By Dan Harris
The title is an exaggeration, of course. But with my law firm’s international lawyers fielding a steady stream of client requests for help with leaving China for Vietnam, Thailand, Malaysia, Cambodia, India, The Philippines, Indonesia, India and Turkey (mostly), it does sometimes feel as though within three years nobody will be making widgets in China anymore.
On top of the client and potential client calls, we have also been getting a steady stream of reporters asking us for permission to talk to our clients leaving or looking to leave China. We tell them that for various reasons, none of our clients are likely to want to discuss their leaving China and then they usually tell us that they “understand.” See How To Terminate Your China Supplier: Very Carefully and How to Leave China AND Survive.
With the extreme reluctance for anyone specific to say that they will be leaving China, whenever we write about companies leaving China (especially when we do so on our China Law Blog Facebook page) we get hit with invective against us claiming we are making this stuff up because we hate China. Well guess what everyone, there is now strong factual support for what we have been saying for the last few months. A huge chunk of American companies are looking to move their manufacturing from China.
Reuters reporter Sue-Lin Wong did a story yesterday, entitled Many U.S. firms in China eyeing relocation as trade war bites, on how “more than 70 percent of U.S. 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 bites into profits, a business survey showed on Monday.”
In this business survey of 219 companies by the American Chamber of Commerce in South China, “64 percent said they were considering relocating production lines to outside of China.” And just as our international lawyers are seeing and just as we have been reporting, “the trade war is shifting both supply chains and industrial clusters, mostly towards Southeast Asia” — in other words, Vietnam, Thailand, Malaysia, The Philippines, Cambodia, Indonesia and India. “U.S. companies reported facing increased competition from rivals in Vietnam, Germany and Japan, while Chinese companies said they were facing growing competition from Vietnam, India, the United States and South Korea.”
This has led to a slow-down in orders for manufacturers in China:
Customers are slowing down orders or not placing them at all, Harley Seyedin, president of AmCham South China, told Reuters.
“It could very well be that people are holding back on placing orders until times are more certain or it could very well be that they are shifting to other competitors who are willing to offer cheaper products, even sometimes at a loss, in order to get market share,” he said.
“One of the most difficult things about market share is once you lose it, it is very hard to get back.”
Companies in the wholesale and retail sectors have suffered the most from U.S. tariffs, while agriculture-related businesses have been most hit by Chinese measures, the survey found.
The survey was conducted between Sept. 21 and Oct. 10. I would bet the percentages would be even higher if the survey were conducted today and much higher still after January 1, when U.S. duties are set to rise sharply.
“Around 85 percent of U.S. companies said they have suffered from the combined tariffs, compared with around 70 percent of their Chinese counterparts. Companies from other countries also reported similar impacts as their American counterparts.” This too reinforces what our international trade lawyers have been seeing, which is that our European clients have been nearly equally impacted because so many of them sell their products into the United States.
The problems extend beyond just tariff costs as “nearly half the companies surveyed also said there had been an increase in non-tariff barriers, including increased bureaucratic oversight and slower customs clearance.” It is not clear whether these customs problems are being felt in China or the United States or both, but from what we hear from our own clients, it’s both.
What are you seeing out there?
Dan Harris is founder of the Harris Bricken law firm, a boutique international law firm focusing on small and medium sized businesses that operate internationally. China is the fastest growing area for the firm. Dan writes ChinaLawBlog.com as a source of China legal and business information.