Many Firms Moving Manufacturing Out Of China, Says Various Sources Including Bloomberg, Reuters, Nikkei

From Reuters:

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.

From China Law Blog, run by a prominent China-focused law firm:

Last month — for the first time ever — we did as many deals and drafted as many contracts with Asian countries outside China as we did for China. And literally not a day goes by without at least one of our international lawyers or (even more likely) one of our international trade lawyers getting a call from an existing client seeking our help in leaving China

We have been hearing the same pattern of behavior for video surveillance companies.

Certainly, this may reverse, e.g., if the Trump trade talks that led Dahua and Hikvision shares to soar last Friday result in stopping tariffs. But Reuters and China Law Blog findings underscore how critical the next few months will be in determining significant manufacturing sources.

What do you think China going to do?

Right now, China is doing a number of things:

  • Most directly trying to stop the tariffs before Jan 1st; if they can get the US to temporarily halt it, it would stop many from moving right away
  • Strengthen relations and trade with other countries, most notably the Belt and Road Initiative
  • Encouraging 'Self-Reliance' so that China is less dependent on US or foreign technology
  • Promoting that China is pro-free trade and the US is not

And what do you think if China decides to allow the yuan to weaken against the dollar?

To date, the Chinese government has been defending the 7 yuan to a dollar exchange rate, e.g., see: China says it will do battle with speculators betting against its currency

As you know, if the yuan weakens, it is good for Chinese exporters like Hikvision since it makes their products effectively less expensive to sell to foreign countries.

On the other hand, if the yuan weakens, there are other negative consequences, e.g., from that same article:

Chinese companies have large debts in dollars that become harder to pay back as the yuan falls.

A steep drop in the yuan could send a flood of money gushing out of China as investors lose confidence and seek to exchange it for assets in dollars and other currencies. 

What, on balance, is best for the Chinese economy (weaken or strengthening the yuan), I do not know.

More: U.S. Orders From Canton Trade Fair Sink 30%:

The ongoing trade war between the U.S. and China has seen export orders by U.S. purchasers plummet at Guangzhou’s 51-year-old China Import and Export Fair.

New Reuters report: Foxconn to begin assembling top-end Apple iPhones in India in 2019 - source

Obviously, iPhones are not video surveillance products but iPhone has been used as an example by China proponents that 'everything' is made in China. If Apple does start moving iPhone production out of China, it could have a significant impact, both directly and for the signaling effect it has about not making products in China.

New SCMP article says there is so much manufacturing moving from China to Vietnam that concerns are rising about Vietnam's ability to handle it, e.g.:

But with rising costs of land and labour, bottlenecks at the ports, traffic jams on the roads and quickly diminishing manufacturing capacity, experts are warning that those who have yet to make the leap to Vietnam may have already missed the boat.

Bloomberg: Walmart’s Supplier Says Chinese Factories in ‘Desperate’ State:

China will see more factory shutdowns as the trade war that’s roiled the global supply chain exacerbates an exodus, said Spencer Fung, chief executive officer of Li & Fung Ltd. The company, which designs, sources and transports consumer goods from Asia for some of the world’s biggest retailers including Walmart and Nike, is being pushed by American clients to shift production out of China.

That funny

  • Apple is moving production of its new Mac Pro computer to China, according to The Wall Street Journal.

The net trend is clearly moving manufacturing out of China for products destined for US export. That you cite a counter example does not negate the trend.

WSJ: Tariff Fight Knocks Off China as Top U.S. Trading Partner, quote:

These are double-digit declines after over 30 years of steady and very substantial growth

or are the products just coming thru other countries?