China has been labeled the “global manufacturing hub” for a long time. The T-shirt you’re wearing, the plastic bottle you’re drinking from, and even your iPhone. Everything seems to be made-in-China.
However, total reliance on China as a manufacturing hub is undoubtedly wrong. In recent years, large corporations have been leaving China in droves. This happens when investors realize that the “world factory” is too big and reached its limit. A Gartner survey of supply chain leaders in 2020 showed that 33% have plans to move at least a portion of their manufacturing out of China by 2023.
That is the story in 2020. Political risks and the Zero-COVID policy make foreign businesses more hesitant to invest in China this year.
‘Zero-Covid’ policy shakes China’s economy
The draconian Covid approach of Beijing has prompted criticism from businesses and fuelled public frustration. In recent days, several economists have cut their forecasts for China’s economic growth as the government restrictions continue, hindering growth, according to Fortune.
A survey by the European Chamber of Commerce in China published on May 5 showed that the strict COVID-19 lockdown and supply chain disruptions have shaken the European businesses’ confidence.
92 percent of the businesses that responded to the survey stated that they had been affected by recent port closures, a decline in road freight, and rising sea freight rates.
Nearly a quarter of the 372 respondents considered moving their current or planned investments out of China.
And about 60% of businesses have cut their revenue projections this year, while nearly 30% said they have cut staffing levels.
According to Bloomberg, last month’s data showed that China’s industrial output and consumer spending in April slid to the worst levels since the pandemic began. The jobless rate climbed to 6.1 percent and youth unemployment hit a record.
According to China’s National Bureau of Statistics, in April, China’s jobless rate among 16 to 24-year-olds climbed to more than 18%. That’s three times as high as the national urban unemployment rate in China, and higher than the U.S.’ 7.9% for the same group.
The labor market in China is increasingly tense with fear of unemployment, which even surpassed the peak in 2020 when the coronavirus first began spreading.
It’s not just the COVID-19 policy. According to CNN, recent data from the Institute of International Finance (IIF) reported that China witnessed $17.5 billion worth of capital outflows in March 2022, an all-time high. The trade association called this capital flight by foreign investors “unprecedented.” The outflows included $11.2 billion in bonds, while the rest were equities.
Official data from the Chinese government also showed a record bond-market retreat by foreign investors in recent months. Overseas investors offloaded a net 5.5 billion dollars of Chinese government bonds in February 2022, the largest monthly reduction on record, according to China Central Depository & Clearing Corporation Limited. In March, the sell-off accelerated, reaching a new height of 8.1 billion dollars.
George Magnus, a former economist, explained this unprecedented capital retreat, saying that Beijing’s stance on the Russia-Ukraine war “was clearly the catalyst for capital to leave China.”
Outsiders think that foreign investors are fleeing China due to concerns about geopolitical tensions, waves of lockdowns, and Beijing’s tightening of regulations on the private sector, from education to technology.
Can a Southeast Asian country replace China as a ‘global manufacturing hub’?
Now back to the story of ‘the world’s factory.’ If companies are planning to flee China due to the gloomy outlook of the Chinese economy and the unstable COVID-19 policies, where will their destination be?
And the answer of an Epochtimes columnist is Vietnam.
According to John Mac Ghlionn, Epochtimes’ writer, Vietnam is fast becoming a major player in the manufacturing scene. Currently, there are signals that investors are targeting Vietnam as an alternative destination for the world’s second economy.
This small Southeast Asian country is quickly becoming one of the biggest chip manufacturers in the world, with companies like Intel injecting hundreds of millions of dollars into assembly lines and research facilities in Ho Chi Minh, the country’s economic and financial center. Some of the world’s leading artificial intelligence (A.I.) companies have also heavily invested in the Vietnamese market.
Recently, Nikkei Asia reported that Apple would make its iPads for the first time in Vietnam to diversify its supply chain and reduce dependence on China, its main manufacturer.
The company is moving some iPad production from China to Vietnam after strict Covid-19 lockdowns in and around Shanghai led to supply chain disruptions for months.
Last month, C.K. Asset Holdings, founded by Hong Kong tycoon Li Ka-shing, offered to invest in real estate in Ho Chi Minh City.
Li Ka-shing is known as one of the most shrewd business people in the world. Observers say he can keenly value the changes in the global market, then transfer his huge assets accordingly.
In the past, Li invested heavily in the Chinese market. But in 2013, he began to sell Hong Kong and Chinese assets on a large scale. At the same time, he started his investment in U.K. and European real estate.
In 2015, state-run media Xinhua News Agency took notice and published an article, titled “Don’t Let Li Ka-shing Leave“.
In 2020, Li started selling his U.K. and European assets.
According to some experts, the news that C.K. Asset Holdings has teamed up with Japanese and Vietnam businesses to invest in Ho Chi Minh City real estate shows that Li has chosen Vietnam as his next investment destination.
During the COVID-19 pandemic in 2021, Vietnam’s total import and export volume was close to 670 billion dollars, which increased nearly 23 percent as against the same period last year. At the same time, Vietnam recorded a trade surplus of over 4 billion dollars for the sixth consecutive year.
Albert Song, a researcher of politics and economics, told Epoch Times that Vietnam’s policy of “coexistence with the virus” had strengthened its position in the global industrial chain.
The expert thinks that “the risk of decoupling between China and the global industrial chain is increasing. Europe and the United States are showing strong interest in Vietnam and other Southeast Asian countries, and Vietnam is becoming a new center of the global supply chain.”
This matches the opinion of researcher Peter Vanham. He has noted that Vietnam “is one of the stars of the emerging markets universe.”
Can this small nation replace China as the ‘world’s factory’? This question is yet to be answered. However, the fact that many companies are seeking to move production to other markets outside China is an opportunity for Vietnam to have a part of China’s manufacturing market share.
