Literacy

Chinese companies flee overseas to avoid US tariffs

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.

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

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 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 '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.

Source: Bangladesh Sangbad Sangstha (BSS)