Why Manufacturing moves out of china?

Why Manufacturing moves out of china?

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Are companies moving out of China?

Businesses will never pull out of China completely since it represents too large of a market in itself to ignore. But the virus has put many businesses on notice that they need to diversify their supply chains.

The shortage of hospital masks in the United States, a dearth driven by Beijing’s refusal to allow American companies that make the products in China to ship them out of the country amid the coronavirus pandemic.

“China is going to be very concerned about decoupling, offshoring, [or any] redirection of investments out of China”.

Although Beijing may consider this an aggressive move, China is still Japan’s biggest trading partner. With Chinese factories being shut in February to minimize the spread of the disease, exports to Japan slumped by almost 50%. This disrupted supply chain drastically affected Japanese manufacturing and eventually led to the government’s attempts to minimise its future reliance on China.

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As first report we know “Japan announced that it would spend upwards of $2.2 billion to get its corporations out of China “

The Japanese government announced that it would provide direct loans 220 billion yen ($2 billion) for companies shifting production back to Japan and 23.5 billion yen for those seeking to move production to other countries, according to details of the plan posted online.

On source report news ; THE Philippines is unlikely to be the top choice of Japanese manufacturing companies that are planning to shift production out of China, the Japanese Chamber of Commerce and Industry of the Philippines, Inc. (JCCIPI) said. ” “They really want to move out from China to other countries, but unfortunately, they consider first Vietnam, Indonesia, and Thailand because of supply chain, resources, and raw material production,” JCCIPI Vice-President and Executive Director Nobuo Fujii said in an e-mail on Wednesday.”

The JCCIPI currently has around 600 member companies.

Takashi Ishihara, executive director of the Japan External Trade Organization (JETRO) in Manila, said in an e-mail on Wednesday that their 2019 report found that 17 Japanese manufacturers in East Asian countries considered relocating their manufacturing base to the Philippines in response to US-China trade talks.

 Japanese companies are willing to do business in the Philippines as long as the country retains its advantages, including a talented and English-speaking work force, competitive employee compensation and ease of hiring, smooth communication with local staff, a growing local market, and tax incentives.

The companies are looking for a predictable business environment, such as reduced policy inconsistencies and revisions.

On Thursday that Japanese investors are also looking for complementary infrastructure such as transportation networks and telecommunications services, competitively priced utilities, and a liberal investment climate for foreign businesses.

USA

On a report of Bloomberg : President Donald Trump imposed a 10% tariff on $200 billion of Chinese imports in September — following an earlier round of tariffs on $50 billion of goods — and promised to raise the duty to 25% in January. He’s also threatened to expand the levy to all products imported from China — an amount that totaled $531 billion in the 12 months through August, according to the latest data from the U.S. Department of Commerce.

 The U.S.China trade war last year and the outbreak of the new corona virus, American technology firms Apple, Microsoft and Google have reportedly looked to move more production of their hardware products out of the world’s second-largest economy.

American companies that produce essential goods in China should plan to shift their operations back to the United States or other Western countries.

With law firm’s international lawyers fielding a steady stream of client requests for help with leaving China for VietnamThailand, Malaysia, Cambodia, India, The Philippines, Indonesia, Mexico and Turkey (mostly), it does sometimes feel as though within three years nobody will be making widgets in China anymore.

  • American personal computer makers HP and Dell could move up to 30% of their notebook production in China to Southeast Asia
  •  Apple has asked its major suppliers to assess the cost implications of moving 15% to 30% of their production capacity from China to India, according to an earlier report
  • Japan’s Nintendo is also going to pull a portion of its video game console production from China to Vietnam
  • Not only are foreign companies rethinking its production location, a handful of Chinese companies are also leaving China. Chinese multinational electronics company TCL is moving its TV production to Vietnam, while Chinese tire maker Sailun Tire is transitioning its manufacturing line to Thailand

But 42.3% of companies in the report selected Vietnam as a transfer destination, followed by 20.6% that picked Thailand and 18.6% chose the Philippines.

INDIA

NEW DELHI: The Prime Minister’s Office, Niti Aayog and the Department for Promotion of Industry and Internal Trade are firming up a plan to offer incentives to attract companies looking to shift manufacturing activities out of China.

The benefits will be on the lines of those given to manufacture of electronic and medical devices. These may include production-linked incentives such as capital expenditure benefits.

There is a growing realisation among multinational firms after the Covid-19 pandemic that capacities cannot be concentrated at one place. India has set up dedicated groups to directly interact with firms that may want to diversify out of China.

Senior journalist RN Bhaskar suggests that India opens up dedicated export zones and invite all countries, including China, to establish manufacturing facilities there, for export (and, if for domestic sale, upon payment of relevant import tariffs).

The tremendous deal Reliance Jio signed with Facebook, selling a 9.9 per cent stake for $5.7 billion (₹43,500 crores) point to the advantages India offers. The combination of Facebook owned Whatsapp, and Jio’s connect with the neighborhood ‘kirana’ or grocery store, will offer a payments platform that would give strong competition to PayTM, Google Pay, PhonePe and others.

India does the opposite. We frame unnecessarily detailed and highly complicated laws (with enough interpretation loopholes) and combine that with a lethargic enforcement mechanism.

So, yes, there is a huge opportunity for India to attract FDI.

Whether it will attract depends on whether the Centre tackles the Corruption and Cussedness virus, on whether we continue interfering with market forces and privy to contracts and whether our judicial system can speed up as is overdue.

A recent report by foreign policy think tank ‘Gateway House: Indian Council on Global Relations,’ has estimated China linked investments in India’s tech start-up sector alone at $4 billion. These investments could be small, but China via tech sector is embedded in Indian society and holds influence due to the nature of tech investments.

Also, China holds control over other widely used foreign apps in India, as per the report published in March 2020.

Chinese investments have come under scrutiny recently in the wake of Covid-19 epidemic, which is said to have been originated in China.

The companies which have major Chinese investments include Big Basket, Byju’s, Delhivery, Dream 11, Flipkart, Hike, MakeMyTrip, Ola, Oyo, Paytm, Paytm Mall, PolicyBazzar, Quikr, Rivigo, Snapdeal, Swiggy, Uddan, Zomato are some where Chinese companies hold stake.

Chinese FDI into India is small at $6.2 billion, but its impact is already outsized, given the increasing penetration of tech in India, the report says. “Chinese funding to Indian tech start-ups is making an impact disproportionate to its value, given the deepening penetration of technology across sectors in India. TikTok, owned by ByteDance, is already one of the most popular apps in India, overtaking YouTube; Xiaomi handsets are bigger than Samsung smartphones; Huawei routers are widely used. These are investments made by nearly two dozen Chinese tech companies and funds, led by giants like Alibaba, ByteDance and Tencent which have funded 92 Indian start-ups, including unicorns such as Paytm, Byju’s, Oyo and Ola. China is embedded in Indian society, the economy, and the technology ecosystem that influences 

China is most active in India in the start-up space.A majority – more than half – of India’s 30 Indian unicorns (start-ups with valuation of over $1 billion) have a Chinese investor.Gateway House has identified over 75 companies, with Chinese investors concentrated in e-commerce, fintech, media/social media, aggregation services and logistics.

According to the analysis, some large Chinese investing companies have their own ecosystems, which include online stores, payment gateways, messaging services, etc. An investment by a Chinese firm can pull the Indian company into this ecosystem, which may mean loss of control over data.

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