Companies flee, rather than fight China - Sara Hsu

Sara Hsu

US President Donald Trump wants US companies to fight China, but they rather flee for greener pastures not to their home countries, says financial analyst Sara Hsu at the ChinaUSFacus. But some might decide to swap countries too early, she warns.

China US Focus:

Moving to another country may make sense for companies whose new grounds of operation have sufficient infrastructure to provide a proper manufacturing environment. 

Firms reshoring to Japan and Taiwan find themselves back home with well-constructed roads and telecommunications systems, although such factors may yield higher costs of production. Those shifting to Vietnam and Thailand are faced with poorer conditions and potential added costs of production. 

Vietnam has a lack of transport infrastructure, power supply networks, and urban infrastructure. Ho Chi Minh City and Hanoi face severe traffic congestion. Government funding and planning fall short of providing sufficient resources to improve the infrastructure environment. It has been estimated that the country needs to invest $400 billion in infrastructure over the next decade. However, corruption and lack of skills prevent this from occurring. 

Thailand has better infrastructure than Vietnam, but it has experienced bottlenecks in pushing infrastructure development further. This is because it takes the central government a long time to approve projects, and state governments lack the capacity to build the infrastructure projects that are slated for construction. Thailand’s political elite view infrastructure projects as long term, while their tenure may be short term. 

As companies move to developing Asian nations to take advantage of Asian supply chains, they are facing challenges. In Vietnam, companies have a harder time locating factories, and ports are struggling to coordinate container ship traffic. Costs of labor in Thailand are higher than in China, even after wage increases in China. Firms attempting to move to Indonesia, Malaysia, and Cambodia are facing similar problems. In Cambodia, for example, almost of half of all goods inspected in the last quarter did not satisfy inspection standards. 

This means that the trade war is forcing some companies to shift production to less attractive locations prematurely. It’s one thing to move abroad in order to increase profitability, but quite another to move out from an established location due to complications resulting from an anti-free trade stance taken by the center country. So far, companies that make Crocs, Roomba vacuums, and Yeti beer coolers are moving out of China due to increased tariffs.

More at the ChinaUSFocus.

Sara Hsu is a speaker at the China Speakers Bureau. Do you need her at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more financial analysts at the China Speakers Bureau? Do check out this list.  

Will China face a pushback? - Howard French

Howard French

China's erstwhile "peaceful rise" has been less peaceful over the past years. Will China face a pushback from its neighbors, asks former foreign correspondent Mary Kay Magistad author Howard French of Everything Under the Heavens: How the Past Helps Shape China's Push for Global Power in a wide ranging interview about his book in PRI.

PRI:

French: That's really the $64,000 question, and it's kind of the core of my book really. I think that we are entering, right now, a moment of very serious danger, which in my view, and I kind of roll out this argument in an extended way in my book, is likely to last for the next 10, 15, at the longest 20 years, after which, I think, if we can get through this transitional period, tensions will subside. 

But we are entering the danger period. And we're entering the danger period because China has advanced so far, so quickly. And its strength, economically speaking, in terms of industrial competitiveness, military capability, and particularly in terms of capacities for self-defense and projection of force in the nearby seas, have come to draw close to the capacities of the United States. In a situation where you’ve had a rising power and a status quo power in history, where the gap between the two narrows rapidly and dramatically, that is the precise situation of highest danger — because neither side is absolutely certain that it is able to prevail in a moment of instability or of conflict. 

In the rising power, you have strong constituencies that are tied up in the investment and effort to acquire capabilities, which say, 'what's the point of acquiring all of these capabilities, if you don't use them?' 

And meanwhile, in the status quo power, what was once a very clear and unambiguous lead in all of these key areas from economic strength and competitiveness, to high tech to military capacity, as the gap narrows, anxiety begins to increase. And ... a corresponding constituency says, in effect, ‘if we don't do something now to nip this threat in the bud, then it's going to be too late. We have to assert ourselves now to make clear who's in charge, or to make clear what the rules are.’ 

What's happening in the surrounding region is that, again I think one most usefully must resort to the realism that political scientists speak of. The neighboring powers are watching kind of anxiously to understand which way the wind blows. And so, how did they respond to this? Well the first thing they want to do is to avoid having to explicitly choose sides. And that means that most of them will want to obtain the benefits of economic cooperation with China, because China has been growing so fast and represents a huge market that's right on their doorstep, and to simultaneously enjoy the benefits of security arrangements with the United States, because the United States is this off-shore power far away that has been the trustee and guardian of the established rules of the road and who doesn't seem threatening. 

And so you see lots of countries — Vietnam is the most interesting example of this — Indians are training Vietnamese submarine crews on how to run submarines that are used, among other ways, to deter Chinese attacks. The Japanese are helping pay for a new Philippines Coast Guard, and a Vietnamese Coast Guard as well. Australia plays in this game. All of the smaller countries, Malaysia, Indonesia, the Philippines, Vietnam, Thailand are seeking ways to balance against China — soft balancing against China in ways that are not meant to be offensive to China, but allow them to hedge their bets. 

Magistad: You mentioned an important point in your book, which is, if China doesn't show respect for the rules and norms of the region, it pretty much encourages those countries to seek assistance, to seek support, to seek backup from the United States, and that actually plays against China's interests. How much do you think China's leaders are aware of that? 

French:  So there's a political scientist named Edward Luttwak, who I quote in the book at one point, who has developed a theory. He's basically a strategic thinker. And he's developed a theory, which is not exclusive to China, but describes a mentality or mindset that's common to very fast rising powers, as they begin to emerge, and to begin to more and more obviously contend with the status quo power. This mentality that he speaks of is called Great Power Autism. And, apologies to anyone who might take offense at this — this is not my term. 

The point he's trying to make is that rising this far this fast is a giddy experience. And amid the giddiness that you experience during this rise, caution and all sorts of other perspectives are kind of lost. And so, you are not likely to be terribly perceptive of the cost that you may incur by offending other people, meaning in this case, your immediate neighbors, much smaller countries, because you think that when you rise as far and as fast as a country like China has risen, that this is an affirmation of your correctness. 

So the next 10 years could be very messy, by accident or by design, to one degree or another. China could push in a way that involves hard power, to make gains in the immediate region at the expense of the status quo powers, most importantly for this conversation, the United States and Japan, which are the most important status quo powers in the region. And there could be a war. Or there could be at least some more limited form of conflict that could be ugly and very dangerous. 

That's one scenario that's very real, cannot be discounted, which we must be very attentive to, and that our diplomats have to figure out a way to prevent. 

You can imagine a leadership that says 'look, in 10-15 years, we can be down to 2 to 3 percent economic growth per year. ... This is the moment when we have to go we have to make our big push. We have to lock in whatever gains we can lock in right now, meaning in the next 10 years.' 

Still, I'm hopeful that we'll muddle through. Once we're past this transitional period of 10, maybe 15 years, then other things begin to happen. The demographics of China, I think, kick in — with hundreds of millions of people over the age of 65, with immense costs in medical care, possibly residential care, and China doesn’t have that infrastructure yet, because it hasn’t yet been at that stage of economic development. And so, if we get past this transitional period of 10 or 15 years, I'm very hopeful that China will say, 'listen, the status quo isn't as bad as we thought it was. We don't need to be such a grudging, victim-centric country. We've done well. We've come a long way.

More in PRI.

Howard French is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in our speakers' request form.

Are you looking for more strategic experts at the China Speakers Bureau? Do check out this list.

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How Baidu takes on Egypt, and the world - Kaiser Kuo

Kaiser Kuo

China's largest search engine Baidu, number two in the world, is expanding globally. Kaiser Kuo, director international communication, explains in Knowledge CKGSB its global strategy, and why Egypt is high on the list of countries it wants to conquer. 

Knowledge CKGSB:

Some time back, Baidu CEO Robin Li declared that he wanted Baidu to be a household name in 50% of the world’s markets. The company has already started taking baby steps to realize this goal. According to Kaiser Kuo, Director of International Communications at Baidu, “Today we are the number two search engine in the world. The core technology for searches in a way can be applied (elsewhere), so there’s some scale that you can leverage from existing platforms.” To go global, Baidu is looking at emerging markets which are underserved by the dominant players. These markets are still evolving from an internet user perspective. 

Baidu believes that having roots in China will help as it globalizes. “In China we really are in two markets at the same time,” says Kuo. “We have the developed world market in these first-tier cities and we are very much in the mainstream of technological developments globally. We also serve very much a developing world market already with a relatively unsophisticated user base with relatively unsophisticated consumers. So we’ve gotten really good at developing technologies and products that are appropriate for those sorts of markets.” 

So far Baidu has chosen to dip its toes in Japan, Egypt, Vietnam, Thailand and Brazil (and has plans for other markets as well). So Baidu went in with Japanese language search in Japan, it took a Portugese language version of Hao123 (a directory of weblinks) to Brazil (and a similar local-language version of the same site in Thailand), and an Arabic version of Baidu Knows in Egypt. “These products were chosen in part because of their ability to help us understand the terrain and to connect us with other players,” says Kuo. 

The choice of countries is somewhat surprising. Take Egypt for instance, which doesn’t rate very high on many companies’ globalization plans. But Baidu has thought this through. “Egyptian Arabic has now become sort of standard from the Maghreb all the way through to Iraq, and Egypt is the culturally dominant country in the Middle East. It has the highest output of literature, film and so forth. There’s a huge group of very well trained engineers in Egypt,” says Kuo. “It makes the most sense from a lot of perspectives.” 

Baidu’s strategy is simple: go where English is not the dominant language, build capabilities in that market—and then expand.

More in Knowledge CKGSB.

Kaiser Kuo is a speaker at the China Speakers Bureau. Do you need him at your meeting or conference? Do get in touch or fill in  our speakers' request form.

The China Weekly Hangout discussed the global aspirations of China's internet companies with Steven Millward of Tech in China on November 15, 2012.

This week, on Thursday 14 March, the China Weekly Hangout will focus on the media in Hong Kong. In the 1990s they were a beacon of hope, and Hong Kong one of few global news capitals. With Paul Fox of the HKU we will discuss the state of Hong Kong media. You can read our announcement here, or directly register at our event page. 

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