Loading
AMONG WESTERNBYDEVEVBYD Your browser does not support the element.By Mike Bird, Asia business and finance editor, The Economist multinational firms, outsourcing has become a dirty word. Firms that once eagerly moved production abroad (especially to China) in order to reduce costs are keen to show they are committed to their home bases. But now the cheaply manufactured shoe is on the other foot. Chinese firms are the ones shifting their operations abroad, investing in new production facilities across the world. This trend will intensify in 2025.For Chinese firms wishing to export to America, overseas operations are no longer optional. Moving production out of China has allowed them to avoid American tariffs put in place during Donald Trump’s first term, and retained by the Biden administration. With the re-election of Mr Trump, and the prospect of tariffs against Chinese exports of 60% or more, the scramble to find overseas bases is now urgent.The logic goes beyond the trade war, too. Local production in other countries opens up new markets and insulates Chinese producers against future trade restrictions. It can generate local goodwill—and sometimes government subsidies as well. It also reflects the grim reality of China’s economic slump. For decades, the booming domestic market was enough for the country’s big firms. Now, faced with a protracted slowdown driven by a slump in the property sector, it is no longer such a promising option.The shift is visible in “greenfield” foreign direct investment in new sites by Chinese firms, which hit a record $163bn in 2023 (see chart), concentrated outside the West. Saudi Arabia, Malaysia, Vietnam, Morocco and Kazakhstan were the five largest destinations. There has been no sign of a slowdown in 2024. , China’s leading maker of electric vehicles (s), which is already building a factory in Hungary, announced a $1bn investment in Turkey in July. Great Wall Motor opened a car factory in January 2024 in Thailand, where Chang’an Automobile’s factory is also due to open in March 2025. Beiqi Foton Motor, a truckmaker, is preparing to spend $1bn on an factory in Mexico. Overall outbound investment by Chinese companies in the first nine months of 2024 was $124bn, a 9.2% increase on the same period in 2023.Listed Chinese companies are still homebodies. They make just 10% of their revenue abroad, compared with 35% for Japanese firms. But some pioneers make more: Goertek and Luxshare, two electronics firms in Apple’s supply chain, have expanded in South-East Asia in recent years, and now make 93% and 89% of their revenues overseas respectively.Such moves offer huge opportunities. Done well, expanding abroad can be an antidote to trade tensions. Chinese firms, and carmakers in particular, are following in Japanese footsteps. Trade tensions between Washington and Tokyo, which peaked in the 1980s, were soothed by massive investment by firms like Honda, Nissan and Toyota in American production sites. Chinese carmakers may never crack the American market. But expansion abroad will help soothe trade tensions with other countries.Yet the shift comes with risks, too, as Chinese solar-panel manufacturers operating overseas have found. America’s Department of Commerce says that their production sites in South-East Asia are used for little more than the final assembly of Chinese goods, and placed new tariffs on the firms’ production there in June 2024. As Chinese firms shift overseas in increasing numbers to escape the coming wall of tariffs, they may find that the long arm of American protectionism still reaches them nonetheless.
