China Reads to Investment
Offshoring
·
Jiaxing,
a city in eastern China’s Zhejiang province, says it is ‘crucial to remain vigilant
regarding the risk of leading enterprises relocating’
A
prosperous city in one of China’s regional manufacturing powerhouse
has underlined the need to retain investment locally to counter the rising momentum
of offshoring, while also warning of the risks of “hollowing out.”
A
report from Nanhu district in Jiaxing, a city in eastern
China’s Zhejiang province, called for a holistic survey into flagship local enterprises
about their investment intent.
It
also urged for more precise and targeted support to encourage firms with overseas
investment plans in the next three years to prioritise local development.
“In
the short term, it is crucial to remain vigilant regarding the risk of leading enterprises
relocating,” said the report published in the August issue of Zhejiang Economy,
a magazine affiliated with the provincial Development and Reform Commission.
“Currently,
key industries in Nanhu district have not yet formed complete
industrial chains or upstream core drivers. Some sectors face a dominance by a single
enterprise, making it difficult with the dual pressures of manufacturing investment
outflows and capacity reductions from leading firms.
“Some
new service industries in Nanhu are heavily dependent
on related manufacturing sectors, and as both upstream and downstream industries
contract, there is a pressing need to pay close attention to the dangers of industrial
‘hollowing out’.”
So-called
hollowing out refers to the disappearance of a manufacturing sector when producers
move to low-cost facilities overseas.
The
survey, led by Zhang Jian, the chairman of the Nanhu District
Political Consultative Conference in the city’s Nanhu
district, was conducted in March among 1,194 enterprises, with an additional study
focused on 65 companies that have existing foreign investments.
Nanhu district is the main urban area of Jiaxing
city, and it has a highly industrialised manufacturing sector worth tens of billions
of yuan.
The
report came as China’s position as the so-called world’s factory has been threatened
by a growing trend of industrial relocation amid its transitions toward higher value-added
industries, while companies offshore production and investments
in response to rising labour costs and geopolitical tensions.
In
the meantime, China risks losing its manufacturing edge and fragmenting its supply
chains, while the economy could also face instability and exacerbated unemployment.
“Disorderly
outbound investments, particularly by key manufacturing enterprises, will have a
significant impact on the economic stability of Nanhu
district,” the survey said.
Since
2016, 70 companies have ventured into overseas markets, amassing US$5.79 billion
in investments, with manufacturing alone accounting for 30.7 per cent, the survey
said.
A
third of the enterprises in the Nanhu district with overseas
interests primarily invest in Southeast Asian countries like Vietnam and Indonesia,
focusing on low-end manufacturing, particularly in industries such as computing,
communication and other electronic equipment manufacturing, as well as chemical
raw materials.
Investments
in mid- to high-end technology-intensive manufacturing are directed toward the United
States and Europe to establish research and development technology centres and collaborate
with local partners to acquire advanced technologies, “due to the Biden administration’s
focus on curbing China’s chip and semiconductor industries”, Zhang said.
The
US has imposed export controls on China’s access to cutting-edge computer chips
and manufacturing equipment amid an ongoing tech war.
Some
telecommunications equipment manufacturers have also offshored to Mexico to reduce
the impact of the US tariffs and supply chain restrictions.
Other
companies like Wingtech Technology, a partially state-owned
semiconductor and communications product company based in Jiaxing and listed on
the Shanghai Stock Exchange, have also invested 1.7 billion yuan (US$242 million)
in India, doubling its global share.
Zhang
said that the outbound investment made by local enterprises are an inevitable consequence
of the market economy, and the only way to realise industrial upgrades, but that
it could also harm global competitiveness.
“For
key industries, headquarters enterprises, and those with strong development potential
that express further outbound investment intentions, every effort should be made
to help them overcome difficulties and provide maximum support for various resources
to ensure that enterprises invest funds and increase capacity in Nanhu,” the report said.
Local
departments, such as development and reform, economic and information technology,
commerce and natural resources planning, should propose more precise, effective
and operationally feasible resource guarantee policies, the report added.
“Estimates
suggest that foreign investments and capacity relocations will impact the industrial
output growth rate in Nanhu district by 2 to 3.5 percentage
points this year,” the report said.
In
2023, exports of labour-intensive products from Nanhu
district to the US dropped by 7.3 per cent, while shipments to Europe and Japan
decreased by 4.4 per cent, and 6.1 per cent, respectively, the survey said.