Global tech firms decentralize out of China, US warns Solomon Islands about PLA military base & US, UK decode Russia's & China's top fighter jet after capture in Ukraine -- China Boss news 4.25.22
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Global tech firms are decentralizing out of China
Bloomberg analyst Debby Wu last week identified a trend in "renewed energy" among global tech companies who are "bulking up manufacturing capabilities" outside of China. Although not entirely new - as manufacturers in some industries have in recent years been reversing “a decades-long trend” of using China as a production hub - Beijing’s heavy-handed tech regulation and Covid-zero lockdowns, along with the looming threat of secondary sanctions for supporting Russia’s war in Ukraine, seems to have motivated firms to reduce risk by diversifying into other regions.
Debby Wu, Bloomberg:
Chief Executive Officer Cheng Ping of Delta Electronics Inc., a key parts supplier to Apple and Tesla Inc., was unusually blunt earlier this week when commenting on the impact from widespread lockdowns in the eastern Chinese city of Suzhou, where his company operates factories.
“We will continue to add more capacity outside of China in the long run to mitigate risks including tariffs and lockdown-induced disruptions,” Cheng told reporters in the northern Taiwanese city of Hsinchu on Tuesday.
Foxconn is also acquiring 40 acres of land in Chennai in order to make products for India’s domestic market, according to a person familiar with the matter, confirming a report in India’s Economic Times earlier this week.
Here’s what I said about the trend of manufacturing leaving China in Arabian Business news last year:
Shannon Brandao, Arabian Business News:
. . . China’s Ministry of Commerce reported that, for the period of January – May 2018, “the top ten nations and regions with investment in China,” by greater to lesser amount of “actual input of foreign capital,” were Hong Kong, Singapore, Taiwan, South Korea, Japan, the US, the UK, Macao, the Netherlands and Germany, and the total FDI of all these “accounted for 95.2 percent of total actual use of foreign investment in the country.”
. . . In January [2021], the Financial Times released an astounding write-up on “[h]undreds of thousands of Taiwanese enterprises” who were leaving China due to “rising costs and trade tensions between Washington and Beijing.” According to FT analysts, the unexpected turn “reverses decades of investment” by Taiwanese firms. Last month, Delta Electronics, a major Taiwanese producer of electronic components for Apple and Tesla, told FT it planned to reduce its Chinese labor force “by 90 percent,” and that “even without the US-China conflict, China is no longer a good place for manufacturing.” Company executives cited growing wages and a high staff “turnover rate” as primary reasons.In December 2020, Asia Times said Japanese manufacturers, too, were “beat[ing] a path out of China” in a “[t]rend” that had accelerated after Tokyo gave incentives to encourage firms to leave.
Emphasis added.
Global producers in some tech industries, like electric vehicle manufacturing, are also “taking advantage of growing demand” overseas, Bloomberg’s Tim Culpan said.
Culpan, Bloomberg:
Foxconn Technology Group, Pegatron Corp., Compal Electronics Inc. and Wistron Corp., all from Taiwan, are world leaders in assembling electronics products for the likes of Apple Inc., Sony Corp. and Dell Technologies Inc. They also supply systems used by electric vehicle makers such as Tesla Inc. and Volkswagen AG. Right now, they largely do so in China.
But the Covid-19 pandemic revealed the fragility of global supply chains and the high risks associated with having a concentration of manufacturing capacity in just one region. Foxconn last week was forced to shut production in the southern city of Shenzhen because of a Covid outbreak. Most of Foxconn’s peers have faced similar hurdles over the past two years as authorities seek to stem Covid’s spread. Geopolitical tensions, notably between Washington and Beijing but now encompassing much of the world, exacerbate the sense that more production diversity is needed.
That’s where EVs come in. Governments, manufacturers and global clients are all driving the trend to move production of electric vehicles, including their high-tech components, closer to consumer markets. Localization makes sense: Cars are physically larger and thus more expensive to ship. And domestically produced vehicles can be a source of national pride for consumers.
For Wu’s Bloomberg newsletter article, Tech Reconsiders Dependence on China, But Costs to Move Are High, click here. For the article I wrote in Arabian Business news, Yes, manufacturing really is leaving China – and authorities are scrambling to slow down the exodus, click here.
For SCMP’s report, Chinese tech firms see warning shot from US sanctions on Singaporean firm, but enforcement could be challenging, click here. For Tim Culpan’s Bloomberg article, Technology Companies Have a Road Out of China, click here.
Law and International Xi
U.S. warns Solomon Islands about PLA military base after agreement signed
In a statement released after senior envoys from the U.S. met with Solomon Islands Prime Minister Manasseh Sogavare, the White House "warned that Washington would have 'significant concerns and respond accordingly’ to any steps to establish a permanent Chinese military presence in the Pacific island nation,” Reuters reported.
Reuters:
"If steps are taken to establish a de facto permanent military presence, power-projection capabilities, or a military installation, the delegation noted that the United States would then have significant concerns and respond accordingly," it said.
"The United States emphasized that it will follow developments closely in consultation with regional partners."
China and the Solomon Islands signed a security pact last week that granted the Chinese military and police significant presence in the Pacific nation. According to The Guardian, word that a far-reaching agreement was underway “set off shockwaves” in Australia, New Zealand and the U.S. last month, causing a flurry of last minute diplomatic activity that culminated in high-level visits.
The Guardian:
According to accounts from diplomatic sources, politicians and analysts, the China-Solomons security pact was a deal shrouded in secrecy, which took diplomats and government officials – even from within Solomon Islands – by total surprise, prompting a scramble by western powers to try to block Chinese influence in the region and outrage among Solomon Islanders.
In response to the leak, two delegations were dispatched from Australia to Honiara, and this week two top US officials, including Kurt Campbell, the national security council Indo-Pacific coordinator, will land in the capital.
But the hurried diplomatic overtures proved fruitless. Late on Tuesday, China’s foreign ministry announced that the deal had been signed.
For the rest of Reuters’ update, U.S. warns of response to any permanent China military presence in Solomons, click here. For The Guardian’s report, The deal that shocked the world: inside the China-Solomons security pact, click here.
Beijing ratifies forced labor treaties to ease international trade pressures
China has ratified several treaties on forced labor in an attempt to ease international trade restrictions, Bloomberg last week reported.
Bloomberg:
The nation’s top legislative body decided Wednesday to sign onto the Forced Labor Convention and Abolition of Forced Labor Convention, according to the website of the National People’s Congress. The conventions were respectively adopted in 1930 and 1957 by members of the International Labor Organization.
But analysts say the ratification is likely to be met with skepticism in the U.S. and Europe, especially “after Xi provided diplomatic support to Russia in the wake of Vladimir Putin’s war in Ukraine.”
Bloomberg:
The EU’s foreign policy chief, Josep Borrell, said earlier this month that “compartmentalization” of trade and the war was “not feasible.” China’s belated move to ratify the treaties was unlikely to sway the EU without “a real policy change by China in Xinjiang,” Joerg Wuttke, president of the European Union Chamber of Commerce, said last week.
German scholar Adrian Zenz said China’s gesture was similarly not going to satisfy its critics Washington, which has also called on Beijing to take a more active role in urging peace in Ukraine.
“In D.C., I think the trust in what China does is so low, especially in Xinjiang, that people are going to see this as little more than a cynical gesture,” he said. “People there are going to consider it to be window dressing -- a ratification of something the Chinese won’t enforce.”
For the rest of Bloomberg’s update, China to Sign Forced Labor Treaties as Xinjiang Scrutiny Grows, click here.
Geopolitics
China’s damage control in Eastern Europe for Russia position too late, expert says
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