China has been the world’s primary manufacturing hub for over 40 years, but a shift is underway as even Chinese companies are relocating their supply chains outside the country. While Western countries began moving their production out of China in 2018 following a trade war initiated by then-President Donald Trump, Chinese manufacturers are now following suit due to geopolitical risks and increasing costs.
Chinese firms are actively exploring overseas production as they anticipate supply chain challenges and political risks. The shift is mainly directed towards Southeast Asian countries like Vietnam, Thailand, Malaysia, and Indonesia, which offer proximity and lower costs. Additionally, countries closer to key consumer markets, such as Mexico for the US market and Eastern Europe, are also gaining popularity.
India and Bangladesh: Attractive Alternatives for Chinese Manufacturers
Chinese manufacturers are actively exploring the establishment of production facilities overseas as a means to address supply chain challenges and political risks. India, expected to surpass China as the most populous nation, positions itself as an attractive alternative for international manufacturers seeking to diversify away from China. Simultaneously, it aims to attract Chinese companies targeting the Indian market. Notable Chinese firms such as Vivo, Oppo, and SAIC already operate manufacturing facilities in India. Bangladesh, a prominent apparel manufacturing hub, has also received significant foreign direct investment from China, as rising wages in China make the cost differential appealing.
Thailand: Moving Up the Value Chain in Manufacturing
Thailand, Southeast Asia’s second-largest economy, has been actively moving up the value chain in manufacturing. It serves as a production hub for car parts, vehicles, and electronics. Chinese companies, including solar panel producers like JinkoSolar, have relocated parts of their supply chains to Thailand. Lower costs and a desire to avoid geopolitical tensions are driving this shift. Accordion to an analysis, Chinese car parts manufacturers are also setting up operations in Thailand due to pressure from overseas clients concerned about overreliance on China and geopolitical risks.
Vietnam: A Favored Destination for Chinese Companies
With China’s economy reopening after strict COVID-19 restrictions, there has been a surge in Chinese companies establishing operations in Vietnam. The influx primarily caters to larger Chinese peers already present in Vietnam. The solar panel industry, predominantly controlled by Chinese firms, attracts ancillary support providers such as plastic moulding manufacturers, die-cast makers, and energy storage providers. Chinese companies like Growatt and Hangzhou First Applied Material have already made the move to Vietnam, capitalizing on its favourable business environment.
Mexico: Proximity to the US Market Drives Relocation
The South American nation is shaping up to be a prime destination for Chinese manufacturers seeking relocation, primarily due to its proximity to the key US market. Chinese companies are increasingly manufacturing finished goods in Mexico to serve their US customers. This strategic move aims to immunize themselves against further deterioration of US-China relations. In addition to serving their own customers, second and third-tier Chinese suppliers are following suit to continue serving their OEM customers. Industrial parks such as Mexico’s Hofusan Industrial Park further exemplify how Chinese firms are moving closer to their key consumers by establishing a presence in nearby countries.
Eastern Europe: Emerging as a Destination for Chinese Car Parts Manufacturers
Chinese car parts manufacturers supplying European auto manufacturers are actively seeking overseas factory sites to mitigate risks and reduce dependence on China. Poland, in particular, has emerged as a growing site for Chinese auto parts production. Companies like Minth, based in Ningbo, are strategically expanding their operations worldwide, reflecting a recent trend of “reverse globalization.” This shift is driven by the desire to establish a presence closer to European auto manufacturers, take advantage of lower costs, and navigate evolving global dynamics. Chinese manufacturers are determined to play their cards strategically and maintain a competitive edge in the global market by diversifying their manufacturing bases.