Yet the available data – and simple common sense – suggest more complex shifts are at work, and that the crude decoupling narrative does not hold water.
For General Motors, which makes and sells 40 per cent of its cars in China, or Apple, which makes most of its iPhones in China with Asia accounting for a third of the company’s sales, relocation not only makes no sense – it would be ruinous.
, which has built a sound export-processing economy, has been growing strongly in recent years and attracted significant foreign investment.
International companies like Kyocera and Ricoh from Japan, Samsung from Korea, and Guizhou Tyre and HL Corporation from China have all been big investors in Vietnam over the past few years.
But evidence that this investment is replacing, rather than supplementing, investment in China is lacking. According to the United Nations’ World Investment Report, in 2018, foreign investment into Vietnam was US$16 billion compared to US$139 billion into China. Vietnam’s total foreign direct investment stock was US$145 billion while China’s was US$1.63 trillion. Thus, Vietnam’s total FDI stock is equivalent to a single year’s FDI into China.
The “relocation” fallacy is in part built on a failure to recognize the extraordinary difference in size and scale of Vietnam – or indeed any other developing economy in South or Southeast Asia – compared to China, which hampers what Vietnam can absorb.
Vietnam’s gross domestic product in 2018 amounted to US$245 billion – 55 times smaller than China’s US$13.6 trillion. China has 15 provinces that have a larger GDP in purchasing power parity terms than Vietnam, and eight are more than twice the size.
The total value added by China’s manufacturing sector was around US$4 trillion in 2018, over 100 times greater than that of Vietnam.
Vietnam’s infrastructure to support inbound investors remains fragile and materially inferior to that of China. Vietnam’s power generating capacity is around 41 million kilowatts, compared to China’s 1.65 billion kilowatts. Vietnam has a total of 2,600km of railways, compared with China’s 131,000km, of which 29,000km is high-speed rail.
Add in the fact that China’s domestic consumer market is large and by far the world’s fastest-growing, and the case is poor for shifting in any significant way offshore.
None of this is to say there has been no change. Chinese officials have been urging polluting, low-value-adding export processors from Hong Kong, Taiwan and the US that set up in the 1980s across the Greater Bay Area either to clean up their act or move offshore.
And taking account of the vulnerabilities of long and complex supply chains that have recently become apparent, many companies have been looking to simplify their supply chains and ensure backup sources for key components.
But for companies in China – foreign or local – this has involved bringing more of the supply chain into China as much as considering offshoring it.
There are good reasons for the global diversification of companies in recent years, and they remain as strong today as ever. China is deeply integrated into these global chains, not just as an export processor but as an increasingly significant consumer market.
Rising economies like Vietnam are joining these chains, and this can only be good. But to imagine this is at the expense of the indispensable role China plays is naive and mistaken.