To survive trade battles, China manufacturers deploy every weapon they can
Discounts to foreign customers among the strategies traders employ
Guangzhou — Manufacturers in China facing trade barriers are deploying an array of moves to try to keep foreign customers —giving discounts, tapping tax breaks, trimming workforces and, occasionally, shifting production overseas to skirt tariffs.
Tit-for-tat tariffs from the China-US trade war have been costly for many. Adding to the strain on Chinese manufacturers have been EU duties on Chinese products ranging from electric bikes to solar panels.
March brought some encouraging news for manufacturers. Industrial output rose at its fastest rate since mid-2014 and exports rebounded more than expected, while first-quarter growth was better than expected.
Still, some manufacturers who depend on US sales are struggling. At the Canton Fair in southern China last week they put on a brave face, but feared they will need to take more measures to survive if Beijing and Washington fail to seal a trade deal.
The Botou Golden Integrity Roll Forming Machine firm lost some US customers when tariffs pushed up prices for its machines making light steel girders and bars for building frames, according to Hope Ha, a salesperson. It now offers an 8% discount as a sweetener.
“We have to give discounts because they pay high tariffs,” said Ha.
Ball-bearing maker Cixi Fushi Machinery gave long-term customers a 3%-5% discount, according to representative Jane Wang. But that was not enough, so the company suspended a product line generating $30,000 monthly revenue, she said.
“We will wait for the agreement and then we will see again,” she said. Now, the focus is on its main market, the Middle East.
Some have been able to pass along increased costs.
California-based ACOPower has increased prices about 10%-15% on some of its made-in-China, solar-powered refrigerators, said founder Jeffrey Tang. “We have no choice,” he said. “We must increase the price.”
Tang says his portable fridges cannot be made affordably in other countries. But if there is no trade agreement, and tariffs rise, the equation could change. “Maybe I’ll just ship all the components to Vietnam to do the assembly,” Tang said.
Aufine Tyre rented and filled a warehouse in 2018 in California in anticipation of antidumping duties, which were later imposed. In another move to circumvent tariffs, it will soon open a plant in Thailand to make tyres. Jane Liu, a sales manager, said Aufine plans to send 50 containers a month from Thailand, with 220-240 tyres in each, and later expand.
Some companies at the fair cheered Beijing’s move to trim China’s value-added tax to 13% from 16% at the start of April, and its pledge of tax rebates for exports.
“Things like this give us some protection, or else we would suffer losses,” said Wills Yuan, a salesman at Ningbo Yourlite Import & Export in Shenzhen, which produces LED lights.
Shenzhen Smarteye Digital Electronics, a maker of surveillance cameras, which are not on the US tariff list, was able to drop prices because of the tax break, according to sales manager Simple Yu. “We save a lot on costs, so we can sell at a low price,” he said.
But Smarteye has worries, including increasing rent and labour costs that led it to trim its workforce.
Yu said he is concerned about the trade war’s potential effect on the yuan-dollar exchange rate. “Before it was 6.9 per dollar, now it’s 6.7 per dollar. We worry that it will go to 6.5.”
Electric bike makers have reacted nimbly to European antidumping duties of between 18.8% and 79.3% imposed in January. Many have started assembling some bikes in Europe; Zhejiang Enze Vehicle does so in Poland and Finland.
“We take the battery, frame, and the other parts, package them up separately and send them over to be assembled by partners,” said sales representative Dylan Di.
Anhui Light Industries International, which makes products ranging from plastic protractors for mathematics to movie theatre popcorn cups, says it has lost more than 1-billion yuan ($149.2m) after US President Donald Trump raised import taxes.
Still, company representative Han Geng is optimistic the trade war will get resolved. “It’s not good for America, not good for China,” he said, expressing the view that Trump knows the trade war is hurting business and “he will end it”.
When that day comes, Han said, we will sell to America again. We need to make money. Everybody loves money.”