context: China is pursuing a ‘front shop, back factory’ strategy, hoping to attract and keep more high-end FDI in coastal areas, while encouraging the central and western inland to absorb low-end manufacturing bases. But hiking tariffs have hit Chinese companies badly, and both Chinese and foreign firms have accelerated moving production out of China due to intensifying US-China trade war.
Amid Chinese products’ increasing transshipments via third markets to avoid high tariffs, some have speculated that Vietnam and India could become the next 'world factory'. But ASEAN countries are far from replacing China's status in the global value chain in terms of production scale and management, argue He Fan 何帆 Shanghai Jiao Tong University Antai School of Economics and Management professor and Shi Zhan 施展 China Foreign Affairs University World Politics Research Centre director.
There is a large gap in population and economic size between Vietnam and China, He notes. Vietnam imports about US$7 bn of Chinese products, and 2018 data shows Vietnam’s exports totalled US$243.5 bn while the total value of China’s exports was US$16.4 tn.
Despite some production chains relocating to Vietnam, Vietnam still imports raw materials from China, which will eventually help China expand its supply chain, He notes, using the phrase ‘when China sneezes, Vietnam catches a cold’ to express the two countries’ close ties.
Most enterprises that have relocated from China to Vietnam prefer hiring Chinese managers to supervise production, Shi notes, and they control the key tech and resources.
The challenge for the global value chain is not US-China trade disputes, but better controlling changes from future consumer demand and technology, He says. Future consumption demands will be personalised, and China’s large domestic market creates favourable conditions for their development, He says. The ball is in China’s court as it has the technology; if some materials change, the whole industry will have to adjust.
Future policymaking should consider market entities’ perspectives, as they are the foundation of China-US relations, Shi suggests. The tighter US policy is, the more businesses seek to work with Chinese companies to avoid worst outcomes. Although the US government aggressively contains Huawei with sanctions, both American and Chinese companies finding ways around them. In most circumstances, the US private sector’s choices are not consistent with US policy, Shi adds.