation add another layer to the relationship. Taiwan’s developed fintech ecosystem and Vietnam’s rapid digitalization, particularly in QR-based payments and cashless systems, create new areas for collaboration. At the same time, cooperation between firms such as WebComm in Taiwan and VinCSS in Vietnam on Internet of things security and digital identity highlights the importance of cybersecurity in maintaining financial trust and supply chain stability.
Taiwan-Vietnam relations under the New Southbound Policy reflect a broader shift in regional economic organization. The relationship is no longer defined only by trade or investment flows. It involves deeper linkages across production systems, financial networks and digital infrastructure. However, this transformation remains incomplete and uneven. Three constraints are particularly important.
First, China remains structurally embedded in regional supply chains, limiting the scope of diversification.
Second, Vietnam’s technological capacity constrains deeper upgrading and reinforces asymmetry.
Third, financial development lags industrial expansion, creating a mismatch between production networks and financial support systems. Diversification itself also brings higher coordination costs and regulatory complexity.
In this context, Taiwan’s approach is understood as selective resilience rather than full economic autonomy. Vietnam plays one of the central roles in this strategy, but it does not replace existing structures. Instead, it contributes to their diversification and redistribution. The result is a more flexible and geographically dispersed system, but one that remains structurally incomplete.
The Taiwan-Vietnam partnership illustrates the opportunities and the limits of economic security in a fragmented global economy. It shows how supply chains and financial systems can be reconfigured to reduce vulnerability, while also revealing the persistent constraints of deep interdependence.
Tran Thi Mong Tuyen is a research fellow at the Pacific Forum and a doctoral student at National Chengchi University. She is also a former fellow at the Ministry of Foreign Affairs and a visiting scholar at National Taiwan University.
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