The pandemic and the technological conflict between China and the United States are accelerating the transformation of China's manufacturing industry. In search of new markets and greater competitiveness, many Chinese companies choose to relocate to overseas destinations or to the western regions of the country.
In order to promote the development of inland provinces, China is actively encouraging manufacturing enterprises in coastal provinces to diversify and move some of their production to inland areas. Since 2010, the state has issued a series of guidelines to encourage the relocation of eastern coastal cities to the central and western regions. The goal is to promote coordinated regional development, accelerate the process of industrialization and urbanization in inland areas, and promote the economic upgrading of the eastern region.
At the same time, a series of policies have been implemented in inland areas to attract manufacturing companies to relocate to their areas. These include subsidies, tax incentives, simplified approval procedures, guaranteed labor supply, and various cost-reduction measures.
China's central and western cities, such as Chengdu and Kunming, offer a number of advantages that make them attractive destinations for industrial relocation. Low wages in these areas reduce the production costs of enterprises and enhance the overall competitiveness of enterprises in the global market.
In addition, China's average number of years of education exceeds that of many overseas countries that could serve as another manufacturing base. China's workforce demonstrates a high level of technological proficiency and industry knowledge, providing a competitive advantage, especially in the production of complex products.
Inland cities have large and thriving consumer markets, contributing nearly half of China's GDP. The scale of their economies and growing middle class offer attractive opportunities for businesses.
The well-developed infrastructure of inland cities, including efficient transportation, reliable telecommunications, and a stable power supply, ensures smooth operations and logistical efficiency for manufacturing businesses.
Finally, Chinese mainland cities are known for their complete industrial supply chains, developed industrial ecosystems and well-established industrial support networks, which provide enterprises with the necessary resources and services.
Recognising the strategic imperative to reduce dependence on the domestic market or production, relocating factories abroad, especially to ASEAN countries, has also become an increasingly attractive option for Chinese companies.
ASEAN countries enjoy strategic geographical advantages. Numerous ports are easily accessible by sea, strengthening ties and connections with the global market. In addition, many ASEAN economies have low labor costs, making them attractive destinations for labor-intensive industries.
The expansion of the middle class in Southeast Asia and its growing purchasing power has also sparked interest in multinational corporations to establish production hubs in these countries, allowing them to move closer to consumer demand.
Since 2010, China's outward FDI in ASEAN has grown steadily, and Chinese companies are increasingly taking advantage of ASEAN's potential in terms of competitiveness in the global market. This expansion spans a variety of sectors, including advanced industries such as electronics, batteries, auto parts, and semiconductors, as well as service industries such as e-commerce and hospitality.
However, whether to eventually move to the interior of Chinese mainland or ASEAN countries depends on the unique characteristics and market dynamics of the industry. Industries that target the domestic market, have strong industrial support, and a skilled workforce tend to migrate to Chinese mainland cities. Industries focused on overseas markets with a large or fast-growing middle class may prefer to relocate to ASEAN economies with low labour costs.
Taken together, the trend of Chinese companies strategically relocating to inland cities or expanding into ASEAN reflects a broader global pattern observed in advanced economies such as the United Kingdom, Germany, the United States, Japan, and South Korea.
As the global market landscape continues to evolve, the strategic choices Chinese companies make in response to market forces, technological advances, or trade relationships will determine their success on the international stage.