As global “Caravan Capitalism” seeks out the countries offering the lowest production cost, multinational companies are leaving China for Vietnam.

Canon (NYSE: CAJ), Nissan(NASDAQ: NSANY), Hanes, Texhong Textile Group of China. Why are companies no longer building or expanding factories in China.

With $83 billion in 2007, China still is the most attractive destination for industrial investment in the world. But multinational companies have started hedging their bets in the face of soaring labor cost, inflation, and a strong yuan.

Caravan capitalists are diversifying out of China, establishing bases elsewhere in Asia.

Factory investments in low-skill, low-wage industries will migrate from China to Vietnam, which still offer foreign investors a corporate tax rate of zero for the first four years, and half the usual rate of 10 percent for the next four years.

And Cambodia, which has even lower labor cost, is already positioning itself as a lower-cost alternative to Vietnam.

None of this is good news for the American or European manufacturing sector as politicians seek to re-establish a 1970s utopia by raising labor cost. But once energy prices stabilize as the speculation-based oil bubble implodes, we’re looking at continued low prices for Asian imports as a long-term check on U.S. inflation.

Source: The Next China: Vietnam Is Set to Grow