Recently Nihon Keizai Shimbun electronic version reported the following:
日経産業新聞 コラム（ビジネス） 自動車・機械 中国・台湾 東南アジア
2019/12/11 2:00日本経済新聞 電子版
NIKKEI BUSINESS DAILY 日経産業新聞
As the future of the US-China trade war could not be seen through, Chinese manufacturers were wavering on whether to move their production sites overseas. The manufacturing industry that had participated in China's largest trade fair held in Guangzhou city in October-November (Canton Trade Fair) was interviewed, and it was understood that the low level of technology and the difficulty of funding had proven to be a hurdle to them. As the US might trigger additional tariffs on smartphones, toys, etc. starting from the 15th, the Chinese manufacturing industry's predicament was likely to deepen further.
“We must be prepared for the impact of additional US tariffs next year.” A representative from a cashmere clothing manufacturer in the Xinjiang Uygur Autonomous Region said. The company's flagship product had not yet been subjected to additional tariffs. Delivery to US customers was done ahead of schedule as their production might be subjected to additional tariffs scheduled to be activated in mid-December.
This company's goods, which were mainly produced in China and shipped worldwide, had the US accounted for 20% of the sales. If there were additional duties, the impact on management would be significant. Considering the relocation of production areas, its executives recently visited an industrial park in Cambodia. However, the level of technology there among the button makers and the like was surprising low. “Relocation may reduce our cost-effectiveness,” and thus reverted the relocation plan to just a blank paper.
It was more expensive for a jeans maker in Guangzhou City to export to the US due to additional tariffs in May, and orders from the key US markets were almost gone. Other companies in the same industry had transferred production to Vietnam and Pakistan to avoid additional tariffs so as to maintain orders from the United States. One company tried to do the same transfer, but found that it was practically difficult to set up a new production line overseas because its number of workers was merely a few dozen. Currently the company devoted to look for sales outlets beyond the US.
Jeans industry was a low profit margin industry with many small and medium-sized enterprises. Decrease in orders from the US, one of their major markets, was a big hit; one sales representative had said, “I believe it (US-China trade war) will be resolved soon.”
With production bases in China, smartphone manufacturers together with the contract manufacturing services for electronic devices (EMS) were in a difficult situation even in moving out. Additional tariffs were expected to be activated for smartphones and laptops in the fourth round by December 15th. A manufacturer said, “we have decided to move the factory site overseas but is putting on hold the relocation, we would move quickly depending on the US-China negotiations.”
Panasonic's general manager Toshihide Tanaka who was doing business with these manufacturers said "we are closely monitoring customer trends." The company recently had established a system for exchanging information between sales representatives in China and personnel in both Vietnamese and Indian so that products could be supplied smoothly even if there was a production transfer.
Game consoles, toys, clothing etc. were also expected to be included in the additional tariffs in December, the related industries were, just liked EMS, in a state of puzzling.
For Chinese manufacturers, the production area was not the only source of problem. There was a concern that world trade would cool down, starting with frictions between the US and China.
The World Trade Organization (WTO) in November announced its trade index for goods, it was a standard for judging the expansion or contraction of trade. For the period from October to December 2019 it had been fallen below 100 for five consecutive quarters. In addition, the contract amount signed by Chinese manufacturers and overseas purchaser (buyers) at the recent Canton Fair was 29,288 million dollars (approximately 3.2 trillion yen), a decrease of 1.9% from the previous year. The previous decline in track record was in autumn 2018, following a decline in spring 2019, it was a three-consecutive decline.
With supply chain across the country re-organizing and self- transaction slowing down, China's manufacturing industry, which had long functioned as a world factory, was facing a major challenge.
The tariff imposed by the US on Chinese goods in the recent trade dispute, together with the threat of imposing further tariff, has already upset China’s plan to become the world’s factory. Many Chinese manufactures have moved their production sites to SE Asian countries in general and Vietnam in particular. Globally due to the demand for daily consumer goods, there will be no trading vacuum in the business world. If country A cannot produce goods at an attractive price, country B or C will move in to take over the production vacuum immediately. International trading will never stop to wait for an outcome of the US-China trade war.