End of the Chinese dream?

End of the Chinese dream?

After a period of almost constant and unparalleled growth, heavy industry in China is facing up to a mini-crisis with Samsung Electronics moving to Vietnam and the Japanese government paying companies to leave China as more and more manufacturers are deciding to leave ‘the factory of the world’

This is not a completely new development as manufacturing migration from China to other Asian countries has been occurring for over a decade, recent events have, however, accelerated this trend.

Trade wars and lockdowns combine to create supply chain disruption 

One of the first companies to take this decision was  Samsung Electronics in 2014 when it announced that it would leave China and build a smartphone factory in Vietnam, in order to cut costs.

This trend of companies shifting production away from China was given further impetus in 2018 with the start of the US vs China trade war which saw then-President Trump imposing tariffs on Chinese goods – to which China retaliated by putting tariffs on products from the USA.

A further bodyblow to the Chineses manufacturing industry came in the form of the Covid pandemic which caused severe supply chain disruption. This supply chain disruption weighed heavily on many  manufacturers who had been reliant on unrelenting Chinese production, from ‘the factory of the world’. Consequently, Japan has paid over 80 companies to help them move their production either back to Japan or to another Southeast Asian country.

Inside China itself, the lockdowns caused by COVID-19, which hit the manufacturing hub Shanghai particularly hard, are not over with a Chinese official recently suggesting that the zero-COVID-19 strategy could last ‘for the next five years’.

Some companies are also worried that a war could break out between China and Taiwan, which would cause a supply chain crisis unlike anything seen in the COVID-19 pandemic. Many forward-thinking manufacturers are therefore moving now, instead of later, particularly companies who have been impacted by supply chain issues caused by the ongoing war in Ukraine.

Chinese manufacturers also moving 

The bad news for China is not solely restricted to foreign companies relocating as Xiaomi, one of the leading Chinese smartphone manufacturers, has also decided to follow Samnsung and move its manufacturing to Vietnam. The company stated that its plan was to increase delivery efficiency for the Southeast Asian market and minimise logistics costs but the decision to move its manufacturing to Vietnam does not inspire confidence in the Chinese manufacturing industry.

The Xiaomi Corporation was founded in Beijing in April 2010 and describes itself as ‘committed to continuous innovation’ and driven to maximum efficiency. Since its foundation in 2010 the company has grown to become the world’s fourth-largest smartphone brand, with over 196mn smart devices connected and is featured on the Fortune Global 500 list.

To remain competitive and keep the supply chain flowing, manufacturers must be proactive post-pandemic and find new ways to create, build and trade. It will be interesting to see how the industry reacts in this time of crisis and whether crisis will indeed give rise to opportunity. The industry will also be a keen observer of how China reacts to the challenges of the post-Covid world and how it reshapes its manufacturing processes to adapt to the more difficult economic climate