Why Companies Are Moving Out From China ? | Explained

Are Companies shifting from China ?
Yes, Companies are moving out of China.
China, a country which is also known as a manufacturing hub. Chinese manufacturing industry started to grow in late 1970s. As the Western world was moving towards service economy and the western countries were facing problem with continous increase in labour cost. Also standard of living was elevated and all of this leads to high manufacturing cost.
Due to this the investors were attracted towards china. As china had a huge manpower and also very low labour cost.
The Chinese government also started to bulid special economic zones, where massive factories and ports can be bulid. This boosted the manufacturing and attracted many fortune 500 companies to china during the 80s. As in china the same products were manufactured with very low cost.

In 2010 1/3rd of all products on planet is manufactured in china. And that made China the 2nd largest economy after US.
But as of now many companies are moving out from China.

Reason 1: Trade war between US and China.
Trade war was started in 2018 when US imposed tariff of 25% on Chinese goods. Basically US accused China, as they were importing only 100 billion dollars of goods from US. On the other hand US is importing nearly 500 billion dollars of goods from China. Yet trade war is not just about import and export thing, but US has also accused china for not playing fair. Chinese government treats Chinese companies differently. As in they have better access to the markets, than any other western competitors and sometimes Chinese companies get land free of cost, plus they have very low tax. These factors make western companies hard compete with Chinese competitors. US also accused
China for stealing their technology. From defence sector to the electronic and telecommunication equipment, china has copied or reverse engineered a lot of western products and technologies. Recently US banned Huawei. US accused Huawei for spying in American communication networks. US took this as national security threat.
Also, American companies are pressurised by government to move their manufacturing away from China. Nearly 50 American companies are already moved out from china and remaining are on the way.

Reason 2- Global supply chain disruption.
Many countries are dependent on China for supply of goods. Due to the recent lockdown in China amid COVID-19 (coronavirus) Pandemic different products from the markets have wiped out completely. China is also no.1 country for manufacturing pharmaceutical medicine and equipments. Yet in this pandemic china is not able to fullfill the demand. So this has made other countries think and change their mind about dependency on one country for goods. recently japan has offered there Japanese companies a 2.2 billion package to help them to move out of china.

Reason 3: Increase in labour cost.
In the 90s average labour cost paid to a worker was between 140 to 150 dollars per year. But now it has tremendously increased to nearly 14000 dollars per year. And that is a massive multiplication. This makes manufacturing more expensive in china, companies cannot make profits as they were making in the past.
This made them think of relocating their manufacturing facilities. Also, in 2016 china saw decrease in manufacturing output in first time in history.
Samsung a South Korean company and 2nd largest smartphone manufacturer in the world has closed its manufacturing completely in china and shifted to India step by step.

Reason 4: China's aggressiveness.
As china is grown to the 2nd largest economy, they have also grown their regional military power. Recently China had a conflict with Vietnam, Malaysia, Brunei and Philippines in South china sea. This shows how china is putting pressure on small countries using their military power. Also China is using their economical power to grab the African markets with for natural resources. Countries like Zambia, Djibouti and Congo are facing big challenges to payback Chinese debt.
Sri Lanka, an Asian country failed to pay Chinese debts, so Sri lanka leased their Hambantota port to china for 99 year. Internationally this is call as debt-trap diplomacy.
US, Japan, South Korea and the European countries are thinking of moving their manufacturing facilities out from china.
Yet now it started to change, some economist says that in 20 years from now china will not be the only manufacturing giant in the world. As already companies have started to exit china.

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