Chinese companies flee overseas to avoid US tariffs

Chinese factories making everything from bikes to tires, plastics and textiles are moving assembly lines abroad. (AFP)
Updated 11 September 2018
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Chinese companies flee overseas to avoid US tariffs

  • The world’s two largest economies have been locked in a months-long trade fight
  • Supply chains have already begun relocating out of China in recent years

BEIJING: A growing number of Chinese companies are adopting a crafty way to evade US President Donald Trump’s tariffs: remove the “Made in China” label by shifting production to countries such as Vietnam, Serbia and Mexico.
The world’s two largest economies have been locked in a months-long trade fight after Trump imposed 25 percent customs duties on $50 billion worth of Chinese goods this summer, triggering a swift tit-for-tat response from Beijing.
Chinese factories making everything from bikes to tires, plastics and textiles are moving assembly lines abroad to skirt higher customs taxes on their exports to the United States and elsewhere, according to public filings.
Hl Corp, a Shenzhen-listed bike parts maker, made clear to investors last month that tariffs were in mind when it decided to move production to Vietnam.
The factory will “reduce and evade” the impact of tariffs, management wrote, noting Trump hit e-bikes in August, with new border taxes planned for bicycles and their parts.
Trump warned last week those tariffs — targeting $200 billion in Chinese imports — could come “very soon.”
“It’s inevitable that the new duties will lead companies to review their supply chains globally — overnight they will become 25 percent less competitive than they were,” said Christopher Rogers, a supply chain expert at trade data firm Panjiva.
Supply chains have already begun relocating out of China in recent years as its rising labor and environmental protection costs have made the country less attractive.
Tariffs are adding fuel to the fire, experts and companies say.
“China-US trade frictions are accelerating the trend of the global value chain changing shape,” said Cui Fan, research director at the China Society of WTO Studies, a think tank affiliated with the commerce ministry.
“The shifting abroad of labor-intensive assembly could bring unemployment problems and this needs to be closely watched,” Cui said, adding the shift would not help the US’s overall trade deficit.
The growing list of foreign firms moving supply chains away from China — toy company Hasbro, camera maker Olympus, shoe brands Deckers and Steve Madden, among many others — already has Beijing worried.
Less discussed are the Chinese factories doing the same.
Zhejiang Hailide New Material ships much of its industrial yarns, tire cord fabric, and printing materials from its plant in eastern Zhejiang province to the US and other countries.
Trump’s first wave of tariffs on $50 billion in goods this summer hit some of its exports; the next round of $200 billion looks like it will hit several more.
“Currently all of our company’s production is in China. To better evade the risks of anti-dumping cases and tariff hikes, our company has after lengthy investigation decided to set up a factory in Vietnam,” executives told investors last month.
“We hope to speed up its construction, and hope in the future it can handle production for the American market,” a company vice president said of the $155 million investment that will ramp up production by 50 percent.
Other moves abroad spurred on by tariff risks include a garment maker going to Myanmar, a mattress company opening a plant in Thailand and an electronic motor producer acquiring a Mexico-based factory, according to public filings from the firms.
Linglong Tyre is relying mostly on low cost credit to build a $994 million plant in Serbia.
The entire tire industry faces a “grim trade friction situation,” Linglong told investors last month, citing “one after another” anti-dumping cases against China.
“Building a factory abroad allows ‘indirect growth,’ by evading international trade barriers.”
China’s bike industry faces a similar pivotal moment. The center of manufacturing will shift away from China in the future, bike part maker H1 Corp. told investors when announcing its Vietnam factory.
Some of Hl’s customers started moving production — especially of e-bikes — to Vietnam, said Alex Lee, in charge of global sales at Hl Corp.
“First of all there is no anti-dumping tax on Vietnam,” Lee said, adding labor costs were lower there as well.
China’s growing e-bike industry faces duties not only from the US but also the European Union, which slapped provisional anti-dumping tariffs of 22 to 84 percent on Chinese-made e-bikes in July, alleging Chinese companies benefited from cut-rate aluminum and other state subsidies.
The state support Chinese companies receive is key to the Trump administration’s case in taxing Chinese goods, but Hl shows how companies may continue to benefit even after shifting some of their production overseas.
Government subsidies, including millions of yuan to “enhance company competitiveness,” eclipsed H1’s profit during the first six months of the year, its filings show.
Still the company went ahead and bought an operating factory in Vietnam.
Lee noted they had transferred mass production of aluminum forks and steering parts to the new plant from their factory in Tianjin.
He did not know if it would lead to job cuts in China.


Russian big gun rolls out latest hardware for Gulf customers

Updated 18 February 2019
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Russian big gun rolls out latest hardware for Gulf customers

LONDON: As the region’s biggest military exhibition gets underway in Abu Dhabi, Sergey Chemezov, CEO of Russian defense conglomerate Rostec, spoke exclusively to Arab News about the company’s regional ambitions.
What is the expected value of your exports this year? 
The order portfolio of Rosoboronexport, Rostec’s subsidiary, currently exceeds $50 billion. Russia is the second-largest arms supplier in the world.
In 2018, arms and military machinery were supplied to over 40 countries worldwide. In addition, we signed more than 1,100 contractual documents to an amount of over $20 billion, which is nearly one-quarter more than in 2017. 
The Middle East and North Africa accounted for almost half of Rosoboronexport’s supplies of military products, more than 40 percent. Only two years before, that share had been significantly smaller, about 20 percent. That trend says it all; military and technical cooperation with the countries of that region have been strengthening. The Middle East is currently the leading region in the world by the volume of arms purchased, accounting for nearly one-third of the total market. Middle Eastern states (Saudi Arabia, Israel, Egypt, the UAE and Qatar) make half of the list of 10 major importers of military products, and Saudi Arabia remains the top importer. 
Which country will most likely become your largest client in the Middle East in 2019? Which systems is Rostec planning to sell in the region this year?
We’re implementing a range of projects in the UAE, both in civil and military areas. Russia is also interested in developing military and technical cooperation with all countries of the region. In recent years, we’ve resumed close contacts with a whole range of states, including Iraq.
I’d like to particularly focus on the Yak-130 combat trainer aircraft. The countries of the region are showing a continuously increasing interest in combat trainers. The Yak-300 has all the necessary characteristics required for aircraft of that type, and I firmly believe that it has great potential for supplies to the countries of the region.
What are the potential consequences of the suspension of the New START Treaty with the US? Is it affecting Rostec’s production plans? 
As a person who cares about what’s happening in the world, I can say that I’m worried by the position of the US. It is leading to a new arms race and aggravating international tension. The Russian Army is well equipped, and is capable of efficiently responding to attacks. Our corporation has done its best for this purpose. Yet there will be no winners in a third world war if it happens. 
Is there up-to-date information on supplies of S-400 systems to Turkey?
The contract for the S-400 was signed in 2017. We’ve agreed to reduce the terms already twice, and in autumn 2019 the obligations will be fulfilled. Of course, Turkey does have ambitions to develop its national defense industry, and in this regard, it has already achieved significant progress in a range of areas. Therefore, our partners are interested in such topics as joint development of machinery, including such advanced equipment as air defense systems.
As to joint production, the contract for the S-400 provides for an option. This is about cooperation in technology. We’re ready to agree to localization of manufacture of certain elements of that system. I’ve said it earlier and will repeat it again: The S-400 is a defense system, not an offensive one. We can sell it to the Americans if they want it. Thus, strategically there are no problems in this regard. And I can see no problems for Russia in terms of security.
Is Rostec discussing any potential sales with Saudi Arabia, and if yes, in which area?
The military sector prefers silence, therefore I wouldn’t go into detail. I’d only say that we’re actively working in a range of areas. We can confirm information about signing a number of contracts with Saudi Arabia, as well as about both parties’ readiness to fulfill them, including on the S-400. Talking of the civil area, Rostec possesses a whole range of innovative technologies that can be demanded within implementation of the ambitious NEOM city project. These are water treatment systems, electronic services, various solutions in the area of composite materials, glazing with special features, as well as advanced technologies and innovations for manufacturing biodegradable polymers and products based on natural renewable raw materials. 
Do you have up-to-date information on progress in the privatization of Rostec’s holdings?
The sale of shares isn’t an end in itself for Rostec, but rather a tool for developing its assets in compliance with the corporation’s development strategy until 2025. We’re interested not only in attracting additional investments, but also in gaining new competences, technologies and markets. Private-public partnerships help our enterprises, and holdings become more efficient and take new positions quicker. 
What are your expectations of the corporation’s profit for the year?
We’re finishing assessment of the results, and will officially announce them in the near future. Now I can say that the company continues to show good financial results, and we expect an increase in both revenue and net profit compared to 2017.
Do you expect that long-standing low oil prices will affect regional sales this year?
The example of Russia shows that oil prices do not determine everything. Even when they are low, the economy can develop. 
We sense that the countries of the region have already adapted to the new price realities that dramatically appeared in 2014. At the same time, interest in our products, both military and civilian, in the region is growing from year to year.
What products will Rostec holding companies present at IDEX 2019?
The IDEX exhibition is one of the world’s largest venues where Russia demonstrates its latest developments in the field of weapons and military equipment. This is an opportunity for us to negotiate and discuss cooperation with our traditional partners, primarily from the Middle East, which is of particular interest to Russian industry. After all, the Middle East and North Africa account for almost half of the sales of Russian military products abroad. The joint exposition of Russian enterprises at IDEX, which occupies more than 1,100 square meters of exhibition area, will feature about 1,000 samples of military products.
In particular, the unparalleled Pantsir-ME, an air defense missile and artillery system, will make its international debut at the exhibition, presented by the High-Precision Complexes Holding. The system is able to protect ships from all types of aerial kill assets.
A large-caliber automatic assault rifle complex, the SHAK-12, designed for close combat, will also be shown there. Units of Russian special services are armed with these complexes.
Kalashnikov Concern will showcase a wide range of small arms and hunting weapons. The AK-15 and 200 series Kalashnikov certified for export will be shown abroad for the first time. The 200 series assault rifles will be one of the key Russian novelties at IDEX 2019. 
Tecmash Concern will exhibit a number of its latest ammunition products. These include a 122-mm unmanned rocket missile with a detachable blast fragmentation warhead for the Tornado-G multiple-launching rocket system. This ammunition has much greater kill effectiveness than issued shells of the Grad system. At the same stand, visitors will for the first time see a unique video showing how the Tornado-G works. In addition, at the show the world community will for the first time see Tecmash’s AZ-TSR-47, an increased-efficiency jet-stabilized projectile designed to protect surface ships from weapons equipped with radar guidance systems.
TSNIITOCHMASH will present at IDEX its already well-known second-generation Ratnik combat equipment, which is exactly what is now supplied to the Russian Army. Ratnik in the color of sand, presented at IDEX, has been successfully tested in Syria. Its components include a body armor backed with a special armor panel. This panel can withstand 10 hits of SVD sniper rifle armor-piercing incendiary bullets, fired from a distance of 10 meters, and the plate is not deformed on the back, providing protection against contusion damage. The Russian bulletproof vest also wins in terms of weight: It is 2.5-3 kg less compared to the US general military bulletproof vest.
Each exhibition held in the Middle East demonstrates that the corporation has immense potential to cooperate with the countries of the region.