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Chinese businesses are increasingly favouring investment in countries including Vietnam and Mexico as trade tensions rise between western governments and Beijing.
During the year to March, at least 41 Chinese manufacturing and logistics projects were announced for Mexico, while at least 39 were scheduled for Vietnam, according to the latest data from Financial Times subsidiary FDI Markets.
This represents the highest number of announced projects in either country since FDI Intelligence began tracking foreign investment news and company announcements in 2003, with both Mexico and Vietnam now overtaking the US as the top destinations for Chinese manufacturing and logistics projects. Thailand, Malaysia, Hungary and Egypt also welcomed record levels of Chinese projects in the year to the end of March.
The developments highlight how, as western multinationals and politicians seek to break decades of dependence on factories in China and limit the country’s role in supplying critical products, Chinese manufacturers are building their presence overseas.
Among the big Chinese investments is an up to $2bn Mexican plant announced by the local subsidiary of state-owned Shanghai Automotive Industry Corporation.
With US President Joe Biden last month declaring fresh tariffs on $18bn-worth of Chinese goods, even small Chinese manufacturers are looking to spend their limited funds on overseas expansions.
As the US imports more from countries beyond China, Chinese businesses are also boosting exports to these countries.
The total value of Chinese exports to Mexico and Thailand more than doubled to $158.7bn between 2017 and 2023, according to China’s customs data. China’s overall exports grew just 49 per cent to $3.4tn over the same period.
Chinese exports of computer parts to Vietnam more than tripled to $1.7bn between 2017 and 2023, according to China’s General Administration of Customs.
However, the Eurasia Group consultancy pointed out in April that Vietnam’s trade surplus with the US had increased substantially not only because of an actual shift in production from China, but also because Chinese companies were simply rerouting products through Vietnam.
“Direct importing [from China] may be down. But one only has to look at indirect routes through which the US continues to be plugged into Chinese supply chains,” said Davin Chor, an economics professor at New Hampshire’s Dartmouth College.
Audrey Liang, a sales representative at knife and tool manufacturer Summit Enterprise, said that, having been based in a single factory in Yanjiang, in southern China’s Guangdong province, for 26 years, it is now fitting out a second site in Vietnam. It hopes the Vietnamese site will be operational by the end of next year.
Clients had asked Summit Enterprise to consider a site in Vietnam because of “political reasons” and the lower tariffs on Vietnamese goods, despite higher production costs and the lower skill levels of domestic workers, she said. “If the customers didn’t have this requirement, we wouldn’t go to Vietnam,” she added.
There are still many advantages to operating in China, said Jack Ye, a sales representative at Chinese backpack-maker Xiamen Obaili Manufacturing, noting that Chinese production had the advantage of better delivery times, costs and quality. But the company would consider overseas sites if Donald Trump, who has threatened even greater crackdowns on Chinese trade, was re-elected as US president, he said.
Additional reporting by Anantha Lakshmi in Jakarta and Jacopo Dettoni in London