China's textiles factories are among those looking to relocate abroad to avoid US tariffs Photo: AFP/File
business

Chinese companies flee overseas to avoid U.S. tariffs

6 Comments
By Ryan McMorrow

A growing number of Chinese companies are adopting a crafty way to evade U.S. President Donald Trump's tariffs: remove the "Made in China" label by shifting production to countries such as Vietnam, Serbia and Mexico.

The world's two largest economies have been locked in a months-long trade fight after Trump imposed 25 percent customs duties on $50 billion worth of Chinese goods this summer, triggering a swift tit-for-tat response from Beijing.

Chinese factories making everything from bikes to tires, plastics and textiles are moving assembly lines abroad to skirt higher customs taxes on their exports to the United States and elsewhere, according to public filings.

Hl Corp, a Shenzhen-listed bike parts maker, made clear to investors last month that tariffs were in mind when it decided to move production to Vietnam.

The factory will "reduce and evade" the impact of tariffs, management wrote, noting Trump hit e-bikes in August, with new border taxes planned for bicycles and their parts.

Trump warned last week those tariffs -- targeting $200 billion in Chinese imports -- could come "very soon".

"It's inevitable that the new duties will lead companies to review their supply chains globally -- overnight they will become 25 percent less competitive than they were," said Christopher Rogers, a supply chain expert at trade data firm Panjiva.

Supply chains have already begun relocating out of China in recent years as its rising labour and environmental protection costs have made the country less attractive.

Tariffs are adding fuel to the fire, experts and companies say.

"China-U.S. trade frictions are accelerating the trend of the global value chain changing shape," said Cui Fan, research director at the China Society of WTO Studies, a think tank affiliated with the commerce ministry.

"The shifting abroad of labour-intensive assembly could bring unemployment problems and this needs to be closely watched," Cui said, adding the shift would not help the U.S.'s overall trade deficit.

The growing list of foreign firms moving supply chains away from China -- toy company Hasbro, camera maker Olympus, shoe brands Deckers and Steve Madden, among many others -- already has Beijing worried.

Less discussed are the Chinese factories doing the same.

Zhejiang Hailide New Material ships much of its industrial yarns, tyre cord fabric, and printing materials from its plant in eastern Zhejiang province to the U.S. and other countries.

Trump's first wave of tariffs on $50 billion in goods this summer hit some of its exports; the next round of $200 billion looks like it will hit several more.

"Currently all of our company's production is in China. To better evade the risks of anti-dumping cases and tariff hikes, our company has after lengthy investigation decided to set up a factory in Vietnam," executives told investors last month.

"We hope to speed up its construction, and hope in the future it can handle production for the American market," a company vice president said of the $155 million investment that will ramp up production by 50 percent.

Other moves abroad spurred on by tariff risks include a garment maker going to Myanmar, a mattress company opening a plant in Thailand and an electronic motor producer acquiring a Mexico-based factory, according to public filings from the firms.

Linglong Tyre is relying mostly on low cost credit to build a $994 million plant in Serbia.

The entire tyre industry faces a "grim trade friction situation", Linglong told investors last month, citing "one after another" anti-dumping cases against China.

"Building a factory abroad allows 'indirect growth,' by evading international trade barriers."

China's bike industry faces a similar pivotal moment. The centre of manufacturing will shift away from China in the future, bike part maker H1 Corp told investors when announcing its Vietnam factory.

Some of Hl's customers started moving production -- especially of e-bikes -- to Vietnam, said Alex Lee, in charge of global sales at Hl Corp.

"First of all there is no anti-dumping tax on Vietnam," Lee said, adding labour costs were lower there as well.

China's growing e-bike industry faces duties not only from the U.S. but also the European Union, which slapped provisional anti-dumping tariffs of 22 to 84 percent on Chinese-made e-bikes in July, alleging Chinese companies benefited from cut-rate aluminum and other state subsidies.

The state support Chinese companies receive is key to the Trump administration's case in taxing Chinese goods, but Hl shows how companies may continue to benefit even after shifting some of their production overseas.

Government subsidies, including millions of yuan to "enhance company competitiveness", eclipsed H1's profit during the first six months of the year, its filings show.

Still the company went ahead and bought an operating factory in Vietnam. Lee noted they had transferred mass production of aluminum forks and steering parts to the new plant from their factory in Tianjin. He did not know if it would lead to job cuts in China.

© 2018 AFP

©2018 GPlusMedia Inc.


6 Comments
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Now isn't that amusing these charlatans from a country that often accuse other nations of fraud :)

It's called projecting!

1 ( +2 / -1 )

in Australia when tests revealed what was meant to be Australian honey actually has a heavy dose of foreign syrups and sugars, mostly from China, in them. That sort of thing needs to be dealt with using testing, fines, jail etc etc.

Now isn't that amusing these charlatans from a country that often accuse other nations of fraud :)

1 ( +2 / -1 )

The Labor Union is one of the problems for manufacturing business in Myanmar. Some foreign own garment factories have closed in Myanmar due to labor Union activism and strike. Burmese Government must control the labor Unionists and other activism if the Government wants foreign investment in Burma. The international activists are invading Burma and scare poor and uneducated people from countryside and encouraging peoples to against building roads and power stations in near their villages.

0 ( +0 / -0 )

This is what its all about. Moving supply chains out of China.

Many of these factories will still get their supplies from China. This move is just to "change" the country of origin.

0 ( +2 / -2 )

No an ideal outcome, but still positive for S.E.A. This is what its all about. Moving supply chains out of China.

I think the ability to track supply chain inputs is only going to increase in time. I can imagine a time, not far away, where there are some very sophisticated scanning techniques on goods entering U.S ports, far more so than now.

The world as whole needs to get much better at this. Just the other day there was a big controversy in Australia when tests revealed what was meant to be Australian honey actually has a heavy dose of foreign syrups and sugars, mostly from China, in them. That sort of thing needs to be dealt with using testing, fines, jail etc etc.

2 ( +3 / -1 )

Or they will simply change the labels before reaching American shores. It wouldn't be a surprise considering some of the other illegal activities Chinese businesses have been caught doing in the past.

Japanese food producers do it all the time with Fukushima and othe prefecture products.

-2 ( +1 / -3 )

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