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US-China trade war: Made in China currently affecting nowhere to go?

2019-06-12     来源：远大国际     浏览量：3447

  Yuanda Securities Yuanda futures Latest official news  Ever since July last year, under the background of the Sino-US trade war, the United States has introduced several rounds of tariff-raising measures against China's exports to the United States. By May 10 this year, 250 billion U.S. exports had been levied 25% tariffs, accounting for $478.4 billion of China's exports to the United States in 2018. More than half, accounting for 10% of China's total exports of $2.48 trillion in 2018, have a significant impact on the US tariff increase, which is not counted as a third party providing services to these manufacturing enterprises.

Twenty-five percent tariffs are hard to digest and bear for export-oriented manufacturing industry, which has suffered from rising costs for many years and has a thin profit margin. Therefore, some enterprises choose to transfer their production capacity overseas to avoid the impact on the rise of US tariffs. However, under the appearance of low tariff and low cost, setting up factories overseas still needs to be considered more thoroughly.

       Southeast Asia is already overburdened

At present, because of geographical proximity and low cost, Southeast Asian countries are the main destination for Chinese enterprises to transfer capacity. Apart from Singapore, which is too expensive, and Brunei, whose economy is based on oil and gas, eight other Southeast Asian countries have undertaken industrial transfer from China to varying degrees. In fact, this process began more than ten years ago, but it has been tepid. The Sino-US trade war has forced a large number of Chinese enterprises to go out. Those industrial parks in Southeast Asia that have been badly operated for many years have become popular all of a sudden. Chinese entrepreneurs who have visited the park have been in a continuous stream, and the rents of the parks and factory buildings are also very high. Rising boats, one price a day. Among the eight countries in Southeast Asia, Vietnam and Cambodia are the most enthusiastic, and Vietnam is considered the biggest winner of the Sino-US trade war. Thailand and Indonesia followed, followed by Myanmar, Malaysia, Laos and the Philippines.

The common advantage of these countries is that the population is young, and the proportion of young people under the age of 30 is more than 50% of the total population; the labor force is cheap, the minimum wage is generally less than 200 US dollars, Myanmar is lower to 6-700 RMB, and Malaysia is higher to 2400 RMB, which is lower than the actual wage level in China's coastal areas; moreover, this is also true. Some countries either signed free trade agreements with the United States, the European Union and Japan, or because of the low level of economic development, they were taken care of by the GSP system. The tariffs on goods exported to major markets such as the United States, the European Union and Japan were very low or zero. Vietnam, for example, joined CPTPP and signed a free trade agreement with the EU; Cambodia, on the other hand, was under the care of GSP, with zero tariffs on most goods exported to the United States, the European Union and Japan.

However, the disadvantages of these countries are also obvious. First, the supply chain is incomplete and most of the raw materials are imported from China. Southeast Asia's clothing OEM has been done for many years, with a certain scale. Seven of Cambodia's export commodities are clothing in Chengdu. Even so, clothing fabrics and some accessories still need to be transported from China. Therefore, Southeast Asia is more suitable for those industries with short supply chains, such as clothing and household products. It is relatively easy to match raw materials, but not suitable for industries with long supply chains such as electronics. This also explains why many electronics companies are clustered in northern Vietnam to facilitate the transportation of raw materials by land from Huaqiang North, Shenzhen.

Secondly, the quality of labor force and the degree of hardship and endurance are far inferior to those of China. Although the labor force in Southeast Asia is apparently cheaper than that in China, many workers wash their feet and go to the fields without training at all, and their education level is generally limited. As a result, their efficiency can reach 70% or 80% of that of Chinese workers at most. Moreover, workers in Southeast Asia are generally reluctant to work overtime. Overtime work is the ceiling of two hours a day, and no more money is given. It is simply unthinkable for them to work 24 hours a day in order to catch up with the construction schedule, as in China. In this way, the advantage of labor cost in Southeast Asia is not so significant. In addition, due to the influx of Chinese enterprises, there has been a shortage of labor force and soaring wages in parts of Vietnam and Cambodia. With this trend, the cost advantage of Vietnam and Cambodia will soon be exhausted.

So leave China and you will find that there is no such a good labor force in the world. Over the past few decades, hundreds of millions of Chinese migrant workers have sacrificed their families, left their homes to work in coastal areas, lived in collective dormitories with no privacy and dignity, paid meager wages, repeated simple and boring manual labor day after day, and worked overtime for a long time is a common practice, and sometimes their legitimate rights and interests are not guaranteed. With these people's efforts, only cheap and high-quality "Made in China". It is also so easy-to-use workers who spoil Chinese bosses who go abroad and generally feel uncomfortable with foreign workers who refuse to work overtime or go on strike.

Third, the infrastructure in Southeast Asia is not comparable to that in China.  In China's coastal areas, the density and disposal capacity of infrastructure such as expressways, railways, airports and ports are beyond the grasp of Southeast Asian countries. The distance that can be reached in China in an hour is likely to take half a day in Southeast Asia. A large influx of Chinese manufactured goods into Southeast Asia has led to a backlog of cargo in some ports. There are also electricity shortages in some countries. It can be said that the current infrastructure situation in Southeast Asia is not enough to support the arrival of a large number of Chinese-made products.

Fourthly, the political situation in some countries is unstable and the relationship with China is rather delicate. Vietnam, for example, was hit by riots against Chinese companies in May 2014 over the South China Sea dispute, and by Vietnamese factories in the United States; Indonesia's history of Chinese exclusion is notorious, most recently in 1998. The recent riots over the presidential election disputes have also affected Chinese people. There is also the case of the mayor of Jakarta, Zhong Wanxue, a Chinese Christian, who quoted a quote from the Koran in his speech to run for the mayor of Jakarta, which was maliciously edited and uploaded to the social media. He accused Zhong Wanxue of attacking Islam. Zhong Wanxue was sentenced to 20 months'imprisonment and released only recently.

Fifth, because Southeast Asian countries generally have a lower level of development than China, and there are more loopholes in internal governance, many Chinese people are attracted to carry out illegal activities there, tarnishing the image of the Chinese people, and also arousing discontent among the local people. The most typical is Sihanouk Port in Cambodia, where a large number of Chinese people engage in telecommunications fraud, online gambling and other activities, which has pushed up land prices and living costs, but also destroyed the social atmosphere and public order. Where will local discontent lead? How to dissolve counseling? It's something that the Chinese have to consider. In Sihanouk Harbour, Cambodia's largest special economic zone operated by the Chinese is rarely known, and its popularity has been overshadowed by gambling, telecommunications fraud and various illegal activities.

       Is it possible to set up factories in the United States?

In addition to Southeast Asia, Africa, India and the United States are often mentioned as places where Chinese manufacturing transfers capacity. Among them, the conditions in the United States are the best, water, electricity and natural gas are much cheaper than those in China, such as industrial electricity prices, which are generally around 0.8 yuan in China, while the United States generally does not exceed 0.2 yuan; the business environment in the United States is more transparent and standardized, and in recent years, some states have made great efforts to attract investment, reaching a certain number of employees. There are considerable tax deductions. For example, in July 2017, Foxconn announced that it would invest $10 billion to build the most advanced LCD panel plant in Wisconsin in four years, creating up to 13,000 jobs there. Wisconsin gave back tax exemptions and subsidies of up to $3 billion over a period of 15 years.

However, the cost of labor in the United States is much higher than that in China. At present, the minimum wage in American States is about $10 per hour. In this way, the monthly wage of workers must be more than $2000, at least four times that of coastal areas in China. And because the service industry is highly developed, it's hard to hire people in the manufacturing industry. More troubling is that years of de-industrialization have led to an already incomplete industrial chain in the United States. Recently, Apple set up a factory in Texas, USA, and found that even the screw had to be shipped from China. Therefore, the United States is suitable for those manufacturing enterprises with high degree of automation, less labor, high energy consumption and short supply chain. It is for these reasons that Fuyao Glass and Stonehenge Glass Fiber have established factories in the United States.

Africa is also frequently mentioned as a destination for capacity transfer, but the situation in Africa varies widely and it is difficult to generalize. There are countries that rank fairly high in the global business environment, and chaotic places where security is extremely poor and bodyguards are required to go out. Most African countries are in different positions in the middle. Their common advantages lie in their proximity to the United States and Europe. They are generally taken care of by tariffs. If they export, they have advantages in terms of shipping charges and tariffs. Their population is young and they will not be short of jobs. Their industrial base is weak and their domestic demand market has great potential for development. The disadvantages are also obvious: large population, but low education, weak sense of discipline and hard work; backward infrastructure such as transportation, rampant corruption, power shortage, and incomplete supply chain. These are difficult to improve in the short term.

India, like China, has a large population, abundant labor force and a vast market, so it is expected to become a new "world factory" after China, but its ideal is very rich, and its reality is very skeletal. In fact, most people in India are only superficial, because the caste system and the low status of women make it impossible for most people to work freely. Therefore, there is also a saying that only 100 million workers are available in India, and the illiteracy rate in India is more than 30%. In this way, high-quality production can be achieved. There are not many workers in the industry. In addition, India has almost the same supply chain, infrastructure, corruption, market disunity and power shortage in Southeast Asia and Africa. Moreover, since June last year, there has also been a trade war between the United States and India, with tariffs imposed on each other, similar to the Sino-US trade war. Recently, the United States cancelled the GSP tariff treatment for India. All these doomed India to be neither a "world factory" nor an important destination for Chinese enterprises to transfer their industries.

       Let Domestic Demand Support Made in China

From the above analysis, we can see that no place in the world has the ability to undertake the overall transfer of Chinese manufacturing. However, the advantages of China are still obvious: complete industrial chain, high-quality infrastructure, hard-working and cost-effective workers, strong mercantilist tendency of the government and enthusiasm for attracting investment. This will eventually lead to the differentiation of Made-in-China: one part is to set up factories overseas to avoid tariffs and costs, or export or focus on local markets; the other part is to stay at home and develop domestic demand markets in China; the other part is to upgrade to the top of the industrial chain and continue to export from China to the United States and other developed markets with high tariffs, but The scale will be reduced.

The latter two are crucial: a large number of enterprises want to transfer capacity, an important reason is that the United States is the largest buyer of Chinese manufacturing, in order not to lose this important market, enterprises have to work hard to set up factories overseas. The United States is only 300 million people, China has 1.3 billion people, and the burst of domestic demand of 1.3 billion people can fully support high-quality Chinese manufacturing. Nevertheless, the words to boost domestic demand have been used for many years, but they have been ineffective. It is equally difficult for enterprises to switch from exports to domestic sales. The main obstacles include the lack of entrepreneurs'sense of security, the uncertainty of macro-environment, the squeeze of real estate on consumption, the prevalence of plagiarism and imitation, high circulation costs, high rents and so on.

These are also obstacles to the transformation and upgrading of Made-in-China. The transformation and upgrading is not to force enterprises to accomplish in one stroke, nor is it inevitable to succeed. Without the cooperation of a series of deep-seated reforms, the shrinkage and hollowing of Chinese-made products are the most worrying after some of the production capacity has been transferred.

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