According to an S&, P report, some global downstream systems technology companies have started emigrating from China or adding new capacity abroad, evoking the example of their clients.  ,
In phase one of the relocation, many downstream electronic manufacturing services ( EMS ) firms, including Taiwan’s Foxconn Industrial Internet, had moved to diversify their investment from China to other countries such as Vietnam and India. This step has been mostly completed.  ,
Phase two of the emigration, which refers to the removal of downstream power from China, will result in higher paying, higher operating expenses, and the possibility of shoddy executions.
Over the next two to three years, tech firms may continue to diversify their supply chains away from China, with a focus shifting to the middle of the tech value chain, according to Clifford Kurtz, a major record analyst at S&, P.
Tech companies could maintain geopolitical risks, including the loss of important supply lines, the emergence of punishing taxes, or any other events brought on by US-China tensions, thanks to a more geographically distributed production footprint, he claims.  ,
He adds that because of the significant funding in moving-related plants and equipment, phase two relocation will be challenging to change.  ,
According to the S&, P report, technology hardware producers are suppliers of quiet components, energy electronics and motors, connectors and sensors, printed circuit boards, and contracted silicon council and check services that are likely to accelerate investment outside of China in 2024 and 2026.  ,
S&, P has found that the exposure of 14 midstream technology firms it tracks by fixed-assets dropped to 26 % in 2023 from a peak of 30 % in 2021. Over half of these companies ‘ new investments over the past two years were spread across Asia, the European Union, or the Americas, such as Taiwan, Thailand, Malaysia, and India.  ,
Over the next two years, Foxconn is anticipated to increase its annual capex to 13 billion yuan, according to the report. This will be used to build factories outside of China in large part.  ,
Another case is Vishay Intertechnology, an American semiconductor maker, which is going to spend more than US$ 1 billion in total to expand production in Mexico, Taiwan and Europe over the next two years. The company’s capex was US$ 300 million last year.  ,
Vishay currently has seven factories in Chinese cities including Beijing, Tianjin, Shanghai, Huizhou and Xi’an.
According to the S&, P report, global technology hardware firms will continue to move out of China despite higher costs, operational disruptions, and lower efficiency as a result of some push and pull forces.
The push factors include Washington’s restrictions on imported technology from China and export controls on expensive semiconductors and artificial intelligence technologies. The pull factors include foreign governments ‘ new incentives to grow their technology sectors.  ,
Since the US-China trade war broke out in 2018, China has seen its share of imported US technology hardware decline in favor of Mexico and ASEAN nations.  ,
China’s share of US imports of electronic computers fell to 44 % last year from 66 % in 2017. China’s share of US imports of other electronic components decreased from 61 % during the same time to 16 %.  ,
FDI and unemployment ,
On August 17, China’s Ministry of Commerce said the country’s foreign direct investment fell 29.6 % to 539.5 billion yuan ($ 76.11 billion ) from a year earlier. Without providing a full geographical breakdown, it said FDI from Germany and Singapore increased 26.4 % and 11 % year-on-year, respectively.  ,
Due to the departure of numerous foreign manufacturers, Chinese factory workers have said it is now very difficult to find employment in Guangdong. Some said they are now offered a monthly salary of about 3000 to 4, 000 yuan, compared with 8, 000 to 10, 000 yuan per month in the past.  ,
According to the National Bureau of Statistics ( NBS ), China’s youth unemployment rate increased to 17.1 % in July, the highest level since the new system of record-keeping began last December. In June this year, the figure was only 13.2 %.  ,
Overall, the unemployment rate in urban areas was 5.1 % during the first seven months of this year. According to economists, these figures may have understated how unemployed people in China are because they do not qualify as unemployed. For example, someone who works more than one hour per week is not considered unemployed.
” Goodbye, Guangdong”! has recently become the most popular search term in China as thousands of skilled workers decided to leave their homes in Guangdong, Hubei, Guangxi, and Sichuan provinces because they were unable to find employment or make ends meet there.  ,
These workers, who have resided in Guangdong for more than ten years, typically only returned home once a year during the Lunar New Year holiday in January or February. Some of them had endured months of homelessness because they could not afford rent.  ,
According to Chinese media reports from 2022, many Shenzhen and Dongguan, Guangdong, companies that manufacture electronic components, were shut down because of insufficient orders.  ,
R&, D investment: the German factor
While many American, Japanese, and Taiwanese companies are diversifying their supply chains outside China, some German companies are increasing their R&D investment in mainland China.  ,  ,
Germany’s FDI in China grew 12.3 % to 7.3 billion euros ( US$ 8.1 billion ) in the first half of this year from 6.5 billion euros in the same period of last year, the Financial Times reported, citing the Bundesbank, Germany’s central bank.  ,
The investment growth was mainly driven by big German carmakers, according to the report. According to experts, German businesses made about 19 billion euros in profits in China last year and made the decision to reinvest more than half of it domestically.
Germany’s FDI into China represented about 11.5 % of China’s total FDI of 498.9 billion yuan in the first half of this year, assuming both figures are calculated with similar methods.  ,
In a press release released on Monday, Martin Klose, executive director and board member of the German Chamber of Commerce in South &, Southwest China, stated that” German companies are investing in local innovation and strategic partnerships with Chinese customers and suppliers to stay competitive in an intense and dynamic market environment.”  ,
The German Chamber of Commerce in China, in cooperation with BearingPoint, conducted the Innovation Survey 2024 from February 19 to March 13 this year, with 324 German Chamber member companies participating.  ,
About 19 % of the surveyed companies are automakers, while about 31 % are manufacturers of machinery and industrial equipment. The remaining are engaged in services ( 12 % ), electronics ( 8 % ) and chemicals ( 5 % ) businesses.  ,
According to the survey report released on Monday, 63 % of respondents said they conducted research in China, an increase of 6 percentage points from 2022. About 69 % say they do development in China, up 4 percentage points from 2022.  ,  ,
In addition, according to the report, 29 % of German businesses conduct research in China for global markets, up from 25 % a year ago, indicating China’s rise as a hub for global innovation.  ,
Read: Beijing rips Canada’s 100 % tariffs on China-made
Follow Jeff Pao on X:  , @jeffpao3