context: Against rising domestic competition, robust manufacturing capacities and trade headwinds, PRC overseas investment is on the rise. But more trade restrictions may be coming for PRC overseas investments, not least via 'secondary sanctions' or other local adaptation issues. Navigating these challenges demands not only the ingenuity of PRC entrepreneurs but also support from Beijing.
The next biggest change in world trade will come from the PRC, not least Chinese overseas investment bringing their entire industrial chains abroad, which is something not seen before, says Yao Yang 姚洋 Peking University National School of Development former dean in a recent interview. Yao notes
- lower-end industries are moving to Laos, Cambodia and Vietnam
- slightly higher-end labour-intensive industries are transferring to Malaysia and Indonesia
- higher-end ones will move to the US and the EU if they are more open to PRC investment
Yao believes this is good news because PRC industries can play an active role in different stages of production. He suggests
- PRC investment in the US (e.g. automotive industry) can be done via joint-venture, but this is not easy politically
- the EU has less restrictions, and PRC auto investment there will increase due to rising tariffs
- PRC firms can invest in the production of higher-end cars there, as they match the higher income levels of Europeans
- this would create jobs in the EU and spur economic interdependence between the two blocs
- PRC firms can invest in the production of higher-end cars there, as they match the higher income levels of Europeans
Song Xuetao 宋雪涛 TF Securities chief macro analyst notes that many PRC exports are rerouting to regions like ASEAN and Mexico, which function as 'friendshoring' destinations for the PRC just as much as they do for the US
- PRC firms did not lag behind in reaping the opportunities brought by US friendshoring efforts
- while the US proposed this policy and offered its massive markets, it failed to empower these countries with capacities
- PRC firms ended up bringing their capacities and skilled talent there to build downstream industrial chains
- while the US proposed this policy and offered its massive markets, it failed to empower these countries with capacities
- PRC firms are expanding their network to reach greater efficiencies, thanks to network and economy-of-scale effects
- they can now command more global resources
- their markets become bigger from discovering more sales leads during their overseas development