More than 50 companies are withdrawing production from China due to trade wars
A Nikkei study found that a year after the trade war with Washington, more than 50 global companies, including Apple and Nintendo, have announced or are considering plans to relocate production from China..
And these are not only foreign companies. Chinese manufacturers, as well as manufacturers from the United States, Japan and Taiwan, are involved in this process, including manufacturers of personal computers, smartphones and other electronics..
Apple urged major suppliers to consider withdrawal 15–30% of iPhone production is from the country. Nikkei said on Wednesday that Apple is about to begin trial production of its popular AirPods wireless earbuds in Vietnam. Tests like these usually precede mass production.
US PC makers HP and Dell plan to move up to 30% of China’s laptop production to Southeast Asia and other countries. Japanese Nintendo Will Also Move Part Of Its Nintendo Switch Game System From China To Vietnam.
There are concerns that these moves could curb employment and consumption in China. To Minimize Impact, Beijing Liberalizes Working Conditions For Foreign Businesses.
Tesla is at the forefront of such government efforts. The company is currently bringing equipment to its new plant on the outskirts of Shanghai, where it started operations just six months ago. Tesla starts hiring workers to complete its lines next month.
The American electric vehicle maker is believed to have received discounted land from the local administration and likely received cheap loans as well..
China is gradually opening up to foreign enterprises. This process has been going on since 2018, when trade tensions with the United States increased. FDI in China grew 3.5% year-over-year to about $ 70.7 billion in January-June, according to the US Department of Commerce..
In late June, the country announced that it would ease restrictions on foreign investment in seven fields, including oil and gas. Work is also underway to open up the financial sector.
Whether this is enough to offset the impact of the trade war remains to be seen..
Concern about the situation is growing among political leaders. In May, the State Council of China decided to create a team to lead employment measures and plans to strengthen vocational training programs using surplus funds from public insurance schemes..
The trade dispute begins to manifest itself in the flow of goods and capital. In the first five months of the year, exports from China to the United States fell 12% year on year in value terms, while exports from India, Vietnam and Taiwan recorded double-digit growth. Exports aiming to circumvent US tariffs by masking the origin of goods may also increase.
Many companies, alarmed by the prospect of a protracted trade conflict, hedge their bets. Looking for alternative manufacturing sites for US-related goods, many will retain factories in China for the domestic Chinese market. Thus, many manufacturers will be forced to create dual supply chains, one for China and one for other markets, which increases their cost and reduces profits..
«The possibility of dividing the world market into China and the non-Chinese world is growing», – said Yuji Miura, senior economist at the Japan Research Institute. According to him, the weakening of economic ties between the United States and China and the division of the world economy into hostile blocs is a real opportunity..
In addition to higher costs, companies are likely to face excess capacity in a fragmented global economy..
Since July last year, the US government has imposed three rounds of new tariffs on Chinese imports, covering 27 trillion yen ($ 250 billion) worth of goods. Although the fourth round, covering virtually all goods sourced from China, has been put on hold, companies need to prepare for the worst..
Most of the displaced manufacturing will go to Southeast Asia, especially Vietnam, which is becoming home to many electrical and electronic equipment manufacturers. Among them is South Korean Samsung Electronics, which produces smartphones in the country. Vietnam also offers logistical advantages because it shares a land border with China.
Japan’s Kyocera plans to move its printer production to Vietnam. Chinese electronics manufacturer TCL will set up a TV factory in the country.
Manufacturers are also bringing production back to their home country to take advantage of existing sourcing networks for exports targeting large developed country markets. Komatsu has partially relocated supplies of construction equipment parts to Japan and the United States. Companies are also working to improve productivity in their factories by advancing digitalization and automation..
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