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| Trade war or not, manufacturing in the lowest-cost sectors will inevitably move out of China to places like Vietnam. |
How do you make money in China nowadays...as an export-oriented concern? Yes, this is a trick question whose answer should be obvious from the post title. Firms that help manufacturing concerns move their production facilities to lower-cost locations in the aftermath of Trump's trade war is the obvious
answer here. Notably, while rising costs in China have already become plenty evident--higher wages and more stringent labor and environmental regulations--the forthcoming declaration of total tariffication of all Chinese exports to the United States seems to be the last straw:
However, plenty of on the ground accounts suggest that factories are being downsized or closed completely, with firms moving to Vietnam,
Taiwan, Cambodia, Thailand and other parts of Southeast Asia. This is
not solely due to the trade war, since the rising cost of labour and
meeting environmental regulations in China have also led to companies
seeking cheaper production hubs over recent years.
But
the tariffs have accelerated the trend, and logistics companies with
cross-border capability are milking the opportunities, moving the
growing traffic of Chinese firms from China’s industrial heartlands and
newly-built industrial parks in neighbouring countries.
“Since
the second half of 2018, our company has helped 10 manufacturers – in
sectors from jewellery, to electronics, to printing – relocate their
entire plant. That is to say, these 10 enterprises have completely
shifted and withdrawn from China,” said Eric Huang, who runs one of the
leading logistics companies in Guangzhou, R&T Transportation.
“We
have also helped at least 500 companies to transport their partial
production lines, as well as raw materials and equipment, to their
newly-built plants in Vietnam, Indonesia and Thailand,” he said. As the
trade war escalated in recent weeks, the pace of the exodus has sped up too. On May 10,
Trump increased tariffs on US$200 billion of Chinese goods from 10 per cent to 25 per cent.
And so ends China's turn as the factory to the world? At least it's status as the lowest-cost producer is certainly in question. Even if the trade war were to cease today, the transition to ever-lower cost locations will continue as China loses that status:
Even if the trade war were to end tomorrow, the logistics companies do not expect this trend to grind to a halt.
“We
started logistics business between China and Southeast Asian countries
in 2011, with about 30 million yuan (US$4.34 million) of annual turnover
at the time. Our turnover was 150 million yuan in 2018. Though no one
knows the final outcome of the trade war, the relocation trend is sure
to increase. It is quite possible that the business will double to 300
million yuan this year,” Huang said.
