Shannon Brandao
From the article: "Bloomberg [excerpt]: President #XiJinping’s visit this week to #Vietnam, a rare 2024 trip outside his country, showcased how he isn’t standing idly by while Washington attempts to diminish #China’s role in #supplychains that end in American consumption. The trip came just three months after President Joe Biden’s own visit, which yielded agreements on everything from semiconductors to security ties.
On the surface, US friend-shoring moves appear to be having an impact, with Chinese goods making up a diminishing share of American imports, direct investment in China on the wane and investment in other emerging markets soaring. But a swath of that #greenfield #investment capital can be traced back to China, according to HSBC Holdings Plc.
A closer look also shows that Chinese exports to nations that are rising in the ranks of US import sources—like #Mexico—are climbing. This suggests China is simply re-routing a chunk of its shipments. And back home, Xi’s government is doubling down on investing in high-value-added manufacturing to replace the lower-end production that’s shifting abroad.
When Western capitals realize their friend-shoring project is being undermined, the risk is a new wave of protectionist backlash.
The shift in China’s domestic financing toward manufacturing—at the cost of the property market—is dramatic. This is a 'deep, structural transition,' Niels Graham, who follows China’s #economy at the Atlantic Council, wrote in a note this week. 'The shift is generating serious fears of overcapacity and will likely accelerate the fractionalization of the global trading system as countries move to protect their own industry.'
...In fact, the increasing competitiveness—combined with domestic demand being held back by the property-market slump—has seen China’s surplus in manufactured products climb back toward all-time highs in recent years, analysis by Societe Generale economists Wei Yao and Michelle Lam has shown.
After producing the value-added components at home, Chinese firms are now increasingly shipping them to Southeast Asia, Mexico and elsewhere, with at least some chunk of the final products ending up in the US, as suggested by shifting trade figures.
Chinese exports to Mexico in the first nine months of this year surged to $61 billion, some 78% higher than the pre-Covid year of 2019, according to HSBC’s calculations. Over that same period, US imports from Mexico climbed by $86 billion, while those from China shrank by $26 billion.
'The previous model was the factory in China was buying Japanese, Korean, Taiwanese components, putting together and shipping it out,' says Fred Neumann, HSBC’s chief Asia economist. 'Now it’s essentially the factory moved' overseas... he says."
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