China’s days as the workshop of the world are numbered, with the trade war only accelerating the exodus of mass manufacturing, according to the head of a prominent US lobby group in China.
“I have said for a number of years, the days of China being the workshop for the world are over. If they’re not over, they will be over very soon,” said Harley Seyedin, president of the American Chamber of Commerce (AmCham) in South China, which represents American and international companies doing business in and around Guangdong province, China’s manufacturing heartland.
Guangdong‘s exports lead all other provinces and regions in China, accounting for 27.5 per cent of national exports in 2017, according to the Hong Kong Trade Development Council. But already there are signs that the province, also a major destination for foreign investment, is struggling to maintain growth, amid numerous headwinds.
Last year, China’s most prosperous province grew at 6.8 per cent, just below its 7 per cent growth target, as it struggled to reduce its reliance on low-end manufacturing and exports. Guangzhou and Shenzhen, the province’s capital city and technological centre, respectively, also missed their growth targets for 2018.
I have said for a number of years, the days of China being the workshop for the world are over. If they’re not over, they will be over very soon
“Today, does it really make any sense to bring labour from all over China into Guangdong, bring fuel from all over the world to produce something for export? I don’t think it really makes a lot of sense. Because labour is expensive, the land is expensive, the model has changed. China has moved up the value chain,” said Seyedin, who has lived and worked in China for 27 years, in an interview on the sidelines of an investment conference in Xiamen.
“What is moving from China is what was going to move anyway. The trade friction has accelerated that process, but those are easier projects to move simply because they tend to be very labour intensive and energy intensive.”
The shift in manufacturing and slump in exports are partially due to the trade war, but there are a confluence of other factors at play. Firms in Guangdong are embracing automation in a bid to fend off rising competition from other Chinese provinces and emerging markets around Asia, while AmCham South China’s own research shows that 78 per cent of its members are now producing goods to be sold in the local market, a sharp turnaround from less than 23 per cent in 2003.
But the uncertainty surrounding US-China trade negotiations, which are scheduled to resume in October, has dampened investor confidence.
In the latest AmCham survey, released in February, about 44 per cent of the foreign-owned companies and 30 per cent of Chinese firms polled said they have shifted some investment from China to other parts of the world, with Vietnam and Thailand the top two alternatives.
This followed a survey last October, which showed that more than 70 per cent of US firms operating in southern China are considering delaying further investment there and moving some or all of their manufacturing to other countries as the trade war continued to hurt margins.
In the intervening year, tariffs have escalated on both sides, with tensions continuing to rise. In line with this, there has been a flurry of supply chain movement, with a number of high profile US companies downsizing their manufacturing presence in China, including toymaker Hasbro and smartphone maker Flex.
Adding to the pressure, in a tweet in August, US President Donald Trump demanded that American companies “immediately start looking for an alternative to China”.
In the previous three years, [but] not in the last year, there was this feeling among foreigners that they were being squeezed out, the market is not as open for them as it should be, and the feeling in many cases is real,
Seyedin, however, encouraged China to continue to open up to foreign investment if it is to succeed in moving from being a low-end manufacturing powerhouse to a leader in advanced technology.
“In the previous three years, [but] not in the last year, there was this feeling among foreigners that they were being squeezed out, the market is not as open for them as it should be, and the feeling in many cases is real. But I think China realises this is not the right direction to go,” said Seyedin.
“They ended up with this tremendous amount of pressure and disappointment from foreign governments. One of the results is today’s trade dispute. Whether we agree with the way it is being handled, the reality is there was sufficient support by foreign companies for the US administration to create the trade difficulties.
“So I think China intends and needs to further open. To be a part of the international community you have to open [up] to the international community.”
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