• Sunday, June 7, 2020

Possibility of companies shifting from China

Discussion in 'China & Far East' started by Viet, May 23, 2020.

  1. Viet

    Viet ELITE MEMBER

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    May 22, 2020
    By
    Tridivesh Singh Maini


    US President Donald Trump made perhaps the strongest statement with regard to China, when he stated that US could totally snap ties with China. The US President also stated that the US could save 500 Billion USD, while referring to annual US imports from China (in 2018, US trade deficit vis-à-vis China reached 419.5 Billion USD)

    In addition to adopting a strong stance against China by imposition of tariffs, and more recently on the outbreak of the coronavirus pandemic, the Trump administration has initiated some strong measures against telecommunication giant Huawei. In 2019, the US Huawei, along with 114 of its overseas-related affiliates, had been added to the “entity list,” citing national security concerns (as a result of being designated on the ‘entity list’, Huawei needs an export license requirement on all exports, reexports, and transfers of items subject to the US Export Administration Regulations (EAR) to Huawei and its listed affiliates)

    On May 15, 2020, The Bureau of Security and Industry (BIS), US Department of Commerce announced new rules, with the clear objective of restricting Huawei’s ability to use U.S. technology and software and to design and manufacture its semiconductors overseas. According to the rules, Foreign semiconductor makers using American software and equipment need to obtain licenses for selling to Huawei.

    US measures to reduce dependence upon China and change supply chains

    There are also strong indicators, that the US is thinking of coming up with some measures which incentivize US companies to relocate from China (Trump ever since taking over the US Presidency has been pitching for the same) and to shift supply chains. There was talk of a ‘reshoring’ fund to the tune of 25 Billion USD. It is not just the Republican Party, but there is bipartisan support for re-thinking economic ties with China in a post-covid world (China made products accounted for, 18%, nearly 1/5th of US imports).

    There is an especially strong consensus on the point, that dependence for essential commodities on China needs to be reduced (one bill passed by a Democrat and Republican seeks to set up a panel, which can reduce drug supply reliance on China). Peter Navarro, Director of the White House Office of Trade and Manufacturing Policy, had also been pushing for the country’s medical supply chains to be U.S.-based. Navarro had even suggested an executive order according to which Federal Agencies were required to buy US-made medical supplies and pharmaceuticals.

    With the aim of reducing dependence upon medical supplies from China, an important step was the recent decision of the U.S Department of Health and Human Services to award a four-year, $354 million contract to a private US company –Phlow Corp — to make Covid-19 drugs (this contract can be extended upto 812 Million USD over a period of 10 years).

    Greater cooperation within Five Eye intelligence network to reduce dependence upon China

    According to a report published by Henry Jackson Society all members of the five eyes intelligence network (Australia, UK, US, New Zealand and Canada) are dependent upon China for crucial imports. In the case of the US, it is dependent upon China for 424 categories of goods out of these 114 are linked to national infrastructure. Australia is the most dependent upon China – it imports 595 categories of goods from China, and 167 of these have applications in critical national infrastructure. The report also sought greater cooperation within the network for reducing dependence upon China.

    It would be pertinent to point out, that not just US, but Japan has earmarked over 2 Billion USD (2.2 Billion) for facilitating Japanese companies from China back to Japan, and other countries. The bulk of this package (2 Billion USD) is targeted towards getting Japanese companies to relocate to Japan, the remaining amount is meant to be used for helping Japanese companies to shift to other countries such as Vietnam.

    Possibility of companies shifting from China and likely beneficiaries

    In the midst of the US-China trade wars, a number of companies shifted their base from China to Vietnam. According to a study out of 56 firms which shifted their base from China, almost half (26) shifted to Vietnam due to the investor friendly environment

    Even in the aftermath of the coronavirus pandemic, some firms (including Google and Microsoft) had expressed their keenness to shift production of hardware from China to Vietnam

    Recently, TSMC (Taiwan Semi Conductor Manufacturing Company), the world’s largest contract chip maker also announced that it would build a 12 Billion plant in Arizona, US (the plant would be operational in 2024). While the US Secretary of Commerce, Wilbur Ross, hailed this announcement, TSMC is likely to be impacted by the Trump administration’s new rule which seek to restrict global chip supplies to Huawei.

    Why China is a preferred destination for US companies

    While some US companies may look to relocate from Beijing, it is important to have an understanding of ground realities, and the views of investors. China is attractive for many investors due to a plethora of factors; this includes the large Chinese market, a rising middle class, and the ever increasing popularity of American goods amongst young consumers. Even after the outbreak of the coronavirus, retailers like Walmart and Costco are seeking to expand their operations in China. A number of other American companies continue to bet on the Chinese market.

    In a Survey of 25 companies (by the American Chamber of Commerce in China and the American Chamber of Commerce in Shanghai), 44% stated that decoupling of US and Chinese economies was impossible. This is a significant drop from October 2019, where 2/3rd — 66% — of companies surveyed had stated that US and Chinese economies were too closely intertwined, yet it still is substantial (what is important is that only 16% of those surveyed had emphatically stated that they would shift their production outside China).

    Conclusion

    While it is true, that some companies are likely to shift from China, Beijing will seek to introduce policies which woo foreign investors. China had in fact introduced incentives for foreign companies (including greater regulatory transparency) in the beginning of 2020.

    Apart from this, it also possesses some major advantages, which have been discussed earlier, vis-à-vis other countries. While countries like US, Japan, Australia, India and Vietnam need to work jointly towards shifting supply chains, it is important to be realistic and pragmatic, and understand that supply chains are not likely to change over night.

    https://moderndiplomacy.eu/2020/05/22/possibility-of-companies-shifting-from-china/
     
  2. riscol

    riscol FULL MEMBER

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    pipe dream
     
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  3. Viet

    Viet ELITE MEMBER

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    Nothing impossible my friend

    once the US moves all manufacturing to Vietnam we can make $500 billion in exports for Donald Trump.

    if I am not mistaken you hate US imperialism.

    win win
     
  4. flowerfan2020

    flowerfan2020 FULL MEMBER

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    You still not understand. Vietnam is a monkey king but China is Buddha.
     
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  5. Viet

    Viet ELITE MEMBER

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    making joke won’t save you. it’s too late.

    The US wants to cut off relationship.

    The end of a love story

    the end of China miracle
     
  6. Austin Powers

    Austin Powers ELITE MEMBER

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    China and US should go to Cold War. There is an old Chinese saying. There cannot be two tigers on the same mountain.
     
  7. flowerfan2020

    flowerfan2020 FULL MEMBER

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    It would be lost for both. It wouldn't be just China. Only small, weak and poor country like Vietnam is fully depended on the relationship of U.S.
     
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  8. Reashot Xigwin

    Reashot Xigwin SENIOR MEMBER

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    That just actually means Vietnam will be even more dependant on china for their export.

    Vietnam has neither the labor pool, infrastructures or resources to completely replace China in the global market.

    Trump has no idea how the global supply chains work. Even if apple moved their production facility in china to Vietnam. Vietnam still have to imports many of the materiel needed to produce iPhone & others from China. This will increase Vietnam's trade deficit with china & makes them more dependant on China. The same with Samsung.
     
  9. flowerfan2020

    flowerfan2020 FULL MEMBER

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    Glad you see it but Viet isn't that smart like you.
     
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  10. riscol

    riscol FULL MEMBER

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    Viet simplistic minds shows he is not really that smart. President Trump wants to cut off China supply chain? that is impossible. Some companies may want to or are forced to relocate factories to other countries with cheaper labor or avoid US sanctions. Mongrel think it will be the end of China just as he earlier said Huawei is finished. Herein lies the problem, no logic but based on stupid emotion like a barking dog.

    Made in China products or parts meant for other countries to assemble into a product cannot be dismantled. Only some companies might shift to another country. Trump wants to bring back jobs? Sounds like music for domestic consumption. He needs voters for coming re-election now that farmers are pissed off by trade war with China. What do factories need? Materials and rare earth. Who controls it? China not little Vietnam. You think other countries such as US have rare earth mines can solve the problem? Wrong. It is China who controls the processing ability of rare earths. Made in USA? labor and products very very expensive.

    Poor Vietnam and other poor countries lack infrastructure, complete supply chain and facilities. If moving factories to these countries it needs massive investment and skilled workers. US manufacturing skills also almost completely vanished. How many companies willing to risk millions or billion to create a complete supply chain in Vietnam? Pipe dream. Many poor countries lack skilled work force especially a fishing village like Vietnam.
     
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  11. Viet

    Viet ELITE MEMBER

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    Being poor has benefits though we have nothing to lose.
    Donald Trump wants the divorce.
    We are just like a lawyer we want to help him.
     
  12. Globenim

    Globenim FULL MEMBER

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    Another wet dreams blog entry

    Its telling however when the Trump regime has to prepare billions of bribes to defacto pay companies to even consider leaving China, while "expert" mouthpieces of envious regimes harp on about companies "willing" to leave China for no good reason, even more absurdly to places that would be a horrible economic loss for their business.
     
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  13. fisher1

    fisher1 FULL MEMBER

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    Can't happen soon enough.

    If the world has to live, there needs to be put an end to communism.
     
  14. flowerfan2020

    flowerfan2020 FULL MEMBER

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    If Vietnam play smart, it really could benefit from it but not easy because Vietnam will be forced to pick side that mean will be a big gamble. If you made the wrong decision, it will more than just a small loose.
     
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  15. Viet

    Viet ELITE MEMBER

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    Keep your reco to yourself!

    The US wants to form an alliance of like-minded partners. the quad plus will include New Zealand, South Korea, and surprise: communist Vietnam. The US wants to buy stuffs more from us. I don’t see why we need your recommendation.