Beyond trade: Changing attitudes on China promises to be an increasingly uphill struggle
WITH the United States and China settling into a prolonged trade war, it is apparent that BCOs with production facilities in Asia are thinking of where to set up if they want a tariff-free ride into American consumers.
The percentage of China-exiting businesses, surveyed by quality control and supply chain auditor QIMA, was 80 per cent for American companies and 67 per cent for those based in the European Union.
QIMA itself is feeling the heat, reports Forbes Magazine. Demand for their China-based audits dropped 13 per cent as mainland manufacturers are either losing their foreign clients faster due to costs associated with tariffs or are relocating part of their manufacturing out of China to avoid such impediments.
The QIMA survey found that more than 75 per cent of US respondents reported being affected by the tariffs, saying rising costs associated with them is one of the most serious impacts on their business. As a result, they are moving or looking to move faster than they once had planned.
European BCOs are in the same boat. This re-mapping of the global supply chain creates ample opportunities for corporate investors and gives rise to new markets in countries like Vietnam, now getting the equivalent of a steroid shot to their own economies. Others, Bangladesh, India, Burma, Laos, Cambodia and Indonesia, are making themselves welcome as the wisdom of re-locating becomes more advisable.
To hear some wags, you'd think that China's main future export will be ZPMC quay cranes to take goods from foreign shores that would have otherwise come from China.
True or not, the fact remains that the shape of China's role in the intra-Asia trade alone is changing and its once solid and overwhelming centrality is diminishing.
Multinationals have been sourcing goods in countries like Vietnam and Bangladesh. This has been particularly true of apparel, which is now as likely to sport Made in Vietnam labels on clothing that once read Made in China.
Companies were moving as China labour costs rise and as the government made strides in catching up to Western-style environmental laws. That is not the case in smaller southeast Asian nations, though a move there is not necessarily a step back in time to the 1990s, where China was a source of all cheap competent labour at a time when pollution and labour rights regulations could be more easily ignored.
Of course, EU businesses are less affected by the trade war with China. Only 14 per cent of them said they were decreasing their China sourcing because of tariffs. That makes sense, given that they are not faced with the same tariff situation as their American counterparts.
But despite a lower stress levels regarding tariffs, the threat of trade barriers coupled with the fact that their competitors are sourcing elsewhere means European corporations are revisiting their mature supply chains. Some of them are moving on, and out of China.
Most are sourcing goods in South Asia, which saw a 34 per cent annualised increase in inspection and audit demand in the first half of the year, meaning there are more factories there than there were a year ago.
But the situation Europeans - and indeed citizens in democracies the world over - face is that the China problem has expanded beyond trade into moral areas. An early, and much denigrated example of this was when Canadian Prime Minister Justin Trudeau tried to attach gender and environmental conditions to a trade deal in 2016. President Xi Jingping snubbed him, stomped off in a huff and everyone laughed at the Canadian.
But much has happened since. The world has become aware and has turned an increasingly jaundiced eye on China's Spratley Island land grab in the South China Sea. Vietnam, Malaysia, Brunei and the Philippines have disputed the claim before the Permanent Court of Arbitration in the Hague - and won. But instead of upholding the court order and vacating the area, China has instead militarised it and created a base, which lies athwart the main trade lane to Europe.
Much of the significant change in policy and resulting attitudes, can be ascribed to the ascent of China's paramount leader, President Xi, The old leader, Jiang Zemin stepped down in 2003 and Vice-President Hu Jintao took over before vacating the office for President Xi in 2012. President Xi then removed presidential term limits in 2018, paving the way towards president-for-life status enjoyed by the leader of North Korea.
Coupled with statements from the mainland Liaison Office, long suspected of transmitting orders to the Hong Kong Government, that adminstrative orders trump local court rulings, are a number of factors that render the Basic Law, the local constitition, a dead letter.
This in turn renders the rule of law inoperative, knocking out the territory's sole advantage as an international deal-making centre. That makes Hong Kong no better than any mainland city if an independent judiciary cannot be relied upon to prevail against a government decree.
Perhaps better known is President Xi's signature programme, the Belt & Road Initiative. On the face of it, Belt and Road, spiritually followed the course of Marco Polo's Asia Europe 14th century Asia Europe route. Of course it did much more and much less than that. And it can be viewed in a positive or negative light. From the start, the view was positive. It involved plugging holes and closing gaps in infrastructure, always facilitating opportununies in trade, perhaps the biggest was the Mombasa-Nairobi to standard gauge railway, that would extend into Uganda, Rwanda and Burundi.
Belt and Road involves such infrastructure development and investments in 152 countries and international organisations in Asia, Europe, Africa, the Middle East, and the Americas. To its proponents, its a bid to enhance regional connectivity and embrace a brighter future, but some see Belt and Road as a push to dominate. and control those countries tempted by soft loans and easy financing arranged by the Chinese. For China, it also provided contracts for its state-owned enterprises and work for its workers, who tend to shun local participation from Belt and Road building sites worldwide.
What has happened is that the positive view of Belt and Road - and indeed mainland China as a whole - has been eclipsed by a growing negative view. Since the fall of the Soviet Union communism has been largely and rightly regarded as a spent force, and China's attachment to it seemed to be fading in light of its growing faith in free markets. But gradually that has changed.
Some, the most confidently optimistic 10 years ago, compared China's residual communism to the fading light of the Church of England. Once central to the national belief system in the 17th century, from which rival sects fled, often to colonise America, it then became secondary and almost irrelevant over the intervening centuries despite the fact that the Queen remains the head of the church today.
But President Xi revived the role of the Communist Party, stationing party offices in all substantial companies, and re-introducing practices one has long associated with communist totalitarianism.
No longer to delude themselves in thinking positively about China's road ahead, westerners are again beginning to associate communism with gulags, exit visas and totalitarianism as the born-again communist regime gathers steam and makes its aggresive intentions known. Hence China's initiatives - good or bad - have and will be regarded with a forensic eye in western world henceforth.