Chinese firms learn to adapt amid US dispute

Workers processing tilapia fish fillets at a workshop in Wenchang, Hainan province. China is the main supplier of frozen tilapia to the American market, but as a result of the tariffs war between the United States and China, those exports are down th
Workers processing tilapia fish fillets at a workshop in Wenchang, Hainan province. China is the main supplier of frozen tilapia to the American market, but as a result of the tariffs war between the United States and China, those exports are down this year and fish farmers have been forced to look inwards.PHOTO: REUTERS

BEIJING • Export-reliant Chinese companies are slashing prices, moving production abroad, creating new domestic markets and even rebranding goods as they try to survive the escalating trade war with the United States.

Factories along the eastern coast, fish processors in the south, apple juice exporters in central China and farmers in the north-east have all been forced to change their business models since US President Donald Trump ignited the conflict more than a year ago.

But no matter what the survival tactic, times are tough and set to get worse with newly threatened tit-for-tat tariffs, meaning that virtually all trade between the world's two biggest economies would be covered.

"It's impacted all of us exporters... we include the tariffs in our quotes now," a sales manager at Shaanxi Hengtong Fruit Juice told Agence France-Presse.

Chinese apple juice exports have nosedived 93 per cent in the first half of the year since Mr Trump hit them with tariffs last September.

Shaanxi Hengtong Fruit Juice, which sends almost all of its products abroad, and some of its subsidiaries had to pledge shares as collateral for loans last year. One of its juice plants also put up dozens of its machines and appliances as collateral for another loan.

The fish processing industry has been hit hard too. China is the main supplier of frozen tilapia to the American market, but those exports are also down this year and fish farmers have been forced to look inwards.

Hanoi has vowed to crack down on Chinese manufacturers illegally using "Made in Vietnam" labels to dodge US tariffs, fearful of the punishment it could face from Mr Trump over its annual trade surplus of US$40 billion with the US.

"Tilapia has done very well in the US because it's breaded and processed... it's kind of bland. Chinese consumers like their fish fishy," said advisory firm China Policy agriculture analyst Even Pay.

Large fish processor Zhaoqing Evergreen Aquatic retrofitted its factory this winter to focus on the domestic market, according to industry publication Undercurrent News.

Firms in other hard-hit industries have simply had to absorb some of the tariff pain. "We've dropped our prices for the US market to cover some of the tariffs," said Mr Andy Zhou of Anytone, which makes radio handsets.

Radio exports to the US were down to just US$33 million (S$45.8 million) in the first six months, from US$230 million a year before.

Mr Zhou, too, is looking to Asian and European markets now to boost sales.

Some struggling low-end radio manufacturers have been forced into drastic measures such as attempting to dodge US tariffs by swopping customs codes - where a product is incorrectly labelled to evade levies when it arrives in America.

Other firms have resorted to transshipment - rerouting their goods via neighbouring Vietnam to pass them off as being made there.

Hanoi has vowed to crack down on Chinese manufacturers illegally using "Made in Vietnam" labels to dodge US tariffs, fearful of the punishment it could face from Mr Trump over its annual trade surplus of US$40 billion with the US.

New rules proposed by the trade ministry last month require all "Made in Vietnam" labelled goods to be mostly or fully produced in the country or contain a significant share of locally sourced materials.

They also bar "temporarily imported" goods from using the label.

Some Chinese firms have moved manufacturing abroad to countries such as Indonesia, Vietnam and Malaysia to skirt tariffs.

Textile maker Jasan Group, which says it supplies Adidas and Nike, bike parts manufacturer HL Corp, and industrial yarn producer Zhejiang Hailide New Material have all moved some production to Vietnam.

But the trade war has helped some Chinese sectors.

Beijing's retaliatory tariffs have benefited some of China's soya bean farmers, with a boost in subsidies to local growers.

"The government is encouraging us to plant more soya beans... our incomes are rising with the subsidies," said farmer Sun Changhai, who is from an agricultural collective in the northern Inner Mongolian region.

The subsidies have boosted China's soya bean output but it still needs to import roughly 85 per cent of what it consumes each year - including some from top producer the United States.

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on August 13, 2019, with the headline 'Chinese firms learn to adapt amid US dispute'. Print Edition | Subscribe