Cross‑border restructuring offers a way to de‑risk supply chains, sidestep punitive tariffs, and build operational resilience without abandoning China entirely. It is not just moving factories from China to Vietnam or Indonesia. It requires a strategic overhaul of tax structures, legal entities, workforce plans, intellectual property arrangements, supplier networks, and leadership models. When done well, it shifts China’s role from a one‑dimensional manufacturing base to a high‑value node in a broader regional strategy.

Why companies are choosing restructuring

Over recent years, geopolitical tensions, especially US–China trade and export controls, have disrupted once‑stable global supply chains. Rising costs and regulatory complexity in China have meant many multinationals are reassessing their entire China footprint. Yet for most, exiting China is simply impractical: the supply‑chain ecosystem is highly specialised; infrastructure is world‑class; R&D capability remains strong; and the domestic market continues to grow.

Instead, cross‑border restructuring provides a more balanced path. Companies can reduce geopolitical exposure while retaining China’s strengths by shifting certain parts of production, typically low‑value or labour‑intensive activities, to ASEAN or South Asia, while keeping R&D, quality control or domestic sales operations in China.

What to keep in China and why

The first step is understanding which parts of the operation truly belong in China. For some businesses, China is an export hub. For others, it’s a domestic market centre, an innovation base or a quality control node. That functional mapping is essential. Labour‑intensive assembly might be moved offshore, but high‑value engineering, regulatory liaison or customer service may remain.

Downsizing China operations isn’t simple. Legal obligations under labour laws mean consultations, severance and possibly union involvement. Equipment sales or asset transfer may require local approvals, particularly in sensitive sectors. And shifting assets can trigger tax liabilities, companies must weigh exit costs against long‑term benefits carefully.

Sensitive relationships can suffer if the process isn’t handled transparently. Government incentives or supplier ties may be put at risk if local stakeholders feel blindsided. Clear communication and compliance are crucial to preserving goodwill.

Choosing a new host location with purpose

The decision of where to locate new operations goes far beyond low labour cost. Strategic choice today must consider trade agreements, regulatory alignment, infrastructure, talent pools, and industry‑specific incentives.

For example, moving final assembly to Vietnam or Malaysia can help firms meet rules‑of‑origin requirements for free trade agreements, qualifying goods for tariff‑free export to the EU or US. But achieving this advantage depends on genuine manufacturing value‑add, not merely repackaging.

Market access also matters: Indonesia may suit consumer‑goods businesses seeking scale, while Singapore could be preferable for regulated sectors needing compliance clarity. Infrastructure readiness varies, from ports to digital readiness, and needs to match sectoral demands.

Many emerging markets now offer sector‑targeted incentives, India’s PLI (Production‑Linked Incentive) for electronics, or Thailand’s R&D grants for biotech. It’s vital to assess these offers relative to specific company needs.

Structuring the new entity and planning the timeline

How new operations are structured affects control, regulatory exposure, and cost. Options include a wholly foreign‑owned enterprise (WFOE), joint venture, contract manufacturing agreement or strategic alliance – all with different implications for tariff control, governance and local compliance.

To qualify for tariff benefits under agreements like RCEP or CPTPP, companies need to ensure local transformation thresholds are met, not just shipment points moved. That shapes decisions around what functions to relocate and what suppliers to localise.

A phased rollout is often wiser than a big‑bang relocation. Pilot operations allow evaluation of delivery performance, compliance fit, quality standards and cost savings before full-scale implementation. Project timelines must reflect construction, licensing, recruitment, training and partner onboarding timeframes.

Tax, transfer pricing and fiscal design

Restructuring often reshapes where value is created, and that impacts tax. Multinationals must ensure operations reflect substance: functions, risks and assets must align with where profits are allocated to avoid transfer pricing disputes across jurisdictions.

China is increasingly vigilant about outbound restructuring, especially where high‑value functions or IP are shifted. Early engagement with local tax bureaus and careful planning of asset transfers, or equity restructuring, is key to managing capital gains exposure and compliance risk.

Transfer pricing models must be updated to reflect new functional roles. Suppose China becomes a limited‑risk distributor rather than the main manufacturer. Then profit allocation and intercompany pricing must align with legal reality, not just historic structure.

People, leadership and morale

The human side of restructuring is often underestimated. Talent is hard to replace, and morale can suffer if staff in China feel abandoned or insecure. Leadership continuity, internal communications, retention plans, or even relocation programmes, must be carefully managed.

Mobilising key personnel from China to the new site raises immigration, tax and cultural adaptation issues. Host countries may limit work permits or raise residency hurdles. Companies need clear plans and legal advice on visas, taxation and support for expat staff.

At the same time, building a skilled local workforce requires labour‑market mapping, training initiatives, localisation planning and collaboration with vocational schools or employment agencies.

Protecting intellectual property and data

Moving operations can expose IP and data to new risks. Protection regimes vary by jurisdiction, patent law enforcement, judicial capacity and digital data governance differ greatly. IP risk assessments should be specific to each location and business model.

Companies must decide whether to hold IP in China, in a regional headquarters, or a neutral jurisdiction, understanding the impacts on tax, licensing arrangements and exit liabilities. Licensing terms between entities need to be clear, reflecting royalty terms, legal risks, and control frameworks.

If operations shift to territories with weaker IP regimes, greater vigilance, not just contracts, is required. Partner vetting, in‑house retention of core know‑how and regional IP strategies help limit leakage.

Managing supplier and customer relationships through transition

Supply change disruption is a real danger. Long‑standing supplier ties and delivery expectations can be upended if operations move too quickly. Identifying sole‑source vulnerabilities or critical clients is essential before the transition begins.

Maintaining customer service levels during the shift requires interim logistics planning, buffer stock, possible dual sourcing and renegotiation of contracts to reflect new transit routes or import/export jurisdictions.

Proactive, transparent communication builds trust. Customers and suppliers benefit from clear timelines and commitment to quality. In some cases, joint planning with anchor suppliers or logistics partners can smooth the transition; others may mean onboarding new local sourcing partners in the host country.

When is restructuring the right move?

Cross‑border restructuring may sound complex, but it offers more than risk mitigation. For many companies, it is a strategic move designed to future‑proof operations in a world where agility and resilience matter as much as efficiency.

Businesses must assess their own vulnerabilities: Are specific tariff risks or export controls exposing particular product lines? Is there over‑reliance on a single site or region? Which functions are portable? Which need to stay in China? Will a partnership model or contract manufacturing serve just as well as full investment offshore?

Cost savings alone are rarely enough. Firms must weigh infrastructure limitations, legal unknowns, language or cultural barriers, and balance must favour long‑term operational stability over sheer low cost.

Finally, internal alignment is critical. Leadership must treat restructuring as organisational change, not just logistics: reshaping workflows, managing talent, and preserving morale during the shift, all while sustaining governance, communication and the integrity of service delivery.

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In its eleventh edition, the CBBC Trade Tracker, released in June 2025, paints an optimistic picture of UK-China trade relations, underscoring the resilience and dynamic nature of this vital economic partnership. In 2024, a year marked by global economic turbulence and shifting geopolitical currents, UK goods exports to China rose by 1% to £21.1 billion, reversing a 1.6% decline from 2023. This modest but significant growth signals a renewed momentum in bilateral trade, driven by diverse regional contributions from across the UK’s regions and a deepening of commercial ties with the world’s second-largest economy. With China, including Hong Kong, standing as the UK’s third-largest trading partner and fifth-largest export market, the report highlights the critical role this relationship plays in bolstering British prosperity.

The CBBC’s report, drawing on HM Revenue and Customs (HMRC) data, offers a granular view of how UK regions and devolved administrations have navigated the complexities of the Chinese market in 2024. Among the standout performers, the East Midlands, which solidified its position as the UK’s largest exporter to China with £3.5 billion in goods, a 2.8% increase from the previous year. The region’s dominance is largely attributed to its robust trade in power-generating machinery and equipment, which rose by 1.3% to £2.6 billion, accounting for the lion’s share of its exports. Notably, the East Midlands remains the only UK region to run a trade surplus with China, with exports to Hong Kong comprising an impressive 84% of its total trade with the country. This underscores the region’s strategic importance as a hub for high-value manufacturing and its ability to capitalise on demand in both Mainland China and Hong Kong.

Hot on the heels of the East Midlands, the West Midlands emerged as the UK’s second-largest exporter to China, with goods exports edging up by 0.5% to £3.21 billion. The region’s trade is anchored by road vehicles, including premium cars and automotive components, which, despite a marginal 1.6% dip to £2.15 billion, remain the cornerstone of its exports. A notable bright spot was the 36.8% surge in power generating equipment exports to £287 million, reflecting growing Chinese demand for advanced energy technologies. The West Midlands’ contribution to UK-China trade accounted for 1.65% of its regional GDP, the second-highest share among UK regions, highlighting its pivotal role in sustaining national economic growth.

London, with £3 billion in exports, maintained its position as a key player in UK-China trade, despite a 4.8% decline from 2023, a marked improvement from the 25.5% drop the previous year. The capital’s trade profile is distinctive, with miscellaneous manufactured articles, such as luxury cosmetics and designer goods, leading the way, though these fell by 13% due to subdued consumer sentiment in China. London’s unique position is further evidenced by China ranking as its third-largest export market, the only UK region where this is the case, and its prominence in apparel and optical goods exports. The presence of major energy firms headquartered in the capital also drives significant petroleum exports, though these are more reflective of corporate activity than physical trade.

The North West of England also shone brightly, with exports to China climbing by 7.6% to £2.15 billion, marking the third-fastest growth rate among UK regions. This growth was underpinned by steady demand for road vehicles, including electric vehicles and components, as well as strong performance in agri-food exports such as cereals and animal feed. The region’s success in these categories aligns with China’s increasing focus on food security, positioning the North West as a critical supplier in this strategic sector. Meanwhile, the South West of England celebrated its fourth consecutive year of export growth, with a 3.5% increase to £1.7 billion, overtaking the South East to become the UK’s fifth-largest exporter to China. The region’s strength lies in ‘other transport equipment,’ including aircraft parts and luxury yachts, as well as scientific instruments like avionics and radar systems, which saw robust demand.

Regional Stars: North East and Scotland Surge Ahead

Among the most striking stories of 2024 is the remarkable export growth from England’s North East, which soared by an impressive 45.9% to £620.6 million, the fastest growth rate of any UK region. This surge was driven by power-generating machinery and equipment, likely including turbines and wind energy technologies, alongside significant gains in non-ferrous metals (up 174%) and medicinal and pharmaceutical products (up 138%). Despite being the UK’s second-smallest exporter to China, the North East’s leadership in niche categories like timber and organic chemicals underscores its outsized impact on UK-China trade.

Scotland, too, delivered a standout performance, with goods exports surging by 32.6% to £1.47 billion, the second-highest growth rate among UK regions. A key driver was the meteoric rise of petroleum exports, which leapt from negligible levels to £407.5 million, making Scotland the only UK region with oil as its leading export to China. Equally impressive was the 128.9% increase in seafood exports, reaching £75.3 million, a trend likely fuelled by China’s booming cold chain logistics sector. While beverage exports, primarily whisky, dipped by 32.7% amid China’s reduced luxury spending, Scotland’s dominance in leather goods and beverages highlights its diverse export portfolio.

Diverse Strengths Across the UK

The East of England also contributed to the positive narrative, with exports to China rising by 3.5% to £1.39 billion, reversing a three-year decline. Seven out of its eight top export categories recorded growth, with medicinal and pharmaceutical products remaining the region’s flagship export at £367.5 million, despite a slight 2.9% dip. The East’s position as the UK’s largest exporter of pharmaceuticals, meat and crude rubber underscores its critical role in meeting China’s demand for high-quality goods.

While not all regions saw growth, the overall picture is one of resilience and opportunity. Seven of the UK’s twelve regions recorded export increases in 2024, up from just four in 2023, reflecting a broadening of engagement with the Chinese market. Even regions like Wales and Northern Ireland, which saw declines of 15.2% and 14.7% respectively, showed pockets of strength, Wales in transport equipment and Northern Ireland in pharmaceuticals. The South East, despite a 12.4% drop to £1.47 billion, retained its leadership in pulp and waste paper and inorganic chemicals, while Yorkshire and the Humber’s modest 4.7% decline was offset by gains in dairy and egg exports.

The CBBC’s Trade Tracker highlights the complementary nature of British heritage goods and specialised industrial products, finding a ready market in China’s sophisticated economy. As Peter Burnett, CEO of CBBC, notes in the foreword, the improved engagement by the Labour government in 2024, marked by high-level ministerial visits, has fostered a more constructive dialogue and boosted business sentiment. Despite global challenges, including US tariffs and China’s domestic economic pressures, the UK’s ability to grow civilian goods trade unimpeded offers a pathway for further expansion.

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One of the most pressing issues for UK companies is the variability in quality standards across China’s diverse manufacturing landscape. With thousands of factories ranging from cutting-edge facilities to smaller, less experienced operations, the risk of receiving subpar products is real. Inconsistencies can occur, particularly in smaller or less experienced operations, often due to the use of cheaper materials or inadequate workmanship. This can spell trouble for UK firms, whose customers expect products that meet rigorous British and European standards. To counter this, thorough supplier vetting is essential. Regular audits, supported by third-party inspection firms, ensure suppliers maintain consistent quality, fostering long-term partnerships built on trust.

Communication barriers further complicate quality control. Language differences and cultural nuances can lead to misaligned expectations, resulting in products that miss the mark. Miscommunication can lead to incorrect specifications, production errors, and ultimately, defective products. This means investing in clear, detailed communication channels. Hiring bilingual project managers or working through intermediaries that can offer translation and cultural advisory services can help bridge the gap. Detailed contracts and quality control checklists also help align expectations, ensuring that specifications are met precisely. By establishing robust communication from the outset, UK firms can reduce the risk of costly errors and maintain product integrity.

Scaling production in China often amplifies quality issues, especially in high-volume runs where small defects can snowball into significant problems. Problems that might be negligible in small batches can become significant when producing large quantities. This is particularly critical for UK companies importing goods into the EU, where regulations like the Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) demand strict compliance. Adopting advanced technologies, such as AI-driven inspection systems, can help. Advances in artificial intelligence, machine learning, and automation are enabling manufacturers to improve the accuracy and efficiency of quality control processes. UK firms can encourage Chinese suppliers to integrate these technologies, drawing inspiration from global players like Siemens, which have successfully implemented smart manufacturing solutions in China. Consultancies can also guide businesses in embedding these tools into their supply chains, reducing rework and ensuring consistency at scale.

Regulatory compliance adds another layer of complexity. China’s “Made in China 2025” initiative pushes for higher quality and innovation, but aligning with UK and EU standards, such as those governing product safety and traceability, remains challenging. The need for UK manufacturers importing to the EU to appoint a ‘responsible person’ to ensure compliance is a sensible requirement but adds both cost and operational burden. This is especially relevant for goods entering Northern Ireland, which adheres to EU single market rules. To navigate this, UK businesses can turn to legal experts who specialise in international compliance or leverage CBBC’s regulatory advisory services to stay abreast of China’s evolving policies. Clear labelling and documentation, aligned with both Chinese and international standards, help ensure products meet market requirements and avoid costly rejections.

Labour shortages in China’s manufacturing sector also pose a threat to quality. In 2023 a report claimed that 67% of companies struggle to find skilled workers, which can lead to production errors. For UK firms, this underscores the need to verify that suppliers have access to trained staff. Collaborating with manufacturers to implement training programmes, can address skill gaps. CBBC’s network can connect UK businesses with industry clusters in China, where specialised sectors benefit from concentrated expertise, ensuring a more skilled workforce and higher-quality output.

Rising costs and supply chain disruptions further complicate the picture. With Shanghai’s minimum wage at 2,690 RMB per month as of January 2025 and manufacturing wages outpacing those in countries like Vietnam, some suppliers may cut corners to manage costs, risking quality. Geopolitical tensions, such as US-China trade tariffs, also create bottlenecks that disrupt production schedules. AI-driven predictive analytics can enhance supply chain visibility, helping firms anticipate and address disruptions before they impact quality.

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China is still the first port of call for many companies looking to source products to import to the UK, but before you start sourcing, it is important to define what you (think) are looking for. What is important to your organisation? What is a must-have, a nice to have and an optional? What are your short- and longer-term plans, and will the products/manager you need change as your plans change? Having these before you start sourcing is a good foundation and a useful document to refer back to at later stages to reground you.

Below are a few examples of where you can start sourcing a manufacturer:

1. Industry conferences and trade shows: Chinese attendees should be experienced in international trade and have the basic skills needed to work with you.
2. UK online forums: Focused, niche forums can be a source of specific information including contacts, practical tips based on others’ experiences, and feedback on products bought.
3. Alibaba: Alibaba has evolved tremendously over the last two decades, and while it is a powerful search engine with lots of information, it can still be quite hard to find a great partner. It helps to use filters effectively to find exactly what you’re looking for.
4.  LinkedIn: There are groups on LinkedIn focused on connecting manufacturers and agents with potential clients, although they vary in quality. Nevertheless, LinkedIn is a good place to post questions and requirements, as well as learn from others’ experiences.
5. CBBC: Our CBBC teams may be able to offer advice or introduce you to other member companies.

The next best step is to reach out to 3-10 companies. Initial contact can be one of the best, early filters – who replies and how are communications? This doesn’t guarantee quality, but from a sanity point of view, it can be very important.

Try to select a mix of companies to find out which one is right for you. As an SME, for example, selecting a multi-billion USD supplier probably isn’t the best final choice, however, a large company can be a good source of information and resources which can be useful reference points when dealing with others. Ask for references in your country or region, and do engage with these references before you order.

What times and costs need to be considered?

If you are just buying a few units as a one-off, then it may be best not to buy from China directly. Even before the Covid-19 pandemic, if you wanted to ship by sea from China you needed to allow a couple of months from order to door, and negotiations and discussions may add on time before that.

Below is a brief review of the timeline you can expect at each stage of the process:

• Production: 30-60 days
• China export: 3-7 days for local transportation and export
• Shipping: 30-45 days to main UK/EU ports (be aware of trans-shipping where the container is transferred at another port such as Singapore or in Hong Kong, which can add 3-7 days)
• UK import: 2-5 days (note, the Economic Operators Registration and Identification Number, EORI, should be lodged before the vessel arrives).
  Total: 65-124 days

In terms of costs, a container could be worth £5,000-200,000, and with lead times from factory to warehouse of 70-100 days, cash can be tied up for long periods of time. Furthermore, depending on business volumes, you usually want product in production, product on the water, and sufficient stock in the warehouse. Be careful to consider stock levels, turnover and production, as seasonality and varying stock turnover mean that it can be difficult to plan and forecast, especially with current levels of geopolitical uncertainty.

How to manage your manufacturing partner and ensure quality control is maintained

Quality management will depend on your business and its needs. As with anything, you get what you pay for in terms of quality. Third-party quality control (QC) companies with trained teams for onsite audits and inspections can be a sensible investment if you can’t visit.

On-site visits are important because there can be no end to misunderstandings and outright misinformation about where a company is. For example, if you see a factory’s address is in Shanghai, often this actually turns out to be a trade office. Especially on Alibaba, you’ll often discover multiple companies at one address.

Whether you tackle a pre-order visit internally or through a third-party company, it should usually include the following:

• Thorough visit and inspection, with the inspector taking pictures and videos of the site, key personnel and manufacturing processes.
• Production visit to inspect raw materials and current product in production, with a final pre-shipping inspection and/or loading inspection including:
  Ensure packaging is correct (labels, wrapping, etc.)
  Pallets are suitable for freight
  Product count
  Loading supervision and confirmation of container sealing.

A problem in China that is caught early can be solved easily and relatively cost-effectively for all involved. A problem that is not discovered until your client receives it can be challenging to solve and costly on multiple levels.

What payment terms are available and what should you look out for?

Standard terms for full container loads (FCL) are usually 30/70 or 20/80, though for an initial order many factories will ask for a deposit of around, say, 10% before they order materials. For smaller, less than container loads (LCL), the cost is typically 100% upfront before shipping.

Always double-check bank details before wiring funds. Confirm via a formal company email rather than an Outlook/Yahoo/163 type of address. Bank details may be in Singapore or Hong Kong, even though you are buying from a Mainland company.

What other legal risks need to be considered?

Businesses should be very careful if shipping by LCL, as it is very common that a lot of the freight charges will be applied as destination charges, meaning you may face a very large bill on arrival in the UK. It is worth checking with your own freight forwarder on services, options and costs based on the FCA China port.

It is always worth keeping a weather eye on IP and branding issues. When sourcing from China for the long run, register your brand, logos and names in China before you share this information with the factories. The Chinese IP protection system is very robust nowadays, but there are still issues with IP squatting.

Sourcing in China can be a great way to secure excellent products that are competitively priced from suppliers who are focused on quality and innovation. While there are plenty of options available to source remotely, with travel to China gradually becoming more convenient, it is worth visiting in person if possible, as it not only helps with business from existing suppliers, but you also inevitably discover new products and new suppliers. Problems that drag on via email can often be resolved quickly and new ideas exchanged, and suppliers are usually keen to hear about your business and customers.

Click here to read our Exporting to China series

Call +44 (0)20 7802 2000 or email enquiries@cbbc.org now to find out how CBBC can help you find the perfect partner or supplier to support the growth of your business in China.

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China is the world’s top automotive market, with 25.8 million new vehicles sold in 2019 versus 17 million in the United States. Private car ownership in China stood at 207 million in 2019 compared to just 3.7 million in 2000, the year that China entered the World Trade Organisation. In the same period, private car ownership per 1,000 capita surged from just 3 to 148. Although these increases have been substantial, there is still huge potential in China’s car industry, since the ownership rate is still comparatively low compared to the US or countries in Europe.

From the perspective of UK original equipment manufacturers (OEMs), China continues to be the main international growth driver. For example, China is the largest market for Jaguar Land Rover, which sold 146,399 cars in the country in 2017 – more than was sold in the whole European Union market. China will continue to be a growth engine for UK brands, and tier two and three UK suppliers should be aware of China’s growth areas to ensure they’re aligned and bringing value within the wider supply chain in order to be part of the overall growth story.

China has targeted developments in specific parts of the automotive sector as a key part of its industrial strategy, Made in China 2025. This includes new energy vehicles (NEVs) and intelligent and connected vehicles. To tap into China’s auto market, UK companies can make use of major local industry events as first-step market entry opportunities.

Brands can attend auto-related exhibitions, trade shows or forums to showcase their products and pitch to potential Chinese clients. For example, China EV100 Forum 2021, which was held on 15 January this year, is a major online forum in the NEV sector. More than 200 VIP guests joined the next-generation vehicle event, including those from governments, associations, research institutes and companies. As automakers and supply chain manufacturers aspire to produce better quality vehicles and components, Testing Expo China 2021 in September 2021 is another event to be considered. Automechanika Shanghai will also take place in November 2021.

Click here to read the report in full

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Since former US President Donald Trump launched his trade war with China, competition with Beijing has become an obsession in US politics. His successor, Joe Biden, now appears to be intensifying efforts to prevent China from overtaking the US as the world’s largest economy. Thus, Biden warned US Senators in February – after his first call with Xi Jinping – that China would ‘eat our lunch’ if the US did not increase its own spending on infrastructure and other domestic industries.

One area that will benefit from the US government’s largesse is the manufacturing sector. Spurred by concerns over supply chain dependence on China, the Biden administration wants to massively increase investment in domestic production. The planned US$2 trillion (approx £1.4 trillion) infrastructure bill includes several provisions to support domestic manufacturers as well as SMEs.

Perhaps surprisingly, the rivalry with Beijing appears to have led the White House to embrace policies that resemble China’s directed industrial policy far more than the classic liberal, market-driven development the US has championed since the 1980s.

But rather than becoming a ‘planned economy’ as some critics fear, it is more likely that the Biden administration’s attempts at import-substitution will run into the same roadblocks as China’s ambitious Made in China 2025 strategy.

Background

Like most developed countries, the share of manufacturing in the US economy has continued to decline over the last century. In 2019, the sector accounted for only 11% of value-added to the country’s GDP, compared to over 15% in 2000. In total, the number of US manufacturers has shrunk by 25% since the end of the 1990s. In the same period, the United States’ share of global manufacturing fell from 25% to 17% in 2019. By contrast, China accounted for nearly 29% of global manufacturing output in 2019, according to Statista.

Countering the trend has become a major objective of the Biden administration. In September 2020, his team released a ‘Made in America’ plan which aims to turn the US manufacturing sector into the ‘arsenal’ of the country’s post-Covid recovery.

Manufacturing as share of domestic GDP in 2000 and 2019

Since his inauguration, President Biden has proposed several bills to turn this plan into reality. Most prominently, the aforementioned infrastructure bill, which includes several provisions to develop critical technologies and upgrade America’s research infrastructure. The plan foresees an investment of more than US$52 billion in domestic manufacturers. Additionally, the Biden administration wants to spend similar amounts on domestic basic research and semiconductors.

Click here to read the full analysis, including what sectors may be affected and how a strong dollar and supply chain concentration challenge Biden’s plans.

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On a surface level, it’s a well-known story: over the last quarter century, China has emerged as the world’s largest exporting nation with more than £1.4 trillion GBP of exports annually. But now we have enough case studies and data to dig deeper. In his new book, Decoding China’s Export Miracle, Yuqing Xing, of the National Graduate Institute for Policy Studies (GRIPS) in Tokyo, uses China’s involvement with global value chains (GVCs) to analyse this export miracle.

The book explains how China’s deep integration with GVCs has been a decisive factor in the country’s emergence as the world’s number one exporting nation and the champion of high-technology exports. It uses a range of case studies including Apple, Uniqlo, Dyson, Samsung and others that use China to become ‘factoryless manufacturers.’

In this interview, Paul French catches up with Yuxing Qing to find out why China and GVCs are so important.

To understand your book and its arguments we need to first talk about global value chains (GVCs). What are they and why have they been so important to China’s rise as the world’s major exporter nation?

Global value chains are a new model of manufacturing and trading goods internationally. A typical GVC involves firms from various nations. Those firms coordinately perform a series of tasks necessary for the delivery of products to end-users in the global market. These tasks include research and development, product design, the manufacture of parts and components, assembly, distribution and retailing. Chinese firms participating in GVCs mainly perform manufacturing tasks, such as assembly. Most manufactured goods exported by China, which account for more than 90% of total Chinese exports, are, in fact, produced and traded along GVCs, which have systematically eliminated conventional entry barriers to international markets for made/assembled in China products. This has greatly facilitated the massive penetration of Chinese goods into the markets of both developed and developing countries – powering China’s export miracle.

You also argue that China has been able to take advantage of the ‘spillover effects from GVCs.’ What are these? And how was China able to take advantage?

GVCs offer positive spillover effects to non-leading firms, particularly firms from developing countries. One spillover effect comes from brands owned by lead firms. By plugging into value chains as contract manufacturers, Chinese firms have sold their products under internationally recognised brands, which clearly enhances the appeal of made in China products to foreign consumers and has strengthened their international competitiveness. 

The second spillover effect is the technology and product innovation of lead firms. The production of any high-tech products requires not only core technological components but also low-tech and standard parts and labour-intensive services (like assembly). By manufacturing those low-tech parts and providing assembly services, Chinese firms have been able to join the value creation processes of high-tech products and take advantage of the fast-growing worldwide demand for high-tech products such as laptops and mobile phones. For example, China’s export of iPhones is attributed to its participation in the iPhone value chain as an assembler.

The third spillover effect of GVCs is related to the distribution and retail networks established by GVC lead firms. As suppliers of foreign MNCs, Chinese products are sold through the global distribution and retail networks established GVC lead firms. The continuous expansion of those networks automatically increases the access of made in China products and thus boosts China’s exports. This is actually how 50,000 Walmart suppliers in China have entered international markets and raised their sales abroad.

You also argue that Chinese firms participating in GVCs offered an alternative path by which China could achieve industrialisation, a kind of turbocharging of the economic learning curve. How did this work?

GVCs are based on production fragmentation. With the extensive fragmentation of the manufacturing industry resulting from modularisation, it is no longer necessary for a country to build production capacities for an entire industry in order to produce finished products. By participating in GVCs, Chinese firms have developed and expanded their production capacities where they have a comparative advantage, and they have been growing together with the lead firms of GVCs through the aforementioned three spillover effects. 

In addition, GVCs give Chinese firms a unique channel through which to access new knowledge and production know-how. The learning opportunities within GVCs include face-to-face interaction, knowledge transfer from lead firms, pressure to adopt international standards, and training of the local workforce by lead firms. That learning facilitates Chinese firms’ industrial upgrading and innovation activities, such as adding value to products, moving up from pure assembly to design work, and increasing production process efficiency. For example, all of Apple’s suppliers need to meet high standards set by Apple and engage intensive communication with Apple, all of which facilitate the innovation and productivity growth of non-lead firms. Those unique features constitute a new path of industrialisation.

GVCs give Chinese firms a unique channel through which to access new knowledge and production know-how.

I think it is also interesting that you argue Chinese firms have managed to achieve ‘nonlinear upgrading’ through their participation in GVCs. What do you mean by this exactly?

Specialising in low value-added tasks has opened a door for Chinese firms to integrate themselves into GVCs. It is the beginning of the long march from entry into GVCs to participation in higher value-added segments, to capturing more added value, and ultimately evolving into a GVC lead firm. Upgrading along GVCs from low value-added to high value-added tasks constitutes a linear model of innovation. For example, a firm starts from assembling mobile phones, then enters the manufacturing of components, and eventually produces mobile phones under its own brand. This is a sequential upgrading along value chains, I call it a linear path of innovation.

On the other hand, before developing core technology capacities such as operating systems design and mobile chipset production, Chinese original brand manufacturers such as Huawei, Xiaomi and Oppo leapt forward to brand development by sourcing core technology from foreign suppliers like Google, Qualcomm, Samsung and Sony. This is non-linear innovation. Sourced foreign technologies enable Chinese brand mobile phones to compete with the likes of Samsung and Apple. Taking advantage of the availability of standardised technology platforms, those Chinese firms have concentrated on incremental innovations and marketing, and successfully broken the monopoly of foreign rivals in both domestic and international markets.  The nonlinear innovation path reflects the flexibility of the GVC strategy for catch-up by developing countries.

How does China’s integration within GVCs affect delicate trade negotiations, especially where, as with the US, Australia and EU, they have become quite problematic?

China’s huge trade surplus with a few trading partners has given rise to trade friction. I think China should further lower tariff and non-tariff barriers to increase the access of foreign goods and services to its domestic market and encourage Chinese consumers to embrace products made beyond China.

Having said that, I would like to emphasise that current trade statistics are incompatible with value chain trade. China’s trade surplus has been exaggerated, because (1) foreign value-added has been counted as China’s value-added, and (2) trade statistics cannot trace actual exports of factory-less manufacturers, such as Apple, Nike, Dyson, and H&M to China. The first reason causes the inflation of China’s exports to those countries, while the second underestimates those countries’ exports to China. I explain how trade statistics distort the bilateral trade balance between China and the US in detail in chapter 4 of the book.

China is deeply integrated with GVCs organised by MNCs from the US, Japan, and the EU. This is why I use the term “China-centred” GVCs in the book: Any tariff and non-tariff measures imposed on made/assembled in China goods would harm not only Chinese firms, but also MNCs who outsource billions of dollars of goods from China. Trade wars or sanctions are a double-edged sword. Communications, negotiations and compromises are the right approaches to work out any trade frictions and reach win-win solutions. I think China’s trade friction with Australia is purely a result of geopolitical tensions. As an economist, I do not think it is wise to use trade policies to serve non-economic objectives.

We’ve heard so much in recent years about China’s economic rebalancing – away from exports and towards domestic consumption. What is the future for China’s export sectors in the next, say, 5-10 years?

Rebalancing has been a buzzword since the global financial crisis. China’s rebalancing from an exports-driven to domestic consumption-driven model has been expected. Firstly, the contribution of export growth to the growth of the Chinese economy has fallen substantially. Secondly, China’s imports increased from $1.1 to 2.1 trillion, almost doubling from 2008 to 2018. We have to realise that this transition is easier said than done. It requires a structural change on the supply side of the Chinese economy, which is more difficult than a simplistic macroeconomic analysis on the rebalancing, as it requires thousands of Chinese firms producing shoes, apparel, toys, mobile phones or laptop computers to either scale down their outputs or producing something else that is in demand from Chinese consumers. Again, many MNCs from the US, EU and Japan do not export products manufactured in their home countries to China. Instead, they sell products either assembled/made in China or third countries, which produce either in-China or third-country sales in China. Those sales are not counted as exports to China, thus underestimating China’s actual imports from those nations.

The ongoing US-China trade war, and the possible technological decoupling between the two nations, has been reshaping GVCs involvement, which may undermine China’s export capacity, particularly when it comes to serving the US market. As a result of the Covid-19 pandemic, some politicians in the US, EU and Japan have called for improving self-sufficiency in essential medical supplies. This may limit the growth potential of Chinese exports. However, for a nation with $2.5 trillion annual exports, internal circulation is impossible. The entrenched exported-economic structure implies that international markets will remain a critical source of income and employment and the Chinese government will continue to support its firms to expand in the global market through trade negotiations.

The post Interview: Understanding China’s global value chains appeared first on Focus - China Britain Business Council.

Rachel Jones launched her online product monitoring company SnapDragon after discovering that products she was making with another company in China were being faked and sold online.

Totseat – the company she founded back in 2004 – had grown to the point where it was manufacturing in China but she was shocked to discover that fake versions of the product were available online. Rachel then started a company that monitors online platforms to find fake products and report them so that the fake products can be taken down. She explains that what started off as a slow manual process is now done with AI and automation and with the support of the platforms themselves, which are eager to see fake products removed from their sites. SnapDragon now has 35 employees that help protect brands, revenues and customers, and has won numerous awards for the excellent work it does.

Watch below to learn more about Rachel’s journey and what winning the 2020 China-Scotland Entrepreneur of the Year award meant to her.

ENTRIES TO THE CHINA-SCOTLAND BUSINESS AWARDS ARE NOW OPEN. HOW CAN YOU APPLY?

• The online application form can be saved, so you can return to it at any time and edit it right up until the deadline at midnight (BST) on 5th November 2020.
• Please be aware that you are required to submit a three-minute video in support of your application. The video should be submitted via a YouTube link added to the online application form. More details on how to upload to YouTube can be found here. The video will provide the judges with extra information from which to select the winners of each category. See more details on content below.
• The organisers reserve the right, at their discretion, to reject any applications that are deemed to be inappropriate and the decision of the judges is final.

FAQS

Can my organisation make more than one application?
Yes, your organisation may apply more than once. For example, various departments from a university may make separate applications within the same category or across multiple other award categories. Only one application can be submitted per category, it is not permitted to send the same application for two different award categories.

Can I attach documents to support my application?
Yes, you may attach up to three separate documents through the online application form. Please note, each attachment should be no more than one page in PDF or one picture in .jpeg format – the maximum size of each attachment cannot exceed 20Mb. Attachments that are more than one page will not be reviewed by the judges.

How are the applications assessed?
One judge, specialised in his or her award category, will score each award category individually. Each question in your application is scored out of 10. Once the scores are counted the judge picks a number of shortlisted candidates, based on the overall scoring and overall quality of applications in the group – the China-Britain Business Council has final discretion on the number of shortlisted candidates.

Once all categories have been shortlisted, the full judging panel will come together to view each shortlisted candidate’s video. The judging panel will then vote for each category winner based on their application score and their video.

How do I submit the required three-minute video pitch?
The video should be to the standard of that taken on a handheld mobile recording device or better – it is not necessary to produce a professional video solely for these awards unless you really wish to do so. It is the content which matters. We would encourage applicants to show their product or service in the three-minute video as this often helps bring your application to life for the judging panel during the assessment process.

YouTube is the preferred option for uploading video content and we would encourage applicants to amend their video to the unlisted option when uploading a video to YouTube. Click here to learn how to change videos to be Unlisted. The time limit for videos is three minutes maximum. Any video content beyond three minutes will not be viewed during final awarding assessments.

Where do I submit the three-minute video?
Once the video content has been uploaded to YouTube then you must provide the full URL link in your online application where requested.

What should be covered in the three-minute video?
The video offers the opportunity for you to showcase your business, team or product/service to the full panel of judges. The three-minute video does not need to be the business leader speaking for three minutes, it can include a demonstration of your product or service, have customer testimonials or show some of the team hard at work.

When can I reserve a table for the awards?
Due to the ongoing Covid-19 pandemic, it is currently unclear whether or not an in-person dinner will be possible on 4th February, although the event is being held at the Waldorf Astoria, Edinburgh should an ease of restrictions allow.

If a physical event remains impossible, the awards ceremony will be hosted virtually on 4th February, more details of which will be shared closer to the time.

The post Rachel Jones winner of the 2020 China-Scotland Entrepreneur of the Year Award appeared first on Focus - China Britain Business Council.

Tommy Cook is CEO of Scottish technology company Calnex, which won the 2020 Exporter of the Year Award. Calnex is a specialist technology manufacturer that produces testing equipment that allows major electronics companies to enter their products into market. Having captured something of a niche, Calnex provides solutions to all the main global electronics manufacturing companies, punching well above its weight, and is a great example of a successful Scottish exporter.

Here’s what Cook has to say about his China business:

Entries to the China-Scotland Business Awards are now open.
How can you apply?

• The online application form can be saved, so you can return to it at any time and edit it right up until the deadline at midnight (BST) on 5th November 2020.
• Please be aware that you are required to submit a three-minute video in support of your application. The video should be submitted via a YouTube link added to the online application form. More details on how to upload to YouTube can be found here. The video will provide the judges with extra information from which to select the winners of each category. See more details on content below.
• The organisers reserve the right, at their discretion, to reject any applications that are deemed to be inappropriate and the decision of the judges is final.

FAQs

Can my organisation make more than one application?
Yes, your organisation may apply more than once. For example, various departments from a university may make separate applications within the same category or across multiple other award categories. Only one application can be submitted per category, it is not permitted to send the same application for two different award categories.

Can I attach documents to support my application?
Yes, you may attach up to three separate documents through the online application form. Please note, each attachment should be no more than one page in PDF or one picture in .jpeg format – the maximum size of each attachment cannot exceed 20Mb. Attachments that are more than one page will not be reviewed by the judges.

How are the applications assessed?
One judge, specialised in his or her award category, will score each award category individually. Each question in your application is scored out of 10. Once the scores are counted the judge picks a number of shortlisted candidates, based on the overall scoring and overall quality of applications in the group – the China-Britain Business Council has final discretion on the number of shortlisted candidates.

Once all categories have been shortlisted, the full judging panel will come together to view each shortlisted candidate’s video. The judging panel will then vote for each category winner based on their application score and their video.

How do I submit the required three-minute video pitch?
The video should be to the standard of that taken on a handheld mobile recording device or better – it is not necessary to produce a professional video solely for these awards unless you really wish to do so. It is the content which matters. We would encourage applicants to show their product or service in the three-minute video as this often helps bring your application to life for the judging panel during the assessment process.

YouTube is the preferred option for uploading video content and we would encourage applicants to amend their video to the unlisted option when uploading a video to YouTube. Click here to learn how to change videos to be Unlisted. The time limit for videos is three minutes maximum. Any video content beyond three minutes will not be viewed during final awarding assessments.

Where do I submit the three-minute video?
Once the video content has been uploaded to YouTube then you must provide the full URL link in your online application where requested.

What should be covered in the three-minute video?
The video offers the opportunity for you to showcase your business, team or product/service to the full panel of judges. The three-minute video does not need to be the business leader speaking for three minutes, it can include a demonstration of your product or service, have customer testimonials or show some of the team hard at work.

When can I reserve a table for the awards?
Due to the ongoing Covid-19 pandemic, it is as yet unclear whether or not we shall be able to host an in-person dinner on 4th February, although the date is being held at the Waldorf Astoria, Edinburgh should an ease of restrictions allow.

If a physical event remains impossible, we will host the awards ceremony virtually on 4th February, more details of which will be shared closer to the time.

The post How to apply for the 2021 China-Scotland Business Awards, and a look at one of this year’s winners, Calnex appeared first on Focus - China Britain Business Council.

In the book, you say China is at a ‘critical turning point’ – investment-led growth has led to bad debt and Non-Performing Loans. Can China get out this debt trap?

Following the 2008 global financial crisis, China launched a massive stimulus programme to keep its economy afloat. It worked, in that China avoided the dramatic falls in economic growth that many other parts of the world saw. But that reliance on debt to drive the economy then became a bad habit that the government has yet to overcome. Total debt as a proportion of GDP is now more than 300 percent and has been growing steadily. This kind of growth at this level is seen by many economists as unsustainable. China’s leaders know what they need to do: in order to break their reliance on debt-fuelled growth – which by the way has contributed to the country’s pollution problem and has been energy wasteful – they need to build up a much stronger consumer and service-driven economy. But while progress has been made, they are still struggling to grow the proportion of the economy made up of domestic consumption; it is still below 40 percent, a rate not much changed in years, and one that is some twenty percentage points below the world average.

How scary are the demographics? Has China run out of its once seemingly limitless supply of young workers?

What had been what economists call a “demographic dividend” has now become something of a demographic time-bomb for China. And recent moves towards ending the notorious one-child policy appear to be too late; couples have reached an income and education level where they are no longer interested in having more children. The high costs of education in China also discourage families from having more kids. As the workforce ages (and it recently began to shrink in overall size too), innovation tends to suffer; those who are older typically are not as willing to take risks with new ideas and that hurts the economy’s vibrancy, research by Ctrip founder James Liang has shown. In the factories, demographics, of course, has had a huge impact as workers age, shortages emerge, and wages rise. Overall competitiveness has suffered, with manufacturing wages now higher than in Mexico or Malaysia. Meanwhile, the cost of supporting an ageing population with ever more retirees is substantial. It is putting pressures on the finances of local governments and families alike, who have to pay for new health care and pension costs.

The economic ‘rebalancing’ away from FDI and manufacture to retail and services has really been all about the urban middle class. How is rebalancing playing out in the countryside?

In my mind, this is the biggest challenge facing China: ensuring that the other half of the country who still live in rural China or are migrants who hail from the interior regions, also become part of the spending middle class. This is a top government priority and is critical to the success or failure of the China model going forward; it will not be easy and may well fail. One of the biggest obstacles is the continuing strength of the hukou policy. That means that migrants are unable in most cases to access affordable healthcare in the cities they live in or put their children in urban public schools. Instead, they are supposed to return to the countryside for their medical needs, put their children in low quality but often pricey private schools that cater to migrants, or leave their offspring as ‘left-behind children’ in the interior. The policy also explains the prevalence in China of what economists call ‘precautionary savings’ – when people are afraid to spend too much today and instead are saving most of their earnings to pay future costs of education, healthcare or retirement. That too helps explain why China has a savings rate of around 45 percent, much higher than in most places around the world.

You say the government now favours ‘reverse migration’, back from the city to the country, as a way to help care for the rising rural elderly population, and revitalise local economies with small businesses. Is this happening and does it work?

The record of this policy is mixed. Policymakers do see the trend of migrants returning to their hometowns as positive, in that they can both be closer to their ageing parents, and help overcome the national tragedy of left-behind children or youth growing up in the countryside far from their mothers and fathers. Local governments in the interior have tried to ease the challenges faced by returnee migrants by providing training and financial help, often in the form of low-interest loans, for those who want to start their own businesses. The goal is that migrants will succeed as entrepreneurs upon their return and help to revitalise places that otherwise might lag as China develops. One challenge is that the returnees may feel like strangers in their own villages, after decades working in faraway cities, and thus may not have the right connections or knowledge to succeed. There are many cases already of returnees seeing their newly-formed small businesses fail.

It has been suggested that the problem of a lack of workers can be solved by automation and AI. Is this possible, and if so, you seem to suggest that it means employers are now looking to that future and ignoring better pay and conditions for human workers?

Even before the trade war and Covid-19 brought the issue of global diversification of supply chains to a head, factories producing lower-value products were leaving China in droves for countries in SE Asia and beyond. Now that trend has only accelerated. It is something that has long worried policymakers who do not want China to face the same hollowing out of industry that was seen in places like Japan. One plank of the national strategic upgrading plan “Made in China 2025” is focused on encouraging the automation of factories, along with building up a more competitive domestic robot-making industry, with both factories and automation companies being granted large subsidies in cities like Dongguan. This is helping China move more quickly towards a less labour-intensive manufacturing future. But it is also causing frictions between factory management and those migrant workers who do not want to return to their villages but would rather stay in the cities. In some cases, worker protests have erupted as factory managers have moved to quickly automate and shed employees.

Are there any good business success models for rural returnees?

In rural Guizhou, local governments are trying to encourage returnees to set up small businesses in ecotourism, with the aim of luring wealthier urbanites to holiday in this part of the country. In many ways, that is a natural choice, given the stunning mountain scenery, interesting ethnic diversity found among the people living there, and the spicy local cuisine, not to mention the clean environment with little industry in most of the province. Other places including neighbouring Yunnan have tried to use e-commerce to find markets for local delicacies, whether it’s Pu’er tea or wild mushrooms. Both of these models have been successful to a degree, although not without facing challenges. One common problem has been the phenomenon where everyone jumps into the same business and creates a glut, where for example, hundreds of rural villages all might be competing for the same tourists. Provincial governments too have often focused on large capital-heavy, but low labour-intensity vanity projects, like Guizhou’s push to make its capital of Guiyang into a national Big Data centre; the trouble is it provides little employment for the large numbers of migrants now returning.

The post Dexter Roberts discusses how Chinese capitalism might evolve in the future appeared first on Focus - China Britain Business Council.