Li & Fung Ltd. (494), the world’s biggest wholesale provider of clothes and toys, said production at most of its suppliers’ factories in Vietnam may be delayed for a week because of anti-China protests.
The Southeast Asian country accounts for about 7 percent of the supply base of Li & Fung, whose customers include Wal-Mart Stores (WMT:US) Inc., Target Corp. and Marks & Spencer Group Plc. Several foreign companies, including Formosa Plastics Group and shoemaker Yue Yuen Industrial Holdings Ltd. (551), have been forced to close factories amid demonstrations against China’s placement of an oil rig off the Vietnamese coast.
Rallies that began last weekend in Vietnamese cities have turned violent after moving to factory parks, with an attack on a Formosa Plastics steel mill leaving one dead and 128 people injured. The unrest comes as Vietnamese and Chinese patrol ships face off near the rig, which is located in a part of the South China Sea claimed by both nations.
“We understand that the violence is quite random,” Li & Fung Chairman William Fung told reporters after a shareholder meeting in Hong Kong. “The government is now going about, hopefully, restoring law and order. Most of our suppliers closed their plants yesterday and the day before, just to make sure none of their workers are hurt.”
Shares of the Hong Kong-based company were little changed, closing at HK$11.04.
The Vietnamese government has moved to restore order in the southern province of Binh Duong by increasing forces in the area, and the situation has stabilized, it said. Still, many foreign companies have remained closed. Taiwanese companies, many of which were damaged or forced to halt production, may consider relocating to other regions, including Africa, Justin Huang, secretary general of Taiwan Textile Federation, says by phone.
Li & Fung Chief Executive Officer Bruce Rockowitz said today that it was “premature” to think about contingency plans, which would involve diverting production to countries such as China and Bangladesh.
“We are expecting a week-long type of delay, not months,” Rockowitz said. Should the delays extend into the end of June and July, then that will critically affect deliveries, he said. Most of the affected clients were American, he said.
Tainan Spinning Co. said today it would continue to suspend production. Hong Kong-based Yue Yuen said it suspended its Vietnam operations as a safety precaution. Advanced International Multitech Co. said its plant suffered damage and items were stolen on May 13, while Formosa Taffeta Co. said the office building and computers of its Vietnam unit were damaged.
Adam Jarczyk, a Singapore-based Asia-Pacific analyst for the Frontier Strategy Group, said the Vietnamese government must prepared for future protests to limit any further “collateral damage” to Hong Kong, Taiwanese and Singaporean companies. The Chinese government would probably continue pressing its territorial claims in the South China Sea, he said.
“Unless Beijing deviates from its current pattern of behavior, we are likely to see more conflict erupt off of Vietnam’s shores and more anti-Chinese protests break out in Ho Chi Minh City,” Jarczyk said.
Wai Ho Leong, a Singapore-based economist at Barclays Plc, said such incidents should force strategic investors to consider underlying geopolitical and domestic tensions before moving into a country like Vietnam.
“You can’t just go there because it’s cheap,” Leong said.
Tang Xiaodong, secretary of the board of Lifan Industry Group Co., said the Chongqing, China-based motorcycle-and-car manufacturer has benefited from its close contact with the Vietnam market since locating a factory there more than a decade ago.
“The current situation is definitely a negative factor, but we’ll see whether it lasts,” Tang said.
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