Long-term strategies of Chinese enterprises

Table of Contents:

In the long run, the author believes that Chinese enterprises can cope with the impact of Sino-U.S. trade friction and increasing global economic uncertainty in four ways: industry transfer, export transfer, mastering and improving core competitiveness and reducing dependence on individual trading partners.

Industry transfer

Disputes of the Sino-U.S. trade frictions within industries such as the high and new technology sector also reflect another aspect of the development and changes of China’s manufacturing sector in recent years. As China’s domestic production costs, including labor costs, land costs, and tax burdens, have been on the rise in recent years, the long-term strategy to capture the U.S. market based on price advantages is becoming increasingly difficult. The outbreak of the Sino-U.S. trade friction also further pushes relevant domestic manufacturing companies (industries) in China to move to countries with lower production costs. Taking Vietnam as an example, due to its cheaper labor costs and friendly policies towards foreign investment, a growing number of Chinese enterprises are turning to this country.12 Sino-U.S. trade friction has also accelerated this transfer process to some extent. In the second half of 2018 alone, the Shenzhen-Vietnam Industrial Park had witnessed a spurt of investment attractions, and most of the related enterprises were concentrated in electronic assembly and other light processing sectors. With China’s demographic dividend and cost advantage gradually declining, there is no doubt that industry transfer will become one of the coping strategies for domestic companies to deal with the trade friction and export pressure. It can be foreseen that besides Vietnam, other countries in Asia, Africa, America, and even Europe will also be the destinations for Chinese companies to transfer their industries.

Export transfer

A large number of Chinese companies are highly dependent on exports to the U.S., which is also one of the reasons why Chinese companies have been severely affected since the outbreak of the Sino-U.S. trade friction. From the long-term perspective, in order to further offset the impact brought by potential trade frictions and the uncertainties, the development of diversified markets and export transfer are undoubtedly imperative initiatives that Chinese companies can adopt. In fact, many foreign trade enterprises are shifting or have shifted their export destinations to other countries. For example, according to the data from the 124th China Import and Export Fair, Zhejiang Jinhua Jieling Household Products Co. has begun to adjust its market strategy, focusing on developing the European, Southeast Asian, and domestic markets; meanwhile, Kang Mingsheng (Shenzhen) Technology Co., Ltd. focuses on countries along the “the Belt and Road” route. “Do not put all eggs in the same basket.” For foreign trade export enterprises, regarding a single country or region as the main exporting market bears extremely great risk. Foreign trade export enterprises should continue to optimize their trade structure, explore diversified international markets, try to minimize the loss of trade friction, and achieve healthy development. To some extent, the Sino-U.S. trade friction is both a challenge and an opportunity, further promoting the awareness and paces of Chinese companies to expand overseas markets.

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