Chinese Companies Investing in Other Countries, moving from Assemblers to Component Makers

Companies are aggressively moving away from China sourcing – or not.

In the past couple of years, a number of surveys have found a high percentage of US manufacturers and brand companies indicate their intent to move at least some manufacturing away from China, driven by rising costs, political tensions, and the supply chain disruptions seen out of China related to the COVID crisis.

Supply Chain Digest Says... That means that when US companies source from factories in countries such as Vietnam, often they are actually buying from Chinese companies – which as a result duck US tariffs. What do you say? Click here to send us your comments   Click here to see reader feedback

And for a change some of that is actually showing up in the data.

For example, one recent report said the share of Walmart’s US imports from China fell to 60% of the total through August of this year, down from 80% in 2018.

And it was well publicized that Mexico recently overtook China as the top source of imported goods. In the first six months of 2023, US imports from Mexico totaled $239 billion, compared to $219 billion with China, government figures show.

According to US trade data, China accounted for just 13.3% of goods imports during the first six months of this year, the lowest level since 2003, and far below the highest level of 21.6% in 2017.

But the situation is complicated. According to an article this week in the Wall Street Journal, a variety of data sources indicate that a large percentage of the products shipped to the US from countries such as Southeast Asia countries and Mexico are being made in factories owned by Chinese companies.

Many of those Chinese companies, the Journal says, are expanding overseas, in part to avoid the Trump tariffs on Chinese imports that have been maintained by the Biden administration.

Further, it turns out that many products made in smaller countries are produced with key inputs from Chinese suppliers, meaning they wouldn’t get made at all without Chinese supply.
All of which just goes to show that truly getting away from China is a lot harder that it might initially work.

“Far from decoupling, some supply chains connecting the US and China have merely added another link or two, increasing the complexity and cost,” the Journal article notes.

In fact, analysis in an October report from the Bank for International Settlements found that supply chains between China and the US have turned more complicated since 2021, with sourced goods taking more hops from initial producer to the end customer.

That means many goods imported to the US still originate from China, meaning disengagement strategies are not really working.

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But the data in fact shows some segments of the economies of US and China are breaking apart, while others are not. It appears in some cases US policies are triggering supply chain adjustments that are actually locking in greater dependence on Chinese suppliers, economists say.

Part of the issue is that many Chinese companies are aggressively investing in factories outside of China. That means that when US companies source from factories in countries such as Vietnam, often they are actually buying from Chinese companies – which as a result duck US tariffs.

What is happening is that China is merely adjusting its role in global supply chains, rather than relinquishing it, Frederic Neumann, an HSBC economist, told the Journal. He added that “China is quickly becoming a critical component supplier to the world after years of being largely an end-stage assembler.”

And that means the US has continued heavy reliance on China even when final goods are assembled elsewhere. That then defeats the purpose by US companies to reduce their exposure to further business risks if tensions between Washington and Beijing keep rising or there are other disruptive events within China itself.

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