Focus: Asian firms shuffle production around the region as China tariffs hit

Shibaura Machine

24/09/2018 24:00

(Repeats item first published on Sunday with no changes to
text)
    By Ju-min Park and Makiko Yamazaki
    SEOUL/TOKYO, Sept 23 (Reuters) - A growing number of Asian
manufacturers of products ranging from  memory chips to machines
tools are moving to shift production from China to other
factories in the region in the wake of U.S. President Donald
Trump's tariffs on Chinese imports. 
    Companies including SK Hynix  000660.KS  of South Korea and 
Mitsubishi Electric  6503.T , Toshiba Machine Co.  6104.T  and
Komatsu  6301.T  of Japan began plotting production moves since
July, when the first tariffs hit, and the shifts are now under
way, company representatives and others with knowledge of the
plans told Reuters. Others, such as Taiwanese computer-maker
Compal Electronics  2324.TW  and South Korea's LG Electronics
 066570.KS , are making contingency plans in case the trade war
continues or deepens.
    The company representatives and other sources spoke on
condition of anonymity because of the sensitivity of the issue. 
    The quick reactions to the U.S. tariffs are possible because
 many large manufacturers have facilities in multiple countries
and can move at least small amounts of production without
building new factories. Some governments, notably in Taiwan and
Thailand, are actively encouraging companies to move work from
China.
    The United States imposed 25 percent duties covering $50
billion of Chinese-made goods in July, and a second round of 10
percent tariffs covering another $200 billion of Chinese exports
will come into effect next week. The latter rate will jump to 25
percent at the end of the year, and Trump has threatened a third
round of tariffs on $267 billion of goods, which would bring all
of China's exports to the United States into the tariff regime.
    The tariffs threaten China's status as a low-cost production
base that, along with the appeal of the fast-growing China
market, drew many companies to build factories and supply chains
in the country over the past several decades.
    At SK Hynix, which makes computer memory chips, work is
under way to move production of certain chip modules back to
South Korea from China. Like its U.S. rival Micron Technology,
which is also moving some memory-chip work from China to other
Asian locations, SK Hynix does some of its packaging and testing
of chips in China, with the chips themselves mostly made
elsewhere.
    "There are a few DRAM module products made in China that are
exported to the United States," said a source with direct
knowledge of the situation, referring to widely used dynamic
random-access memory chips. "SK Hynix is planning on bringing
those DRAM module products to South Korea to avoid the tariff
hit."
     Most of SK Hynix's production won't be affected, the source
added, since China's dominance in computer and smartphone
manufacturing makes it by far the largest market for DRAM chips.
    Toshiba Machine Co  6104.T  says it plans to shift
production of U.S.-bound plastic moulding machines from China to
Japan or Thailand in October. 
    The machines are used for making plastic components such as
automotive bumpers. "We've decided to shift part of our
production from China because the impact of the tariffs is
significant," a spokesman said.
    Mitsubishi Electric, meanwhile, says it is in the process of
shifting production of U.S.-bound machine tools used for metal
processing from its manufacturing base in Dalian, in
northeastern China, to a Japanese plant in Nagoya. 
    In Taiwan, an executive at notebook PC maker Compal, who
declined to be named, said the trade war's impact had been
limited so far, but the company was studying its options.
    "We can also use facilities in Vietnam, Mexico and Brazil as
alternatives," the person said. "It won't be easy because our
majority production is in China; no other country can replace
that at this moment."
    Smaller companies are exploring their options too. South
Korean medical equipment manufacturer IM Healthcare, which makes
products including air purifiers, is studying a move to Vietnam
or South Korea if the trade conflict intensifies, a source with
direct knowledge of the matter said.
    Some Asian governments hope for an economic and strategic
boost from the U.S.-China conflict. In Taiwan, the government is
actively encouraging companies to move production out of China,
pledging last month to speed up its existing "Southbound Policy"
to reduce economic reliance on China by encouraging companies to
move supply chains to Southeast Asia.
    Taiwan economics ministry official William Liu told Reuters
that the trade war was "a challenge and an opportunity" for the
self-ruled island. Taiwan depends on China as an export market,
he noted, but at the same time could see a boost in jobs from
companies moving operations back home.
    Thailand also hopes to benefit from the "flow of technology
and investment leaving China during the trade war", said Kanit
Sangsubhan, Secretary-General of the Eastern Economic Corridor
(EEC) Office of Thailand, which is coordinating a $45 billion
project to attract investment into the country. The EEC last
month took some 800 representatives of Chinese companies on a
tour around the eastern industrial heartland, and the country's
Board of Investment has done seven roadshows in China this year
to woo investors. 

 (Reporting by Ju-min Park and Heekyong Yang in Seoul and Makiko
Yamazaki in Tokyo; Additional reporting by Jess Macy Yu and
Yimou Lee in Taipei, Patpicha Tanakasempipat in Bangkok, Sankalp
Phartiyal in Mumbai and Fanny Potkin in Jakarta; Writing by
Jonathan Weber; Editing by Alex Richardson)
 ((Jonathan.Weber@thomsonreuters.com;))