“Good morning Vietnam, goodbye China.” With this dizzying and off-topic headline, the German newspaper Frankfurter Allgemeine Zeitung recently declared it a fait accompli that Western industry is now turning towards the smaller, fast-growing Asian economies and away from China.

Perhaps the catalyst that accelerated the process was the zero-tolerance policy for the coronavirus, which Beijing has implemented for the past three years, literally choking off a heart attack in the supply chain. But this was preceded by factors of great geopolitical significance, most notably intensifying competition between Washington and Beijing, while economic incentives have weakened as China’s demands for wages for its once-cheap labor force have risen. According to China’s National Bureau of Statistics, the average wage in Chinese factories doubled from 2013 to 2021, from 46,000 yuan a year, equivalent to $6,690, to an annual salary of 92,000 yuan, which is roughly $13,300. Thus, Western industries have found alternatives in a number of Asian economies, some of which have been dubbed “Asian tigers” due to their rapid growth in the early years of the millennium before the global financial crisis brought them to their knees.

Over the past two years, the number of Japanese companies operating in China has dropped from 13,600 to 12,700.

From Vietnam, Cambodia, Indonesia and Thailand to South Korea and Japan, a new landscape stretches in which Western companies today are finding what China offered them until recently: cheap labor, large manufacturing equipment and an extensive supply chain. “China can no longer be the factory of the world,” Hideo Tanimoto, president of Japanese parts and components maker Kyocera, said this week as he told the Financial Times why Kyocera is moving manufacturing units to Vietnam, China and Thailand. The industry in question occupies 70% of the world market for ceramic components for the production of microprocessors. And according to its president, the Biden administration’s restrictions on exports to China are partly responsible for Kyocera not accounting for a 31% drop in profits. It is one of the industries involved in a tug-of-war between the world’s two largest economies and decided in 2019 to move much of its production from China to Vietnam to avoid tariffs imposed by the Trump administration.

She is not the only one. According to Japanese data aggregator Teikoku Databank, over the past two years, the number of Japanese companies operating in China has dropped from 13,600 to 12,700. In late January, however, information was leaked that Sony was planning to move its camera division from China to Thailand. , and South Korean Samsung cut more than two-thirds of its staff in China. After all, there are rumors that by 2024 the American computer giant Dell will gradually withdraw the production of microprocessors from China.

New super factory in Vietnam

Vietnam, considered by many to literally replace China, is strategically located due to its proximity to it, while its 3,000 km coastline gives it a significant advantage in terms of maritime transport logistics. It is distinguished by the characteristics of the countries of the wider region, perhaps most important of all, its cheap labor force, but also its young population, the business-friendly policies promoted by its government, the free trade agreements with which it has entered into many countries, and the fact that he manages, at least for now, to maintain equally friendly relations with both China and the United States.

Its performance is impressive as its exports grew by 21% in the second quarter of last year compared to the corresponding period in 2021. At the same time, its economic growth is reminiscent of China’s past pace as it soared to 7.7%, the highest level in 11 years. And all this at a time when its economy was hit hard by the pandemic in 2021, when it was forced to impose tight restrictions on many commercial cities, including the capital Hanoi. As a result, the third quarter of 2021 plunged into recession with a 6.2% drop in GDP.

But then the Hanoi government promoted a policy of mass vaccinations in an attempt to reconcile the functioning of the economy with the existence of the coronavirus, which is what Western economies have done. An impressive recovery in factory economic activity followed almost instantly, and the borders opened, making his opposition to China and its “zero tolerance” policies palpable. Soon the international media, and especially financial reviews, began to describe it as a new “superfactory” and herald its emergence as a manufacturing engine to replace China.

Vietnam’s rise began years before the pandemic, as it started at least as early as 2018 to capitalize on the trade war between China and the US. Seeing the risks in their supply chain, when no one could have imagined what the pandemic would lead to, many Western companies have already begun to move some of their production to Vietnam. The country attracted $7.7 billion in foreign direct investment in the first five months of 2022, up 7.8% from the corresponding period in 2021, according to the state news agency. And in the first quarter of 2022, its exports exceeded those of China’s trading metropolis, Shenzhen, by $27.75 billion.

Chinese salaries are now too “expensive”

On Friday, Arno Adlitz, chief executive of Volkswagen, said in an interview that Germany’s flagship automaker is “turning its attention to India to secure a better position in the new world.” And he cited geopolitical tensions and the fact that the regulatory framework is becoming increasingly complex. In recent months, the Biden administration has imposed new restrictions on technology exports to China to prevent it from making high-tech microprocessors. And in January, Japan and the Netherlands agreed with the United States to limit the export of equipment for the production of microprocessors to China. And if relations between the two gladiators of the global economy have long been strained, the alliance between Beijing and Moscow and the tightening of relations between them against the backdrop of the war in Ukraine and despite mounting international pressure further exacerbates the mood.

In a related lengthy article, the British Economist calls this group of Asian countries, from Vietnam to Japan, “Altasia.” That is, he uses a two-word neologism meaning “alternative Asia”. He points out that in this group of countries, a new geopolitical order of things is likely to be tested and whether the removal of industries and, in general, the relative independence of Western economies from China can work. However, as he points out, the countries in this vast region of Asia have a wide range of potential, ranging from the highly skilled many of their people, the low wages in India, to the economic power of Japan.

The sum of their economically active population of 1.4 billion exceeds China’s 980 million, while collectively the region has 154 million college-educated people aged 25 to 54, compared with a corresponding 145 million in China. In most of these countries, wages are clearly much lower than in China, as in Vietnam, Thailand, India, Malaysia, and the Philippines, hourly wages are less than three dollars and are about 1/3 of China’s hourly wages. In total, countries in the region exported $634 billion worth of products to the United States last year, exceeding China’s exports of $614 billion.

Dieter Holzer

Dieter Holzer, fashion industry board member Mark O’Polo, stressed that his company is moving production units from China to Turkey and Portugal “so that its supply chain is not at risk and more sustainable, while many companies are doing the same most by trying to cut their costs.” acquaintance with China.

$13,300 the average annual wage in Chinese industry has reached a level that in 2013 was only 6690 US dollars.

Hideo Tanimoto

The president of Japan’s Kyocera, one of the largest microprocessor manufacturers in the world, referred to factors pushing the industry away from China, stressing that “not only have wages risen, but with everything that’s going on between the US and China, it’s hard to export from China to other countries.” regions”.

4.4% Vietnam’s foreign trade increased in the first quarter of 2022, reaching $176.35 billion.

Shahidullah Azim

The Vice President of the Bangladesh Apparel Manufacturers & Exporters Association recently noted that “many orders, from clothing to smartphones and electronics, have been shipped from China to Bangladesh due to the trade war that has erupted in recent years between the US and China.” .