8/18/2019 Goodbye China: Chinese manufacturers follow multinationals out the door - Nikkei Asian Review

BUSINESS TRENDS

Goodbye China: Chinese manufacturers follow

multinationals out the door
Companies look to Vietnam and beyond amid protracted trade war and rising costs at home

CK TAN, Nikkei staff writer

AUGUST 12, 2019 18:00 JST

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.

https://asia.nikkei.com/Business/Business-trends/Goodbye-China-Chinese-manufacturers-follow-multinationals-out-the-door?utm_source=paid.outbrai… 1/6
8/18/2019 Goodbye China: Chinese manufacturers follow multinationals out the door - Nikkei Asian Review

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 companies already 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.

https://asia.nikkei.com/Business/Business-trends/Goodbye-China-Chinese-manufacturers-follow-multinationals-out-the-door?utm_source=paid.outbrai… 2/6
8/18/2019 Goodbye China: Chinese manufacturers follow multinationals out the door - Nikkei Asian Review

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.

"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 the 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.

https://asia.nikkei.com/Business/Business-trends/Goodbye-China-Chinese-manufacturers-follow-multinationals-out-the-door?utm_source=paid.outbrai… 3/6
8/18/2019 Goodbye China: Chinese manufacturers follow multinationals out the door - Nikkei Asian Review

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.

https://asia.nikkei.com/Business/Business-trends/Goodbye-China-Chinese-manufacturers-follow-multinationals-out-the-door?utm_source=paid.outbrai… 4/6
8/18/2019 Goodbye China: Chinese manufacturers follow multinationals out the door - Nikkei Asian Review

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."

Nikkei staff writer Yusho Cho contributed to this article.

Stay ahead with our exclusives on Asia

Sign up to our newsletters to get our best stories delivered straight to your inbox.

Email address

Sign Up

SPONSORED CONTENT

https://asia.nikkei.com/Business/Business-trends/Goodbye-China-Chinese-manufacturers-follow-multinationals-out-the-door?utm_source=paid.outbrai… 5/6
8/18/2019 Goodbye China: Chinese manufacturers follow multinationals out the door - Nikkei Asian Review

About Sponsored Content

https://asia.nikkei.com/Business/Business-trends/Goodbye-China-Chinese-manufacturers-follow-multinationals-out-the-door?utm_source=paid.outbrai… 6/6