
Manufacturers want to quit China for Vietnam, but find it impossible - chmaynard
https://www.wsj.com/articles/for-manufacturers-in-china-breaking-up-is-hard-to-do-11566397989?mod=rsswn
======
whatshisface
This tariff situation is quickly becoming an amazing opportunity for
developing countries. The labor shortages being talked about can only be
resolved through higher wages, which means that the people at the bottom will
get a cut of the new money. In the end the world will be a lot richer and the
money will be in the hands of relatively livable countries like Vietnam. (The
Vietnamese government is actually pretty good in terms of freedoms.)

It's also politically preferable for the US to depend on a hundred small
countries instead of one big competitor. It may also help cushion the next
global recession, as each of these international markets will be less
correlated with each other than one company in China is with another company
in China.

Chinese companies are very tightly integrated with the government's balance
sheets, meaning that you can't diversify within China. If one company goes
under that means the subsidies ran out, and that means all the other subsidies
are running out, which means the economy is toast.

~~~
LeanderK
> The Vietnamese government is actually pretty good in terms of freedoms.

Wait, what? They recently kidnapped an ex-party member in germany. It was 2017
or so. I can't believe that a country which honors you freedom would do
something like this.

~~~
BurningFrog
The US assassinates its own citizens without trial occasionally.

Don't judge by the anomalies, judge by the everyday life for regular people.

~~~
roboys
US police are the 6th leading cause of African American deaths.

I watched an HK detainee get tortured in a hospital in horror, then remembered
we kill thousands of unarmed people every couple years without any trial (many
of whom are innocent) and 50-60% of victims are either mentally or physically
disabled in some way. Many of them get tortured in similar ways if they make
it to prison.

In a different framing, the US looks pretty horrible in comparison to China.
It's just that we have gotten used to our own brand of stink.

~~~
lunchables
>US police are the 6th leading cause of African American deaths.

No it's not.

[https://www.statista.com/statistics/233310/distribution-
of-t...](https://www.statista.com/statistics/233310/distribution-of-
the-10-leading-causes-of-death-among-african-americans/)

Only 215 black people were killed by police last year.

>[https://www.theroot.com/here-s-how-many-people-police-
killed...](https://www.theroot.com/here-s-how-many-people-police-killed-
in-2018-1831469528)

------
latchkey
I'm from the bay area and moved to Vietnam 3 years ago. I'm watching all of
this happen in realtime. I've recently completed a 8500km motorbike trip
around all of Vietnam, southern Cambodia and Northern Laos.

In the south of Vietnam, HCMC, there is massive growth. Huge amounts of
construction. The city is over populated and growing rapidly. Millions of kids
work for $200 a month.

In the north of Vietnam, there is many illegal roads being cut through the
forests and jungles to ship things from China. I've ridden these same dirt
roads on a motorbike and seen the trucks. Did you know that Vietnam is also
building a wall between themselves and China?

All over Vietnam, people are making babies in huge numbers. There is a lot of
family pressure to do so. They may only have 100m people now, but every single
shack and house has 2-3 babies in it. It will be very interesting to see what
happens to all these humans over the next 20 years as this country grows at a
rapid pace.

Cities in the north like Hai Phong are expanding rapidly. It is a massive port
city that does trade with China and elsewhere. There is a road leading to the
airport where all the super wealthy old vietnamese guys spend their 'retired'
days riding their bicycles. Anyone who thinks Vietnam is poor should see the
absurd size of the mansions here. This is where Samsung has their factories. A
massive car factory (Vinfast) was recently built here as well.

In Cambodia and Laos, the Chinese are building a trade route directly through
the two countries. Literally cutting a huge freeway and railroad from north to
south. Buying up all the land and stripping it. Zero concern for the
environment. Even cutting holes through mountains. In return, China Power is
also building hydro dams, which are causing lakes to dry up and rivers to
flood in the wet season. Google 'china Sihanouk' to see what's happening
there. My guess is that if you look on a map, this will give China a great
water route directly to Africa. Here is an example of the roadway:
[http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm](http://www.xinhuanet.com/english/2019-07/28/c_138264471.htm)

I feel like nobody is talking about this, but it is happening. I've seen it
first hand. This tariff situation is making huge waves that will affect this
whole planet.

Edit: I just noticed the overhead image of the factory complex in Binh Duong.
I've been to those same buildings!

~~~
fiblye
I work for a Japanese automation company and we’ve been getting a huge surge
in projects in Vietnam. Some things here are definitely exaggerated.

Birth rates in Vietnam are already below the replacement rate and dropping.

Poverty is a colossal problem. People get paid a couple hundred bucks a month
at major internationals. Cost of living is massively lower, but downtown
apartments for average people (and not mansions for foreigners making average
foreign wages) aren’t in a great state. Rather dilapidated, in fact. Streets
are sometimes torn up and left wide open while construction is going on,
turning on high energy electronics might trigger a localized blackout (had
this happen with an AC at a restaurant near Hanoi), and outside urban cores,
you’ll see many homes with 4 plain concrete walls and makeshift doors and
ceilings. Dirt floors aren’t surprising. Roadside restaurants and cafes are
just tents and shops are shoddily built shacks.

That said, Vietnam is full of great people who are hopeful about their future.
Progress is evident, but the poverty there is very real and the improvements
aren’t equally distributed.

~~~
latchkey
The amount of wealth here is absolute bonkers massive. Nobody realizes it.
Sure there is a majority population living in shacks by the side of the road,
but there is a huge huge huge number of people (and growing) in big houses and
driving fancy cars. Even some of those shacks are owned by really wealthy
people. They just haven't learned to show it off and they don't care about
upgrading.

I've seen it all, really. I've stayed in the fanciest hotels and the only
place in the smallest village. I've been in such remote places that you don't
see a single foreigner for _days_ on end. What you describe is everywhere
here. But fact is, you can't drive 100m _anywhere_ in this country without
seeing a house/shack with a baby (or ten) in front of it.

The issues you point out about infrastructure is simply that the govt doesn't
care about those things. The rich get richer and the poorer get poorer. I
don't know of any other society that revolves around 'me me me me' as much as
this one.

------
contingencies
Currently opening a nontrivial manufacturing facility in China. I've been
flying to Vietnam at least once a month for the last 3 months. There are
definitely people moving production there, eg. I know one guy for a German
group moving factories from China to south Vietnam. We had a chat, and it
turns out we're getting cheaper industrial facility leasing here in Zhuhai
than they get outside of Ho Chi Minh City. Additionally, we have immediate
access to the world's largest industrial supply chain, are only 1 hour from
Hong Kong, Macau, Shenzhen, etc. and ~200 million people. Marginally higher
cost of living, but it's not a bad deal. Less crazy motorcycle road deaths and
more nature here. IMHO Vietnam's big draw versus China is cross-border
transactional banking - that stuff's a hassle here. On balance we'll stay put,
thanks.

~~~
baybal2
Same for quite a few of our clients. Many companies were asking us for the
"Vietnam option" lately, and are surprised when manufacturing in Vietnam comes
out more expensive than in China even with tariffs, and usually results in
them moving from a Chinese factory in China to Chinese factory in Vietnam that
will still be ran by Chinese engineers, Chinese know-how and use Chinese
parts.

The thing is that labour _is not_ a big part of manufacturing costs even even
for fairly low value goods, and are truly microscopic for higher value
electronics. 30 years of Chinese manufacturing already drove out nearly all
labour intensive processes out for production of light industry goods.

Chinese companies have moved to heavily mechanised manufacturing quite long
ago. Unless somebody can master custom tooling making as well as Chinese
companies, they are not going to catch up.

------
josephpmay
1) For anyone wondering, yes, many of these companies would have the same (or
worse) problems if they tried to manufacture in the US. Our domestic supply
chains for a lot of industries have dried up (or never developed). US
factories also usually have higher minimum quantities and take much longer to
tool up.

2) I'm surprised the article didn't mention Africa at all. A lot of Chinese
industrialists are investing in Africa, and I suspect that Chinese-style
supply chains have a good chance of developing there. If I was looking for a
country to for long-term manufacturing strategies right now, I'd be taking a
hard look at African countries.

~~~
ThrustVectoring
The "natural" distribution of manufacturing capacity roughly mirrors the
population distribution, and Africa is definitely under-provisioned in this
respect.

Respect for property rights and political stability is definitely a downside,
though. The first industrialists that manage to build out after the last land
war or socio-political upheaval are going to get some really nice returns,
though.

~~~
roboys
The underdevelopment of Africa is/was a deliberate decision of the west that
China is undoing.

Smart investors realize China/India's future economic status depends on being
able to offset loss of western demand/trade with direct trade with African
markets.

This is generally better for the whole planet but not if you have a "zero-sum
game" mentality (seems more common in the West than East).

~~~
ThrustVectoring
The decisions made by roughly 1800 C.E. industrialists to concentrate
development in Northern Europe and the United States can be made on a purely
geographic basis. African rivers are generally not navigable to the sea, and
to this day the cheapest way of transporting goods is to barge it down the
river. The US, on the other hand, has _the_ most extensive network of
navigable rivers, with the Mississippi and the connections made to various
smaller rivers on the Eastern Seaboard via Chicago, the Great Lakes, and the
Hudson.

------
Gustomaximus
A big problem no-one seems to talk about is 'consistency'. This is undervalued
variable to capital intensive business.

All these supply and other issues are readily solvable with time/money but why
would you when you don't know if these tariffs will double tomorrow, go away
or stay as is for the next 6 years. Who will invest huge capital when a
political whim seems likely to change the landscape at any point.

------
SenHeng
Low tech manufacturing isn't the only thing they're exporting.

Japanese IT firms have been training offshore dev teams in Vietnam/Myanmar for
ages and sometimes on-shoring those entire devs team back into Japan.

Some of the larger companies even recruit directly in Vietnam.

------
mtanski
Who is starting, building these factories in Vietnam? Who is lending for
capital projects and providing industrial expertise to local enterprises.

I'll give you one hint, the name of that country starts with a C.

~~~
freddie_mercury
Actually it doesn't start with C.

China is #4 in FDI flows into Vietnam. Every factory I've been to here is
South Korean.

------
crimsonalucard
Not even the US can match up with China. In terms of manufacturing China is
the leader both in cost and tech.

~~~
lightedman
You're joking, right? They only recently figured out how to make a proper
ball-point pen.

------
runn1ng
I live in Vietnam, people here say Trump’s Chinese tariffs have built many
people’s new houses.

~~~
roboys
China, I expect has a bigger picture view. Our small brain framing "Move
Manufacturing Good", doesn't play out when you realize China is an Asian
power, not just an isolated country.

China's economy benefits from most business that enters the Asian continent,
either directly or indirectly, and this "economic proximity" benefit only
increases as they develop infrastructure (domestically and internationally)
that streamlines trade.

------
dirtyid
It took China almost 30 years to cultivate economic development zones into the
logistics chain to build the first iPhone. That kind of development can't be
replicated in a few years, is likely out of reach for smaller nations (read
anyone except India) or viable in a geographically distributed fashion. The
problem isn't just moving factories but have a geographically centralized
logistics chain where thousands of components are within hours of each other,
supported by millions of specialized high skill labor, preferably with similar
language proficiency, where new production can be rapidly iterated to meet
market demands. A "small" country with 100 million people are not going train
a large proportion off their entire population to fill football fields with
tooling engineers and other specialists. It's just not demographically in
their cards. And it's that level of centralized scale that enables China to
manufacture high end electronics in the timescales that modern business cycles
require.

That's why all the outsourced electronics production so far are low end
assembly in countries adjacent to China where components made in China (other
than very high end IC) can be quickly shipped to them have locals can be
trained to assemble processes that has been matured and figured out in China.
If all Chinese manufacturing magically shifted across ASEAN countries, I don't
think there would be the collective capability to organize logistically to
produce and iterate a new annual Apple product launch - the entire Tim Cook
screw anecdote. The nature of manufacturing has changed. Maybe India can
replicate that, they are not starting from zero, but I don't know if Indian
democracy can make the extremely unpopular changes Chinese state directed
capitalism / SEZ went through. This isn't an issue that can be solved by
funneling money / FDI, these things take much longer time than a few years and
still can't replicate the advantages of Chinese scale on things where scale
matters. There's a qualitative difference in different governance models
ability to execute policy and realize capabilities. Distributing Chinese
manufacturing among bunch of competing countries with inevitably expensive and
inefficient physical and regulatory interconnects just won't produce the same
capabilities.

Even if we ignore the fact that countries like Vietnam are reaching
infrastructure and labour limits, i.e. they literally at land, road, port,
worker capacity which will optimistically take decades to cultivate -
generations in terms of expertise that can't be rushed. Or that a lot of the
factories that moved out of China are Chinese owned so money and control is
still tied to CPC. Or China might undercut ASEAN by setting up parallel
manufacturing in Chinese influenced Africa. There's still the matter of
automation. Shorterm, China is targeting to increase automation from 68
industrial robots per 10,000 employees (14th in the world) to 150/10,000
employees (9th). For reference, top4 is Korea 631 /Singapore 488 / Germany 309
/ Japan 303. China is not stopping at 150 long term, their poor demographics
lack of youth due to family planning means labour heavy manufacturing is on
the way out, but automation will potentially enable China to retain all their
manufacturing advantages in terms of logistics and expertise in long run. And
once China learns to make advanced integrated circuits and airplane engines,
maybe software, they'll more or less have no western dependencies.

~~~
devy
I agree with most what you analyzed. However this is somewhat debatable,

    
    
       their poor demographics lack of youth due to family planning means labour heavy manufacturing is on the way out...
    

I am not sure if you are aware that the family planning policy (aka 1-child
policy) has already been lifted years ago. The declining birth rate has to do
with the young urban population don't want to have offsprings as much as their
parents (social-economical changes, education cost etc.)

~~~
dirtyid
I'm aware, lifting restrictions doesn't mean increasingly urbanized population
will have 2+ children. Chinese women are marrying and starting families late,
if at all. Or that new generations will want to work in factories vs air
conditioned offices as China pivots towards service driven growth and internal
consumption. And as wages grow it becomes infeasible to compete on labour with
less developed countries. Automation means most manufacturing doesn't have to
leave China for the same reasons why manufacturing never left the US. It just
won't be done by people anymore.

------
speedster8
Can someone post the full article, as I don't have a WSJ account anymore.
Thanks.

------
esjeon
Gosh, what a click-bait title. I guess this is a politically biased article,
trying to attack Trump. It's not that I like the tariff nor the fight b/w the
countries, but it's just that the title is straight wrong.

"China Exodus" has been a thing for almost a decade, meaning that there has
been good reasons to leave China other than that little tariff thingy. Rising
labour costs, ever-increasing regulations, unexplained government actions, a
large number of Chinese (copycat) competitors, government-backed industrial
espionage, corruption, lack of justice, etc. It has been like this since mid
2000s, and many global corporations have either already moved their critical
production lines or set up backups outside of China.

Quitting is impossible? Nope. Totally possible and many have already done that
since years ago. The actual problem is small businesses who can't afford to
build new suitable production lines in a hurry. China is indeed the best
factory right now, since it's almost a grab-and-go. But that doesn't mean it's
going to be the best for everyone nor forever.

