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Chinese companies flee overseas to avoid US tariffs
BEIJING, Sept 11, 2018 (BSS/AFP) – A growing number of Chinese companies
are adopting a crafty way to evade US 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 tyres, 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-US
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 US’s overall trade deficit.
MORE/MR/ 1226 hrs
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– Chinese firms race abroad –
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 US 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.”
– Bike industry shifts gear –
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.
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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 US 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 aluminium 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 aluminium 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.
BSS/AFP/MR/ 1226 hrs