A worker busy making sportswear in a factory in Foshan, South China's Guangdong Province Photo:VCG
Some manufacturers in China are making plans to move production lines to Southeast Asia, a process that companies and industry observers said was mainly due to the country's rising cost of production, with heightened China-US trade tensions merely serving as a catalyst.
"My company is now investigating the possibility of opening another factory in either Indonesia or Thailand where labor and land costs are relatively low, as orders are growing while production costs in the Chinese mainland are skyrocketing and tax incentives are declining," said the manager of a Hong Kong-based garment manufacturer surnamed Wu.
Wu's company has factories in Huizhou and Zhongshan in South China's Guangdong Province, and almost half of their orders now come from the US. But US tariffs on Chinese imports are not the key reason behind the relocation, according to Wu.
"The tariff battle has more impact on US retailers than Chinese suppliers like us, and we are only concerned about fluctuations in the exchange rate," Wu told the Global Times on Thursday.
Nathan Resnick, CEO of US business-to-business sourcing company Sourcify, agreed. His company works with plants in Guangdong, Yiwu in East China's Zhejiang Province and Xiamen, East China's Fujian Province to produce apparel, accessories, bedding and injection molds.
Resnick pointed to lower wages in the Philippines, where a factory worker may get paid one-third of what a Chinese factory worker earns. As such, Sourcify has shifted some of its production outside China with partner factories in Vietnam, Cambodia, India, Thailand and the Philippines, according to Resnick.
Some manufacturers have in recent years devised back-up factory plans in Southeast Asian countries, and "the ongoing trend has been exacerbated by the trade rows because some US companies that import products from China cannot afford to pay a 25 percent tariff," Resnick told the Global Times on Thursday.
In July, US President Donald Trump slapped a 25 percent tariff on $34 billion worth of Chinese imports. The second wave of tariffs on $200 billion of imported Chinese goods is set to take effect at the end of this summer.
However, despite the relocation, industry insiders have raised doubts on whether Southeast Asian nations can accommodate the capacity moving out of China.
"In China it is standard to get fabrics from a supplier at a local market and have them shipped via SF Express to a factory within 48 hours. This offers efficiencies of scale in making samples and moving to mass production," Resnick pointed out. In the Philippines or Vietnam, it often takes much longer to get the right fabric due to the lack of infrastructure, he said.
Even if the US imposes tariffs on Chinese imports, most factories in China would still opt to stay, considering the country's complete supply chain and support facilities, Xiang Ligang, CEO of cctime.com, told the Global Times on Thursday.
"Establishing a mature industry chain takes at least 20 years. This process was supported by China's stable politics, abundant talent pool, responsive government and a market of 1.4 billion people. How could countries in Southeast Asia compete with China's industry scale now?" Xiang said.
"The cost [of transferring production lines] is going to be much higher than the extra payment of 25 percent tariffs."
