1. Many Companies Want Out of China
A China lawyer I know was asked by a reporter whether business relationships between the United States and China will return to normal if a trade deal is reached. His response was as follows (per an email):
No deal between China and the US will cause everyone on both sides to say, “bygones.” The tariffs and the arrests and the threats and the heightened risk have impacted companies and those things are not going to be forgotten. Many companies that could quickly reduce their dependence on China have done so or are continuing to put things in place to do so, no matter what happens on the trade deal. Many are being open about wanting to get out of China as fast as possible no matter what.
Many Americans living and working in China say they feel “hated” there and that makes them very uncomfortable. Many Canadian companies (and American companies as well, but to a lesser extent) have curtailed their travels to China out of sheer (and justified) fear. This will lead to many of them curtailing their China business as well. People are seeing China for what it really is and they don’t like it and they want out. Add in the fact that wages and costs in China just keep rising and you have the perfect storm for foreign companies to leave China or at least reduce their presence there.
2. Where Companies Leaving China are Going
The international lawyers at my law firm are hearing the same sort of things from our own clients. More importantly, we are being tasked with helping our clients reduce or eliminate their presence in China and then working with them on the legal side of doing business with other countries. What countries? So far we are seeing/hearing the following:
1. Thailand is very much open for business.
2. Vietnam is very much open for business, but it has become so “busy” on so many fronts that lead times can be quite slow.
3. Mexico is very much open for business. Some companies refuse even to consider Mexico because of security fears. We see this as a huge mistake because there are plenty of great areas in Mexico that are shockingly safe and we have opened an office there with a licensed Mexican lawyer to take advantage of this movement.
4. The Philippines is very much open for business and we have been shocked at the breadth and depth of the manufacturing there.
5. Malaysia is very much open for business.
6. Taiwan. We have seen many companies that used to be in Taiwan return to Taiwan. Taiwan is a very easy country in which to do business, but it does tend to be more expensive than China.
7. Turkey. I am hearing of a few companies looking at Turkey. I find this very interesting because I did a year of foreign study there and learned Turkish and I have friends from that time who are lawyers there.
8. India, Bangladesh, Pakistan, Cambodia, and Sri Lanka. Mostly clothing, at least so far.
9. Poland, Portugal and Spain. We see a lot of Spain interest because we have lawyers there, but very little of that is related to China. We are seeing nascent interest in Poland and Portugal, especially for tech (software).
3. China is Not Going to Just Go Away
But China is not going to “just go away.”
It’s not going to become “an even larger, more powerful North Korea,” as I have heard some threaten will happen if the United States and the EU were to hang tough against China. No way. What I see is American (and European and Australian companies better recognizing what it is like to do business with China or in China. The days of so many companies having stars in their eyes about China are over and this newfound realism can only be a good thing. Will American and European and Australian companies continue to do business with China? Absolutely yes, but in lower numbers than previously. How much lower? Hard to say, but I would anticipate seeing a steady decline (maybe totally around 30%) over the next five years. China will remain a big and important country and that should not be discounted. But the big change we are seeing and expect to see accelerate is foreign companies that would in the past just check the China box are now exploring other countries as well. And this too can only be a good thing.
What are you seeing out there?