• The Financial District

GLOBAL CORPORATIONS ABANDONING CHINA, IZVESTIA CLAIMS

Global corporations are heading for the exits in China as the US ramps up pressure against their rival, now the second biggest economy in the world, but the Russian newspaper Izvestia warned on August 22, 2020 that “but it is too early to speak about the end of the era of China as ‘the world’s factory.’"

“Numerous tariffs imposed by the Trump administration over the past years have significantly increased the cost of production in China. Sanctions are being levied on more and more Chinese companies. Global corporations have earned billions of dollars for decades from China’s cheap labor force, but now they have to look for alternatives. What’s more, rising living standards there have pushed up salaries in China, so a transfer of production has been brewing. Moreover, upon leaving China, where is production capital going to move to? The most promising destinations are other countries in East Asia,” Izvestia stressed. 


Production based on foreign investments has been rapidly rising in Vietnam (+9% compared with production in 2019), Cambodia, Myanmar and Thailand. The world’s second most populated country India, has also declared its ambitions, and it has been obsessed with duplicating the Chinese production leap. 


“Meanwhile, the relocation of manufacturing is painful even for modern corporations. China still has a number of advantages and it is early to say that its future as the world’s key production base is doomed, the paper says. First, over the past decades, China has acquired new technologies and improved the culture of production due to gaining more experience. China’s second key trump card is technological chains, which had been built in the country for decades with the active participation of American, European and Asian corporations. Third, China is the world’s second largest economy with a giant domestic market, which still has a good potential for further growth. After relocation, these companies will face the risk of losing their competitive advantage on this important platform. It is absolutely clear that neither Vietnam nor Cambodia, nor even large countries as Brazil and Mexico could replace China in this field. Although due to political pressure some foreign companies will cut operations in China, it is impossible to imagine their full exit from the country in the near future,” Izvestia concluded.


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