Sun, Nov 17, 2019 - Page 7 News List

Asia’s ‘mini Chinas’ struggle to capitalize on the US trade dispute

By Jiyeun Lee, Miao Han and Carolynn Look  /  Bloomberg

The US-China trade dispute has reignited the debate over which developing countries in Asia could take over the mantle of the world’s workshop. The front-runners are India and Indonesia.

A report published on Tuesday by Bloomberg Economics shows that no one nation is able to reproduce the kind of success China enjoyed in transforming its economy.

Instead, a series of mini Chinas are set to develop, with each trying to leverage advantages but hampered by structural problems such as inadequate infrastructure or political instability.

China’s intricate networks of factories, suppliers, logistics services and transportation infrastructure grew up in a different era, underpinned by money and technology from Japan, Taiwan and Hong Kong at a time of scant regard for the environment, workers’ rights or the few government regulations that were enforced. It had a vast, cheap, literate workforce and gained almost unfettered access to global markets for three decades.

With that access now under threat after more than a year of trade friction with the US, Bloomberg Economics considered six metrics, from labor to business regulations, across 10 Asian economies, to identify developing economies that could receive a greater share of Asia’s manufacturing pie.

“No single economy has the wherewithal to step into China’s shoes,” wrote Chang Shu and Justin Jimenez in the report. “Many have a low-cost advantage. With the exception of India, all lack China’s scale, and all face challenges on other aspects of competitiveness.”

India tops the export-potential ranking thanks to its vast population, even though it still falls notably below Guangdong — the proxy used for China in the analysis. Second up is Indonesia, followed by much-touted Vietnam.

CHINA’S ADVANTAGES

Part of the problem is reproducing the kind of supply chains, marketing access and existing contacts that have been built up by small and medium-sized manufacturers in China’s industrial cities.

Take Quanzhou Kuisheng Craft Co for example. The maker of garden and home decorations in Quanzhou, in China’s Fujian Province, saw US sales slump 30 percent after Trump’s tariffs, but not enough to consider shifting production abroad.

Instead, the company has managed to maintain its total exports by pursuing other strategies such as applying for patents in Europe to expand sales there, Quanzhou Kuisheng Craft sales manager Will Huang said.

“Labor is cheaper in Vietnam, but the working culture is very different,” Huang said at a booth in the Canton Fair, the world’s largest trade exposition, in Guangzhou last month.

He said that Chinese workers are more skilled and are willing to work overtime to finish orders on schedule, but “in Vietnam, people will not do that.”

Over the years, Huang said he has only heard of two small rival manufacturers in Quanzhou that moved production to Vietnam.

China retains other advantages too, including strong, stable leadership, a large domestic market and relatively good access to capital. Its factories have also spent decades competing against each other, trimming costs, streamlining production and honing the efficiency of transportation.

Chinese manufacturing prices have been declining since July, helped by cheaper energy costs, making it harder still for overseas factories to compete, and stuttering progress toward a trade truce between the US and China might help relieve some of the pressure on Chinese producers.

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