• Friday, November 15, 2019

Goodbye China: Chinese manufacturers follow multinationals out the door

Discussion in 'China & Far East' started by Viet, Aug 13, 2019.

  1. Viet

    Viet ELITE MEMBER

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    [​IMG]
    Cat Lai Port: Vietnam is attracting Chinese manufacturers looking to avoid punitive U.S. tariffs. (Photo by Rie Ishii)

    SHANGHAI -- Chinese companies are following their foreign counterparts out of the country in search of alternative production bases to mitigate the impact of the prolonged trade war with the U.S.

    Since last June, 33 listed companies have informed China's two stock exchanges of their plans to set up or expand production abroad, according to data compiled by the Nikkei Asian Review.

    As with foreign manufacturers, U.S. President Donald Trump's multiple rounds of tariffs on Chinese goods, combined with rising wages and other costs, are prompting Chinese companies to move out of the country.

    Nearly 70% of the 33 companies cited Vietnam as their preferred destination, while the remaining chose Cambodia, India, Malaysia, Mexico, Serbia and Thailand.

    Among those companies is Jinhua Chunguang, a rubber product maker, which announced on July 19 an investment of $4.35 million to set up a production base in Vietnam. This is in addition to its three existing plants in Malaysia and China. The company, based in Zhejiang Province near Shanghai, said the investment is a response to "changes in international environment," as well as part of global expansion plans.

    Jinhua makes hoses used in vacuum cleaners, which are subject to President Donald Trump’s third round of punitive import tariffs imposed on Chinese goods worth $200 billion in the second half of 2018, citing unfair trade practices.

    Zhejiang Henglin Chair Industry is also looking to Vietnam, where it acquired a Taiwanese-owned factory as part of a $48 million investment to accelerate its expansion.

    "We will begin production in the second half of the year," an executive at the company told Nikkei at its factory in Anji county. Henglin counts Swedish furniture maker Ikea and Japan's Nittori among its clients.

    Textile manufacturers have also decided to increase production in Vietnam, despite the growing concerns of garment companiesalready operating there.

    Huafu Fashion announced in December it was investing 2.5 billion yuan ($362 million) to build a factory there. The rolled yarn maker said setting up a manufacturing facility in Vietnam will allow it to source cheaper raw material, reduce labor costs and avoid the tariff barrier.

    China's nominal wage jumped by 44% to 6,193 yuan per month in the five years through 2017, according to data from the International Labor Organization. That is big compared to Vietnam's 30% rise, Malaysia's 28% and Mexico's 11% during the same period.

    Rising costs have been encouraging companies to move overseas even before the trade war, according to analysts. Indeed, China has had "going out" policy encouraging such moves since 2001, but few companies felt an urgent the need to pursue it due to the huge market at home.

    [​IMG]
    "What the U.S.-China trade war has done is to accelerate this trend in the short-term, potentially benefitting countries like Malaysia, Thailand and Vietnam," said Darren Tay, a risk analyst at Fitch Solutions.


    Competitive wages are not only thing attracting foreign investors to these countries. "A skilled, well-educated workforce, good infrastructure and a strong network of free trade agreements, including being part of the ASEAN Free Trade Area and EU-Vietnam FTA" are also factors, according to Rajiv Biswas, a Singapore-based economist at IHS Markit.

    While most countries welcome foreign direct investment from China as they would from anyone else, they are also leery of being used to avoid Trump's punitive tariffs. The U.S. president recently threatened to impose a 10% tariff on the remaining $300 billion worth of imports from China starting Sept. 1.

    "The authorities must set up measures to prevent Chinese products relabeled as Vietnamese bound for the U.S.," Vu Duc Giang, chairman of the Vietnam Textile and Apparel Association said in an interview.

    In other countries, the production shift and accompanying investment are being embraced after a heavy focus on Belt and Road-linked infrastructure projects had sparked backlash.

    Jiangsu Xinquan Automotive Trim announced in May it was investing 64.4 million ringgit ($15 million) in Malaysia. The investment will support its principle customer, Zhejiang Geely Holding, which produces vehicles in partnership with Malaysia's national automaker Proton Holdings for sale in the Southeast Asian market.

    "Malaysia welcomes Chinese investment that comes with technology transfer, the use of local talents and certainly not massive migration of Chinese laborers," said an official with the trade office.

    Malaysian Prime Minister Mahathir Mohamad has been deeply critical of Chinese investments approved by his predecessor. Mahathir told Chinese Premier Li Keqiang in Beijing last August that Malaysia would not allow a "new version of colonialism," referring to big-ticket infrastructure projects carried out in his country by Chinese companies.

    The projects were part of China's Belt and Road Initiative, which has attracted criticism for leaving several developing countries deep in debt. Some of the companies involved in the projects in Malaysia had raised the ire of the 94-year- old Mahathir by importing equipment and laborers from China, rather than using local labor and resources.

    The diversification of Chinese investment from a focus on resources and infrastructure toward manufacturing will be welcomed by many developing countries, said Biswas of IHS.

    "Many developing countries are still dependent on commodities exports and their governments put a high policy priority on building up their manufacturing sectors to diversify their economies and create new jobs."


    https://asia.nikkei.com/Business/Bu...ufacturers-follow-multinationals-out-the-door
     
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  2. Viet

    Viet ELITE MEMBER

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    “Nearly 70% of the 33 companies cited Vietnam as their preferred destination.”

    Good choice!
     
  3. Menthol

    Menthol FULL MEMBER

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    I think there are two trends in Chinese manufacturing right now...

    One is to move to Vietnam because of the geographic location near Shenzhen. I think most will be hi-tech industry because that is what Shenzhen is.

    Two is to move near the natural resource like building the world biggest battery factory in Indonesia at the mining location. Reduce transport cost and keep the price competitive.


    What happened in China right now, they are just evolved.
     
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  4. Viva_Viet

    Viva_Viet SENIOR MEMBER

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    Okay, but 5 million Cnese lost jobs due to trade war, and they r very angry at incompeten Beijing govt now..just look at how angry jobless HK students is :pop:

    -----

    US trade war has cost China ‘almost 2 million industrial jobs’, investment bank CICC says
    • Total losses of 5 million represent 3.4 per cent of total employment in the sector, according to China International Capital Corp
    https://www.google.com/amp/s/amp.sc...s-cost-china-almost-2-million-industrial-jobs
     
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  5. Yaseen1

    Yaseen1 SENIOR MEMBER

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    I think vietnam will fail to keep wages at lower level after increase in manufacturing as demand of labor increases unlike china because china has much bigger population and it is easy to keep wages lower and avoid rise when supply of labor is higher due to huge population so vietnam will fail to compete chinese products outside u.s.These companies will regret their decision in long run when vietnam will become much saturated with factories
     
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  6. rott

    rott SENIOR MEMBER

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    Like dogs waiting for the bones to drop on their laps.
     
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  7. Viva_Viet

    Viva_Viet SENIOR MEMBER

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    We dont try to keep low wage ( our salary inscrease at least 10% per year).

    Attracting FDI companies is the first step for every developed countries till they r rich enough to put more money in R&D and make their own products.

    And the big dog keep barking loudly, but can not do anything to stop the small dog puting oil rig inside its nine dash line claim

    Barking dog seldom bite :cool:
     
  8. Viet

    Viet ELITE MEMBER

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    Technology is the answer my friend. Technology will ease the burden on human while keep production at low cost.
     
  9. Yaseen1

    Yaseen1 SENIOR MEMBER

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    i think technology is not that mature to replace labor completely otherwise these factories would have moved back to u.s from china instead of vietnam,I think real competition will be interms of cheap electricity production, in future the country which is able to produce energy at very cheap cost will win the competition and market and I think china will be focusing on it,China also has large reserves of rare earth elements which gives it advantage over vietnam to win competition in long run
     
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  10. lcloo

    lcloo SENIOR MEMBER

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    ".....Since last June, 33 listed companies have informed China's two stock exchanges of their plans to set up or expand production abroad, according to data compiled by the Nikkei Asian Review....
    '.....Among those companies is Jinhua Chunguang, a rubber product maker, which announced on July 19 an investment of $4.35 million to set up a production base in Vietnam. This is in addition to its three existing plants in Malaysia and China. The company, based in Zhejiang Province near Shanghai, said the investment is a response to "changes in international environment," as well as part of global expansion plans......"


    During the trade war between Japan and USA, many Japanese companies also set up factories all over the world, in USA, South East Asia, Europe etc. Example. Japanese set up factories in Malaysia during 1980-1990. Malaysia exports large amount of electrical appliances and electronic goods, mostly Japanese brands like Sony, Panasonic, Sharp, Toshiba etc., many export to USA since 1980s.

    The set up of Chinese factories, likewise to Japanese, is to produce those goods meant for export to countries imposing tariff, namely USA. The existing factories will continue to produce goods for the Chinese markets and other markets that do not impose tariff.

    Those factories depend on export to USA will move out, which is a trend more than 10 years old mainly due to rising wages, this is way before the China-US trade war, no doubt the trade war accelerated the process.

    In this process, some of the less competitive Chinese companies will go down while those with strong fundamentals will expand globally thanks to the US tariff. Example, setting up an industry in far less developed country (example in Africa) will stimulate their economic growth, enrich normal people's income and create a new emerging consumer market and a new prospecting trade partner. In long term ( 2 or 3 decades), bilateral trade will expand in many folds and at the same time reducing volume percentage of trade with USA.

    The best and most significant testimony is ASEAN-China trade, and China-Africa trade.
     
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  11. Viet

    Viet ELITE MEMBER

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    My friend many factors decide whether or not a factory will relocate to Vietnam or other countries. Labor cost is one factor. Rare earth is the other. Vietnam obviously offers more than let’s say Indonesia:

    Free market access to the EU, Russia led trade pact, Tpp

    Higher skilled labor forces

    Close proximity to China

    Political stability, military strength, identical culture and custom

    Thanks good relationship to the West, we can easily acquire technology from the West.
     
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  12. kris

    kris SENIOR MEMBER

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    Let the 50 cent cheerleaders aside friend...
    No point in answering

    Tpp is dead
     
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  13. Viet

    Viet ELITE MEMBER

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    You missed the lastest news!

    Tpp12 is dead.

    Tpp11 is alive.

    [​IMG]
     
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  14. kris

    kris SENIOR MEMBER

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    Ok
     
  15. Indos

    Indos PDF THINK TANK: ANALYST

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    @Viet

    You always seems happy whenever bad news on China appear :partay: