Chinese firms are choosing to invest in countries beyond the US, in particular Vietnam and Mexico, in response to growing restrictions on trade with the world’s largest economy.
Record rates
That’s according to a report by the FT based on FDI Markets data, which also suggested that Thailand, Malaysia, Egypt and Hungary are receiving investment from China in manufacturing and infrastructure projects at higher levels than ever before.
A total of 41 manufacturing and logistics projects by Chinese firms were announced for Mexico in the year up to March 2024, and 39 for Vietnam. These are the highest rates noted by FDI Intelligence since it began recording data on foreign direct investment (FDI) over 20 years ago.
Numbers up
In the years from 2017–2023, Chinese exports to Mexico and Thailand also more than doubled, reaching US$158.7bn. This significantly outpaced China’s overall rate of exports, which grew 49%.
Exports of Chinese computer components to Vietnam tripled to $1.7bn in the same period, according to Chinese customs data.
Speaking to the FT, the Eurasia Group consultancy firm said that Chinese companies were increasingly sending their goods to the US via Vietnam – resulting in a major boost to Vietnam’s trade surplus with the US. This boost has also been supported by a shift in production away from China.
Price warning
This follows the announcement of further tariffs on Chinese goods in the US, where President Joe Biden has raised the tariff on Chinese electric vehicles (EVs) to 100%, while also imposing more stringent terms on the trade of semiconductors and other advanced manufacturing goods.
S&P Global warned at the end of last week that the restrictions could “carry an unwelcome consequence: higher prices and a heightened probability of higher-for-longer interest rates”. Higher tariffs, it added, “are likely to feed through to higher prices, complicating central bankers' decisions”.
