Asian firms shuffle production around the region as US-China tariffs war rages

Asian companies such as South Korea’s LG Electronics are making contingency plans in case the China-US trade war continues or deepens. (Reuters)
Updated 23 September 2018
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Asian firms shuffle production around the region as US-China tariffs war rages

  • Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China
  • Some Asian governments hope for an economic and strategic boost from the US-China conflict

SEOUL/TOKYO: A growing number of Asian manufacturers of products ranging from memory chips to machines tools are moving to shift production from China to other factories in the region in the wake of US President Donald Trump’s tariffs on Chinese imports.
Companies including SK Hynix of South Korea and Mitsubishi Electric, Toshiba Machine Co. and Komatsu of Japan began plotting production moves since July, when the first tariffs hit, and the shifts are now under way, company representatives and others with knowledge of the plans told Reuters. Others, such as Taiwanese computer-maker Compal Electronics and South Korea’s LG Electronics, are making contingency plans in case the trade war continues or deepens.
The company representatives and other sources spoke on condition of anonymity because of the sensitivity of the issue.
The quick reactions to the US tariffs are possible because many large manufacturers have facilities in multiple countries and can move at least small amounts of production without building new factories. Some governments, notably in Taiwan and Thailand, are actively encouraging companies to move work from China.
The US imposed 25 percent duties covering $50 billion of Chinese-made goods in July, and a second round of 10 percent tariffs covering another $200 billion of Chinese exports will come into effect next week. The latter rate will jump to 25 percent at the end of the year, and Trump has threatened a third round of tariffs on $267 billion of goods, which would bring all of China’s exports to the US into the tariff regime.
The tariffs threaten China’s status as a low-cost production base that, along with the appeal of the fast-growing China market, drew many companies to build factories and supply chains in the country over the past several decades.
At SK Hynix, which makes computer memory chips, work is under way to move production of certain chip modules back to South Korea from China. Like its US rival Micron Technology, which is also moving some memory-chip work from China to other Asian locations, SK Hynix does some of its packaging and testing of chips in China, with the chips themselves mostly made elsewhere.
“There are a few DRAM module products made in China that are exported to the US,” said a source with direct knowledge of the situation, referring to widely used dynamic random-access memory chips. “SK Hynix is planning on bringing those DRAM module products to South Korea to avoid the tariff hit.”
Most of SK Hynix’s production won’t be affected, the source added, since China’s dominance in computer and smartphone manufacturing makes it by far the largest market for DRAM chips.
Toshiba Machine Co. says it plans to shift production of US-bound plastic molding machines from China to Japan or Thailand in October.
The machines are used for making plastic components such as automotive bumpers. “We’ve decided to shift part of our production from China because the impact of the tariffs is significant,” a spokesman said.
Mitsubishi Electric, meanwhile, says it is in the process of shifting production of US-bound machine tools used for metal processing from its manufacturing base in Dalian, in northeastern China, to a Japanese plant in Nagoya.
In Taiwan, an executive at notebook PC maker Compal, who declined to be named, said the trade war’s impact had been limited so far, but the company was studying its options.
“We can also use facilities in Vietnam, Mexico and Brazil as alternatives,” the person said. “It won’t be easy because our majority production is in China; no other country can replace that at this moment.”
Smaller companies are exploring their options too. South Korean medical equipment manufacturer IM Healthcare, which makes products including air purifiers, is studying a move to Vietnam or South Korea if the trade conflict intensifies, a source with direct knowledge of the matter said.
Some Asian governments hope for an economic and strategic boost from the US-China conflict. In Taiwan, the government is actively encouraging companies to move production out of China, pledging last month to speed up its existing “Southbound Policy” to reduce economic reliance on China by encouraging companies to move supply chains to Southeast Asia.
Taiwan economics ministry official William Liu told Reuters that the trade war was “a challenge and an opportunity” for the self-ruled island. Taiwan depends on China as an export market, he noted, but at the same time could see a boost in jobs from companies moving operations back home.
Thailand also hopes to benefit from the “flow of technology and investment leaving China during the trade war,” said Kanit Sangsubhan, Secretary-General of the Eastern Economic Corridor (EEC) Office of Thailand, which is coordinating a $45 billion project to attract investment into the country. The EEC last month took some 800 representatives of Chinese companies on a tour around the eastern industrial heartland, and the country’s Board of Investment has done seven roadshows in China this year to woo investors.


Japan, Philippines meet to advance infrastructure plans

Updated 21 November 2018
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Japan, Philippines meet to advance infrastructure plans

  • Japanese loans so far dwarf those of China, whose pledges for projects are still largely ideas
  • Duterte has made a $180 billion infrastructure overhaul the centerpiece of his economic policy agenda, but people are looking for progress

MANILA: Philippine government ministers met with a top adviser of Japan’s prime minister on Wednesday, in a effort to move forward major infrastructure projects, just hours after a visit by the Chinese president pledging to do the same.
Philippine leader Rodrigo Duterte has made a $180 billion infrastructure overhaul the centerpiece of his economic policy agenda, but already into the third year of his presidency, he is under some pressure to show signs that his ambitious “Build, Build, Build” program is making much progress.
While attention has been focused largely on fanfare of Duterte’s “pivot” to China and his frequent praise for Beijing’s economic support, agreed Japanese loans so far dwarf those of China, which has pledged billions of dollars of financing and investment for projects that are still largely ideas.
Japan will finance 156.4 billion yen ($1.39 billion) for the construction of a subway in the capital Manila, rehabilitation of one of its troubled elevated rail lines, a new Manila bypass road and a new airport on Bohol, a tourist island.
The loans are part of an 1 trillion yen aid and investment package offered in 2017 by Japanese Prime Minister Shinzo Abe, whose special adviser, Hiroto Izumi, is in Manila to discuss revamping a railroad across the capital, a flood control system, and jointly operating an industrial zone, Finance assistant secretary Antonio Lambino told Reuters.
Edmund Tayao, a Manila-based political analyst, said the strong performance of the Philippine economy meant it had outgrown its infrastructure, and there was public pressure to modernize it.
“This is a long-delayed requisite,” he said. “When we speak of trains, mass transit systems, disappointment is an understatement. It is frustrating to compare it with neighbors.”
Expectations have been high since Duterte left China two years ago with $24 billion of investment and loans pledges, and there were hopes that this week’s visit of Chinese President Xi Jinping, the first in 13 years, would have seen firm commitments for those to advance.
However, of Tuesday’s 29 agreements, the only loan agreed was $232.5 million financing for a dam. Others counted as deals included two feasibility studies, memorandums of understanding for arrangements that already existed, or a handing over of certificates.
Michael Ricafort, an economist at RCBC bank in Manila, said that with the spotlight on foreign interest in the infrastructure program, the government was keen to show progress was being made.
“The government is now put on the spot. People are looking for the promises to be fulfilled.”