order spillover offshoring industry! ? Southeast Asian country exports a new round to accelerate the
Driven by the gradual lifting of local epidemic prevention measures and the acceleration of manufacturing resumption, southeast Asian countries such as Vietnam, Indonesia, Thailand and Malaysia have seen their export growth speed up recently.
Indonesia's exports and imports hit record highs of $26.5bn and $21.97bn respectively in March, according to the latest data from the national Statistics Agency, and the country recorded its 23rd consecutive month of trade surplus.
According to Thailand's Bangkok Post on April 27, data released by the Ministry of Commerce showed that Thailand's exports in March reached us $28.8 billion, up 19.5% year on year and the highest level since records began in 1991. Imports of 27.4 billion US dollars, up 18% year on year; China's trade surplus reached us $1.45 billion. Real sector exports (excluding gold, oil-related products and arms) rose 8.9 per cent for the 13th consecutive month.
Malaysia's foreign trade was strong in March, with imports, exports and total foreign trade hitting record highs, according to data released by the country's statistics department. Malaysia's foreign trade totaled 236.6 billion ringgit (4.25 ringgit per US dollar) in March, up 27.3% from a year earlier. Exports exceeded 131.6 billion ringgit in March, up 25.4% from a year earlier; Imports exceeded 104.9 billion ringgit in March, up 29.9% from a year earlier; The trade surplus reached 26.7 billion ringgit, up 10.3% from a year earlier.
In the first quarter of this year, Cambodia's import and export trade reached us $13 billion, up 9% year on year. Of this, trade with China reached us $2.87 billion, up 30.14 percent year on year.
Vietnam's exports grew 25 percent year on year in April, 8.3 percentage points higher than in March and still fast from a high base of 51.2 percent in the same period of 2021, according to Statistics Vietnam. In the first four months of this year, Vietnam's exports totaled us $122.36 billion, up 16.4 percent year-on-year.
In the past two years, Vietnam's export growth rate fluctuated greatly due to the impact of the epidemic. In 2020, weighed down by the epidemic, the export growth rate only increased by 6.95%. The low base once boosted export growth by 29% in the first half of 2021, but the epidemic rebounded again in the third quarter and Vietnam took strong control measures, leading to a downturn in exports. With the rapid improvement of the vaccination rate, Vietnam's export started a new round of acceleration from November 2021. Exports have become increasingly important to Vietnam's economy, with the ratio of exports to GROSS domestic product (GDP) rising to 96.5% in the first quarter of 2022 from around 90% in 2021.
Our country orders outward shift causes concern
In March, Vietnam's foreign trade exports were 34.1 billion DOLLARS, up 14.8% year on year. Exports in the first quarter were us $88.6 billion, up 12.9% year on year. Vietnam's rapid increase in foreign trade data caused a lot of attention. However, despite the high export figures, Vietnam's trade surplus in the first quarter was only $1.46 billion and the economy added little value. By the end of the first quarter, Vietnam's trade deficit with China was us $14 billion. Vietnam still imports many spare parts and raw materials from China, which are processed in Vietnam and then exported to Europe and the US.
China's orders are mostly transferred to textile and garment, home building materials, consumer electronics and other industries, and the industry chain of textile and garment, home building materials industry has long been transferred to Southeast Asia. The outbreak of the epidemic in Southeast Asia last year only delayed the process, and now it is more like a restart of the process. And while many orders have shifted to South-east Asia, Chinese companies are still taking them. According to official statistics, one-third of all foreign-invested home furnishing enterprises in Vietnam have moved from China.
Han Jun, a securities analyst, believes that the spillover of some specific links in China's industry is inevitable, and the industrial chain between China and Vietnam is more complementary. With the participation of Vietnam and other ASEAN countries in deepening the international division of labor, China's international division of labor status is enhanced, which is expected to promote the overall export trade of Asia in the future.
Vietnam's manufacturing competitiveness has recovered
"Vietnam is almost back to normal, but people still wear masks on a daily basis. At the height of the epidemic last year, production and operations were indeed difficult. As the vaccination rate has increased, the daily life of residents and businesses in all regions of Vietnam have basically returned to normal." Zhao Qian, president of the Vietnamese Chinese Chamber of Commerce Ho Chi Minh City Branch.
He is also concerned about the hotly debated order shift in China. "This phenomenon exists and is normal corporate behavior. Companies have export orders that need to be delivered on time, and the epidemic management in the two countries is not synchronized. Last year, when the epidemic was serious in Vietnam, it was relatively well controlled in China. If a conglomerate has factories in both countries, it will make domestic factories in China produce a little more. This year, Vietnam will gradually return to normal and factories will be able to produce normally, so let the Vietnamese factories produce more."
From the fourth quarter of 2021 to the first quarter of 2022, the share of apparel, shoes, boots and hats imported to the US from Vietnam returned to the upward trend, with the share of footwear and household/lamps/bedding increasing by more than 8%. During the same period, the share of related goods imported by the US from China showed an obvious downward trend, with the corresponding share of clothing, shoes, boots and hats all falling by 7% or more.
Textile and garment: industrial transfer is the general trend
Many orders have shifted to Southeast Asia, but Chinese companies are still taking them. For example, in the field of consumer electronics, China's position in the global consumer electronics industry has been constantly improving in the past decade. China has experienced the transformation from producing low-value-added parts and OEM for foreign terminal brands to entering high-value-added production links, and domestic terminal brands have become the world's top brands. Some leading consumer electronics companies have formed a global layout of manufacturing in Southeast Asia + R&D and sales in Asia, Europe and the United States.
"Earlier, some domestic orders were transferred to Southeast Asia. One reason is that the local epidemic has eased and we have the capacity to receive orders. Another reason is that the price of cotton and yarn in our country has risen in the past, and the overseas price difference has widened. Some downstream customers have transferred orders to reduce costs." A person in charge of a garment factory in the Pearl River Delta said, however, with the recent rise in foreign cotton prices, domestic cotton spinning weakened, and the price difference between internal and external cotton yarn narrowed or even upside down, order outflow pressure may be improved.
"The manufacturing cost of a T-shirt in China is about several times that in Southeast Asia. As the epidemic situation in the periphery is gradually controlled, the global textile and garment manufacturing will continue to accelerate the transfer to Southeast Asia and other places."
Last year, due to the serious epidemic in Southeast Asia, some orders returned to China, but after the local epidemic eased, the orders immediately returned to Southeast Asia, mainly due to the cost advantage of Southeast Asia.
However, even if the order to overseas transfer, many or Chinese enterprises in the undertaking, a large number of domestic textile and garment enterprises have already layout in Southeast Asia.
Home furnishing industry: already in southeast Asia layout
The same shift in orders is happening in the home furnishing industry. In 2019, the US government imposed tariffs of up to 25% on almost all categories of Chinese home furnishing, in this context, the entire Chinese foreign trade home furnishing industry began to shift to foreign countries. In 2020, Vietnam quickly overtook China as the largest supplier of home furnishings to the United States. In 2021, wood products and home furnishings were valued at us $14.5 billion, up 17.2% from the previous year, despite months of lockdown and severe COVID-19.
But in the eyes of some Vietnamese household practitioners, the current scene of booming production and sales only "looks beautiful".
Upstream material suppliers in the home furnishing industry said that although there are many orders in the home furnishing industry in Vietnam at present, most of them are not profitable. Due to the high shipping cost, it is difficult to do the home furnishing business in Vietnam export. In addition, under the influence of the epidemic and the conflict between Russia and Ukraine, the consumption level in some countries has declined, which has affected the demand for home furnishing.
Some enterprises said that compared with domestic home furnishing exports, Southeast Asia has the advantages of cheap labor, abundant materials and low tariffs. Since the end of 2021, Vietnam home furnishing factories have resumed full capacity. But despite the scale of Vietnam's home furnishing industry, it still relies on Imports from China for many key components. "Even if the orders of domestic home furnishing industry are transferred to Southeast Asia, most of them are received by Chinese bosses. Large home furnishing enterprises are walking on two legs. Last year, Vietnam was seriously affected by the epidemic. This year, Vietnamese factories are operating at full capacity, while Chinese factories are turning to higher value-added work such as research and development and design.
Behind the contention for orders: complementary industrial relations between the two countries
As more Chinese companies shift their production capacity to Vietnam, does that mean Vietnamese manufacturing is starting to overtake China's?
Zhao Qian believes that compared with Chinese manufacturing, Vietnam has two major advantages at present: one is low land price and labor cost; the other is the market access convenience and tariff advantage brought by the free trade agreement (FTA) signed by Vietnam with major economies.
However, Zhao Qian believes that Vietnam's manufacturing is still more in the contract manufacturing stage, or assembly for export stage. So far, few Chinese companies have set up product research and development facilities in Vietnam, and the same is true for foreign companies in other countries. Vietnam's domestic manufacturers are also limited in their ability to compete globally. At the same time, Vietnam's entire national industrial system is not complete, and many basic raw materials need to be imported, which will also limit the improvement and development of Vietnam's manufacturing industry.
The South Korean military also believes that the manufacturing industries of China and Vietnam are more complementary.
The United States is the largest buyer of Vietnamese products, accounting for about 29 percent of the country's exports. About 33% of Vietnam's total imports come from the Mainland of China, with textile materials and parts being the main goods imported. 56% of textile and leather materials, 48% of machinery and equipment, and 42% of telephones, mobile phones and parts are imported from China. After processing, about 63% of wood and products, 46% of textiles and clothing, and 42% of machinery and equipment are exported to the United States.
Han Jun believes that the "spillover" of some specific links in China's industry is inevitable. Besides, China has joined the RCEP and is not too worried about the so-called manufacturing relocation. As Vietnam and other ASEAN countries join the international division of labor, China's position in the international division of labor will be enhanced and the overall export trade of Asia will be promoted in the future.
Zhao qian is equally confident about the future of Made-in-China. In his opinion, There are three competitive advantages of Chinese manufacturing in the international market: first, the industrial chain is very complete; second, the cost advantage brought by the unified large domestic market of 1.4 billion people; third, the production efficiency brought by the application of industry 4.0. It will be a trend for Vietnam to replace China in some industries or products, and China will also have to compete and eliminate some uncompetitive industries, but as a whole, Vietnam will not replace China. He also hopes that Vietnam can continue to encourage foreign enterprises to invest, improve technological level, and jointly promote social progress.
Manufacturing in China should promote industrial upgrading as soon as possible
Many people remember the name of the Asian "tigers". From the late 1960s to the 1990s, South Korea, Singapore, Taiwan and Hong Kong seized the historical opportunity of industrial transfer in developed countries and achieved rapid economic development. All four countries and regions have successfully entered the ranks of developed economies through rapid export-driven economic growth followed by timely industrial upgrading.
But Indonesia, Thailand, Malaysia and the Philippines, once synonymous with the tigers, have not been so lucky. After the Asian financial crisis of 1997, the four countries' economic growth slowed and they fell into the middle-income trap, failing to foster more competitive industries.
After 40 years of rapid economic growth, China is beginning to face a choice between becoming a "dragon" and a "tiger". Our cost advantage, which we used to be proud of, has gradually come down. The shift of low-end, labour-intensive industries to Southeast Asian countries such as Vietnam looks inevitable. Price advantages of land and labor, coupled with tariff advantages, not only make multinational companies shift their production capacity to Southeast Asia, but also a large number of Chinese enterprises cannot resist the "temptation" to increase their presence in Southeast Asia.
However, the transfer of low-end industries does not mean the end for Chinese enterprises, but the failure to promote industrial upgrading as soon as possible.
In order to cope with the competition from Southeast Asian countries, the only way for Made-in-China to cope with the competition is to increase investment in research and development, upgrade the industry as soon as possible, and avoid falling into the mire of cost competition. In the past, international giants such as Nike and ZARA still occupied the top of the industrial chain after losing their production capacity to Asian countries, relying on design and marketing to make most of their profits. Korea's electronic information industry has gained a foothold in the global competition by relying on the government's industrial policies and intensive r&d investment. In China, the traditional fuel car era failed to achieve the curve overtaking Chinese car companies, with battery, motor and electronic control "three power" advantage, in the era of new energy vehicles has begun to emerge in the global market.
In relative terms, Vietnam's problems may be more serious. When Chinese companies invest and build factories in Vietnam, they rarely set up research and development departments except for production and sales departments. The same is true for foreign companies in other countries. Factories without RESEARCH and development end up producing only industrial workers. Vietnam's own companies, state-owned or private, have yet to produce global brands. The history of the "four Tigers" tells us that the rapid development of foreign trade will bring short-term economic development, increase of foreign exchange reserves and increase of resident income, but it does not mean long-term prosperity and stable development. Only early promotion of industrial upgrading can maintain long-term global competitiveness.