Feature: Battle to woo trade war's corporate refugees intensifies

Prinx Chengshan Holdings

27/09/2019 09:38

By Patpicha Tanakasempipat
    CHONBURI, Thailand, Sept 27 (Reuters) - When trade war
tariffs jolted Chinese tyre-maker Prinx Chengshan into speeding
up foreign investment plans, the company wound up in Thailand,
thanks to that country's relentless courtship.
    With an initial investment of $300 million, the company is
now racing to build a factory to export tyres to the United
States next year, based in a Thai industrial zone reinvigorated
by the trade war.
    Multiple visits to China by Thailand's Board of Investment
helped. So did two personal meetings with Thailand's top
economic policymaker, said Ju Xunning, a company manager.
    "This impressed our company, and this is also one of the
main reasons for choosing Thailand," Ju told Reuters. "It's
apparent that the government values doing business with us."
    With global economic growth flagging, in part because of
U.S. President Donald Trump's trade war with China, competition
is growing among Asian countries to win investment from
companies moving supply chains to escape higher tariffs.
    Tax breaks, promises to slash red tape and trade missions
are all on the table.
    "Companies have thrown in the towel on the status quo," said
Rajiv Biswas, Asia Pacific chief economist for IHS Markit.
    Vietnam has benefited most from the shifts in terms of the
number of companies moving business, according to independent
surveys. But other Asian countries are eager to bring in more
business as well, including India and Indonesia.
    
    
    'YOU'RE THE EMPEROR'
    The trade war has breathed new life into Thailand's Eastern
Economic Corridor (EEC), where Prinx Chengshan is building its
factory. The programme was set up under the former military
junta to boost growth that has for years lagged regional peers.
    Pledged investment for the zone rose nearly four-fold
year-on-year to 88 billion baht ($2.9 billion) in the first half
of 2019. One of the main drivers was investment from companies
trying to escape tariffs.
    Thailand's biggest industrial estate developer WHA  WHA.BK ,
which has nine developments in the area, said Chinese companies
account for 43 percent of its land sales, up from less than 3
percent before the trade war.
    Chinese companies are being catered to carefully, the
company's chief executive, Jareeporn Jarukornsakul, told
Reuters.
    "I told one company, 'This location is very good. You'll be
at the heart of the estate, and everyone else will be your
tributaries. The feng shui is perfect, you're the emperor,'" she
said. 
    Hong Kong-listed Prinx Chengshan said it had planned on
moving tyre production to Malaysia, but wavered after the
Malaysian election in early 2018.
    "The government couldn't fulfill several of the promises
made to us and we eventually gave up," Ju said at his makeshift
office near the building site.
    Malaysia's deputy trade and industry minister, Ong Kian
Ming, told Reuters that although Prinx Chengshan had gone
elsewhere, the country had attracted another Chinese tyre
company - Maxtrek Tyres, a subsidiary of Zhaoqing Junhong Corp.
Ltd - as well as a paper plant and further Chinese investment.
    Both Thailand and Malaysia have since sweetened their deals.
    Thailand this month offered a new range of "relocation
incentives" - including a five-year 50% corporate tax cut -
while Malaysia set up an investment board to encourage
relocations.  urn:newsml:reuters.com:*:nL3N25X25K urn:newsml:reuters.com:*:nL3N26818S
    "If approvals took three months earlier, now it would take a
month," Ong said. "The trend we see is that many of these
strategic investments are reacting to the U.S.-China conflict."
    Foreign direct investment to Malaysia nearly doubled to $12
billion in the first half of 2019, and Ong said he hoped it
would accelerate further.
    
    HIGH END, LOW END
    Thailand and Malaysia are competing for higher-end
manufacturers, but their wages price them out of
labour-intensive work such as stitching shirts and sneakers that
is more likely to go to Bangladesh, Myanmar or Cambodia.
    One Bangladeshi factory owner, Faisal Samad, said new orders
from the United States had pushed his export volumes up 20% this
year.
    Vietnam has taken aim at both the low and high ends, with
companies citing relatively low wages, a motivated workforce,
relatively simple business procedures and proximity to China.
    When Vietnamese industrial park operator DEEP C Industrial
Zones set off to China for investment roadshows this month, it
saw 180 people sign up this year compared with just 20 last
year, said head of sales Hank Kerstens.
    Another beneficiary has been Taiwan, whose government is
trying to lure back Taiwanese firms in China with incentives on
tax, land, water and electricity. Officials hope to get $16
billion investment by the end of the year.
    A Nomura study of 56 firms relocating production from China
between April 2018 and August 2019, when trade war tensions have
been highest, showed 26 going to Vietnam, 11 to Taiwan and eight
to Thailand.
    Just three companies went to India and two to Indonesia - a
situation both countries are trying to change.
    India wants to woo companies such as Apple, Foxconn and
Wistron Corp with a charm offensive, according to a source and a
government document.  urn:newsml:reuters.com:*:nL3N25P1HC
    A surprise cut to India's headline corporate tax rate to 22%
from 30% last week could attract smartphone makers, industry
executives said.  urn:newsml:reuters.com:*:nL2N26E02K The federal commerce ministry said
the cut was meant to draw in investment.
    But businesses also worry about infrastructure and red tape.
    One smartphone company executive, who declined to be
identified because of the sensitivity of the matter, compared
Vietnam to India, saying: "You meet one guy (in Vietnam) and he
takes care of everything from the government side." That is not
the case in India, he added. 
    Similar concerns are hampering Indonesia, where President
Joko Widodo this month told cabinet ministers "we have a
problem" as he pointed to the lack of companies moving
production to Indonesia to escape trade war tariffs.
    He ordered ministers to identify which regulations were
getting in the way of investment.
    "It's a matter of identifying those regulations, fixing
them, and making sure no new ones come up," said Citi Indonesia
chief economist Helmi Arman, who cited "ad-hoc regulations" as
the main obstacle to attracting trade war-related relocations.
    Indonesian ministries did not respond to a request for
comment. 
    In Thailand, Jareeporn said she was optimistic that the
recent surge of investment was just the start.
    "We now have a shot at becoming the region's number one and
overtaking Vietnam in five years," she said after closing a land
deal with another Chinese business.

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 (Additional reporting by Orathai Sriring in Bangkok, Krishna
Das in Kuala Lumpur, Fanny Potkin and Gayatri Suroyo in Jakarta,
Brenda Goh in Shanghai, Serajul Qadir in Dhaka, Sankalp
Phartiyal in Mumbai and Yimou Lee in Taipei; Editing by Matthew
Tostevin and Gerry Doyle)
 ((matthew.tostevin@thomsonreuters.com; +66 2 648 9777; Reuters
Messaging: matthew.tostevin.thomsonreuters.com@reuters.net))