Cheap Chinese Goods Flood South East Asia through E-commerce and Smuggling Channels

· Local Govt Helpless in Face of FTP

· Local industries – from Thailand’s truckers to Malaysia’s retailers – are feeling the squeeze from low-cost Chinese goods

· Half of the ceramics factories in Thailand’s northern Lampang province have closed. In Indonesia, thousands of textile workers have lost their jobs.

· Malaysia’s manufacturers, meanwhile, say the government’s attempt at stemming the tide – a meagre 10 per cent tax on e-commerce – has done little to shield them from the deluge.

· Chinese competitors are flooding the market with identical soup bowls – minus the artistry – priced at a mere 8 baht.

· Highly automated supply chains and relentless pursuit of new markets are reshaping the competitive landscape.

· Flood of Chinese goods has been aided by the world’s largest e-commerce market, as well as new railways and upgraded ports that streamline logistics.

· Dumping of unsold Chinese goods.

· E-commerce platforms like Temu are under scrutiny for their role in flooding the market with cheap products

· Trade between Thailand and China reached a staggering US$105.1 billion from January to October last year, according to embassy figures.

· China is Thailand’s biggest trade partner and we’re also Thailand’s biggest agriculture export market.

· Police raids in Bangkok, which netted millions of baht worth of illegally imported cosmetics and other goods.

· Critical sectors of the Thai economy – logistics, in particular – have already slipped into Chinese hands, with what’s being called “zero dollar transport”. This term describes a circular economy in which Chinese front companies pay Chinese suppliers – often using untaxed, potentially illicit funds – to move goods in Chinese-owned trucks.

· Truck loads of durians to Laos charging 80,000 baht (US$2,330), but Chinese companies are undercutting our price at 30,000 baht per load, which is impossible for Thai businesses to match.

· Foreign investors to gradually increase their stakes in local enterprises or import goods under trade agreements to assemble in non-Thai-owned companies.

· Malaysia’s government imposed a 10 per cent levy on imported goods valued at 500 ringgit (US$115) or less back in January.

· But retailers argue this measure is insufficient, as they report losing up to 30 per cent of sales to online businesses shipping goods directly from China.

· China has been Malaysia’s largest trading partner, exporting 259 billion ringgit (US$59 billion) worth of goods – ranging from electronics to machinery – this year alone.

· Textile workers took to the streets of Jakarta, demanding support as they lost market share to Chinese apparel and textiles flourishing on e-commerce platforms like Shopee, Lazada, and TikTok Shop.

· The protests prompted the Indonesia government to introduce new import tariffs ranging from 100 to 200 per cent on certain goods from China, including textiles, clothing, footwear, ceramics and electronics.

· China is Indonesia’s largest trading partner and has benefited from low duties under regional trade agreements, with trade between the two nations exceeding US$127 billion last year.

[ABS News Service/09.09.2024]

Across Southeast Asia, a tidal wave of cheap Chinese imports is swamping local industries, leaving devastation and joblessness in its wake.

Half of the ceramics factories in Thailand’s northern Lampang province have closed. In Indonesia, thousands of textile workers have lost their jobs. Malaysia’s manufacturers, meanwhile, say the government’s attempt at stemming the tide – a meagre 10 per cent tax on e-commerce – has done little to shield them from the deluge.

For Meelarp Tangsuwana, who founded his ceramics factory 35 years ago, the numbers just don’t add up. His company, like many others in Lampang, produces hand-painted soup bowls, lovingly crafted and sold for 18 baht (53 US cents) each to food stalls across Thailand and beyond. Yet Chinese competitors are flooding the market with identical bowls – minus the artistry – priced at a mere 8 baht.

“I don’t understand how it’s possible to drop the costs that low,” he said.

Meelarp’s despair resonates throughout the region, where makers of textiles, cosmetics, electronics and kitchenware find themselves outmatched by Chinese manufacturers, whose highly automated supply chains and relentless pursuit of new markets are reshaping the competitive landscape.

“As Western markets become less accessible to Chinese goods, Southeast Asia has increasingly become a focal point for Chinese exports,” said Muhammad Zulfikar Rakhmat, director of the Jakarta-based Centre of Economic and Law Studies think tank’s China-Indonesia desk.

The flood of Chinese goods has been aided by the world’s largest e-commerce market, as well as new railways and upgraded ports that streamline logistics. An intricate web of free trade agreements – from the Asean Free Trade Area to the Regional Comprehensive Economic Partnership – further paves the way for Chinese products to penetrate local markets.

Chinese manufacturers excel at economies of scale and “meeting demand for consumer products on e-commerce platforms”, explains Yeah Kim Leng, an economics professor at Malaysia’s Sunway University.

But this provides little consolation to Meelarp, who fears for the future of Thai ceramics and countless other small and medium-sized enterprises.

Without decisive action from the Thai government – such as enforcing tariffs, curbing the dumping of unsold Chinese goods and cracking down on illegal operations – these artisans may have nowhere to turn.

“It’s up to the government now to protect us and our craftsmanship,” Meerlap said – a plea that echoes the hopes of many Southeast Asian tradespeople.

Thin end of the wedge

Alarmed by the rapid pace of business closures, Thailand’s new government is taking a tougher stance after years of fostering ties with its largest trading partner through reciprocal market access, logistics investments and visa-free agreements.

Since the pandemic, Chinese companies have infused life into parts of Thailand’s stagnant economy. However, experts warn that the country – like many of its fellow Association of Southeast Asian Nations member states – must now strike a delicate balance between protecting its own businesses and adhering to the trade agreements it has willingly signed.

On Wednesday, Thailand’s commerce minister pledged to tackle the influx of illegally imported goods and support local businesses enduring a barrage of low-cost competition.

E-commerce platforms like Temu are under scrutiny for their role in flooding the market with cheap products and may soon be mandated to register locally and face higher tax rates.

In late August, former Prime Minister Thaksin Shinawatra, whose daughter Paetongtharn now leads the country, called for “small steps of protectionism” to combat the deluge of cheap Chinese goods. But for many Thais struggling to stay afloat, these measures feel long overdue. The country’s small and medium enterprises, which operate on razor-thin margins, are bearing the brunt of the fallout.

“They’re not here to trade with us … they’re here to kill our business,” Thongyu Khongkan, president of the Land Transport Federation of Thailand, told This Week in Asia. His frustrations are echoed by many, especially given that trade between Thailand and China reached a staggering US$105.1 billion from January to October last year, according to embassy figures.

As reports mounted of Thai companies folding amid the price war, the Chinese embassy in Bangkok responded with a lengthy social media statement.

“China and Thailand are good neighbours, we are like family. China is Thailand’s biggest trade partner and we’re also Thailand’s biggest agriculture export market. During the past few years China has imported more than 40 per cent of all Thai agriculture exports,” the embassy wrote in Thai on its Facebook page.

“In terms of cheap goods, most are daily products, food, health, jewellery, clothes – they don’t even make up 10 per cent of imported goods from China – they are also only worth half the agricultural produce that Thailand is exporting to China.”

The Chinese government had called on its people and companies to follow other countries’ rules and “encourages the Thai government to be very strict in enforcing the law”, the embassy said – promising support in using new e-commerce platforms and embracing “this opportunity of the internet era”.

But recent police raids in Bangkok, which netted millions of baht worth of illegally imported cosmetics and other goods, paint a different picture. Authorities arrested one Chinese woman, whose operation is believed to be just the tip of a vast iceberg of criminal enterprises that exploit loopholes and hire Thai surrogates to run Chinese businesses that flood the market with illegally imported products.

In response, some Thai consumers are rallying around “buy local” campaigns that spotlight Chinese goods seemingly dumped on the market.

Yet Thongyu warns that critical sectors of the Thai economy – logistics, in particular – have already slipped into Chinese hands, with what’s being called “zero dollar transport”. This term describes a circular economy in which Chinese front companies pay Chinese suppliers – often using untaxed, potentially illicit funds – to move goods in Chinese-owned trucks.

“I used to run truck loads of durians to Laos charging 80,000 baht (US$2,330), but Chinese companies are undercutting our price at 30,000 baht per load, which is impossible for Thai businesses to match,” Thongyu said. Not only that, “while Thais pay 250 baht per square metre for warehouse space, Chinese firms offer it for only 70 baht”.

He said many unprofitable Thai logistics companies are being bought out and transformed into fronts for new Chinese owners, allowing these operations to evade taxes and regulatory scrutiny.

Legal loopholes also enable foreign investors to gradually increase their stakes in local enterprises or import goods under trade agreements to assemble in non-Thai-owned companies. The impact has been catastrophic for many Thai logistics firms.

Pinij Srianchalee, 56, is among the thousands forced out of work by this relentless price war. For a decade, he operated a cooling truck transporting durians and mangosteens from Thailand’s fruit hub of Chantaburi to Boten on the Laos border.

The 48-hour return trip once yielded Pinij US$3,800 to US$4,500, with his container filled with Chinese produce destined for Thailand.

Last year, China imported around 1.43 million tonnes of fresh durians, a 70 per cent increase from the previous year, with Thailand supplying 929,000 tonnes of that total.

However, as “zero dollar transport” became entrenched over the past few years, Pinij found his income had halved. “It’s so low that I don’t even think anyone who can operate at that price can make anything [in terms of profit],” he said, openly questioning the sources of the income that allow Chinese companies to undercut his business.

“They’re colluding and fixing prices, squeezing us until we can’t survive,” Pinij said. “Once we’re gone, Chinese companies will control the entire supply chain.”

E-commerce onslaught

In a bid to curb the influx of cheap Chinese products, Malaysia’s government imposed a 10 per cent levy on imported goods valued at 500 ringgit (US$115) or less back in January.

But retailers argue this measure is insufficient, as they report losing up to 30 per cent of sales to online businesses shipping goods directly from China.

“I am very disappointed with the Malaysian government,” said Ameer Ali Mydin, vice-president of the Malaysia Retailers Association. “Because we have not tightened up any rules or regulations, Malaysia has become a dumping ground for excess capacity from China.”

For 15 consecutive years, China has been Malaysia’s largest trading partner, exporting 259 billion ringgit (US$59 billion) worth of goods – ranging from electronics to machinery – this year alone.

Meanwhile, the e-commerce sector is projected to surge by 12.8 per cent, reaching a value of 50.3 billion ringgit as consumers increasingly turn to online shopping, according to an April report from data and analytics firm GlobalData.

Chinese exporters are aggressively targeting Southeast Asia, driven by waning domestic demand and rising trade barriers in US and European markets, Malaysian economics professor Yeah said.

“Those that leverage on the cost and product competitiveness of Chinese manufacturers are able to survive, if not thrive, the changing dynamics caused by economic integration through cross border trade and investment,” he told This Week in Asia.

However, Ameer says that direct overseas shipping has already had a “tremendous” impact on local industries. He advocates for introducing a flat tax of up to 20 per cent on all overseas online purchases to level the playing field.

Physical retail generates significant spillover benefits for other local businesses such as restaurants and cinemas, he said, as shoppers often engage in other activities while outside the house.

“When people go online to shop, it not only affects Malaysian retailers selling the same item but also affects local manufacturers, transporters … it affects everything,” Ameer said.

“I have nothing against people buying things online, but I think people should buy … from companies that are established or operating in Malaysia.”

Innovate or die

In July, textile workers took to the streets of Jakarta, demanding support as they lost market share to Chinese apparel and textiles flourishing on e-commerce platforms like Shopee, Lazada, and TikTok Shop.

At least 12 factories closed from January to July this year, according to the Nusantara Trade Union Confederation, resulting in more than 13,000 job losses.

The protests prompted the Indonesia government to introduce new import tariffs ranging from 100 to 200 per cent on certain goods from China, including textiles, clothing, footwear, ceramics and electronics.

“The United States can impose a 200 per cent tariff on imported ceramics or clothes, so we can do it as well,” Indonesia’s Trade Minister Zulkifli Hasan said in July, justifying the increase.

He warned that if the country continues to be “flooded with imported goods”, small and medium enterprises could face imminent collapse.

Government data reveals that such businesses account for around 60 per cent of Indonesia’s economic output and employ around 120 million people.

Many pivoted to e-commerce in recent years, after the platforms experienced a surge of popularity amid the pandemic, only to find themselves competing against cheaper Chinese imports.

China is Indonesia’s largest trading partner and has benefited from low duties under regional trade agreements, with trade between the two nations exceeding US$127 billion last year.

Asean free trade agreements have facilitated this access, allowing for an increase in the flow of Chinese goods into Southeast Asia.

These agreements were designed to promote intraregional trade, but “they can also inadvertently increase the flow of goods from China,” said Muhammad Zulfikar Rakhmat from the Centre of Economic and Law Studies.

The pressure on textile factories is palpable. Nandi Herdiaman, head of the IPKB, a local organisation for small and medium-sized entrepreneurs, said fierce competition from Chinese imports was the primary driver behind bankruptcies and lay-offs in the textile sector.

“Many of these imported products enter Indonesia at very low prices, even through illegal channels, which makes it difficult for local products to compete,” he said, adding that domestic output had plummeted by about 70 per cent.

Indonesia hopes the new tariffs will not provoke retaliatory measures but instead encourage Chinese manufacturers to invest more sustainably in local enterprises.

Danang Girindrawardana, executive director of the Indonesian Textile Association, views the tariffs as a positive move, stressing to This Week in Asia the importance of “protecting domestic industry” and creating jobs.

In the short term, if enforced at borders, these tariffs may help alleviate the volume of imports and provide some breathing room for local industries to recover, according to Nandi.

However, a broader vision may be essential for long-term survival. This includes “tightening supervision of illegal imports, implementing strict quality standards and supporting innovation” to boost the production capacity of local industry, he said.