Chinese enterprises are going to sea

Author: Taylor, Editor: Xiaoichi Mei

Chinese cars are going to sea and are working at full speed.

According to the China Association of Automobile Manufacturers, vehicle exports from January to April totaled 1.827 million units, reflecting a 33.4% y/y increase. Vehicle exports in April totaled 504,000 units, reflecting a 0.4% m/m increase and a 34% y/y increase. Exports of conventional fuel vehicles in April totaled 390,000 units, reflecting a 3.3% m/m increase and a 41.6% y/y increase. NEV exports totaled 114,000 units, reflecting a 13.3% y/y increase.

It's not just cars. In the more than 10 years since the beginning of the new century, Chinese enterprises have been enriching their globalization capabilities. In the new historical stage, grasping both ends of the smile curve, keeping the core technology in China, and transferring labor-intensive links such as assembly and production to foreign countries will be the new logic of China's manufacturing industry going overseas.

Vietnam, which is on the rise, has become the best "training ground" for Chinese companies to go overseas. 54% of Vietnam's machinery and equipment and parts, 52% of textile and leather raw materials, and 40% of mobile phone parts come from China.

Vietnam's labor costs are only about half of those of the Pearl River Delta, and it enjoys preferential taxes, foreign trade and electricity prices, and labor-intensive industries such as clothing, furniture, and small household appliances are gradually relocating to Vietnam. Vacuum cleaner leader Fujia plans to increase its production capacity in Vietnam from 1.2 million units to 1.5 million units by 2023.

In addition, Vietnam and China are separated by a strip of water, and the supply chain is close to each other, so it can respond quickly. At present, Vietnam cannot replace China, but it can undertake low-end assembly and production capacity, such as TCL's layout in Vietnam and India, which are basically assembly, and the core technology is still in China.

Haitian Precision's injection molding machines have accounted for more than 40% of the market share in Vietnam. On the surface, the product is "Made in Vietnam", but the core components are still produced in China.

At present, Vietnam, just like China in the early days of reform and opening up, a large number of multinational companies have relocated the industrial chain at the bottom of the smile curve such as assembly and production to China.

At present, such industrial migration is taking place between China and Vietnam.

Investing in India is a brave man's adventure game.

In terms of growth rate, India is the fastest growing country in the world, and this large South Asian country is also one of the most populous and dynamic economies in the world. But on the other hand, due to the consideration of the great power game, India's current attitude towards Chinese enterprises tends to be cautious.

From 2013 to 2019, there was a "gold rush" in India, and mobile phone companies such as Xiaomi, vivo, OPPO, and Transsion Holdings were the most typical. Since 2020, many Chinese companies have been overwhelmed by frequent "tax evasion" and "money laundering" scrutinies.

For example, the Indian government imposed a fine of 550 million yuan on Xiaomi for "tax evasion" and froze Xiaomi's assets in India to ensure that the fine was recovered. The same "trick" was also used on OPPO, believing that OPPO evaded 3.8 billion yuan in taxes, and its assets were also frozen.

vivo was subject to the so-called "money laundering" review, and its assets were also frozen, but then unfrozen because of vivo's lawsuit, but it was required to pay a deposit of 800 million yuan.

From the former gold rush to the current cold attitude. In the face of the rapidly changing overseas business environment, Chinese companies have begun to change their strategies.

First of all, the investment ideas of Chinese enterprises in India have begun to shift from asset-heavy to asset-light, from investment and factory establishment to technology export.

For example, in new energy industries such as photovoltaics, India is still in the stage of exchanging technology for market. After Chinese photovoltaic enterprises invest and set up factories in India, Indian factories have been able to realize the localization of supporting facilities such as brackets, but the core technology is still a "scarce product", and India will generally offer better conditions for cooperation in the field of core technology.

Second, companies that are already rooted in India have demonstrated resilience, quick response and operational smartness.

In the Noida area alone, there are Yingtong Communication, Holitech, Changying Precision, YUTO Technology, Xinwangda, Wingtech, Huaqin, Zowee Technology, Guanghong Technology and other enterprises. These companies have been deeply integrated into all aspects of the local industrial chain, lithium batteries, camera modules, wires, fingerprint modules, display modules, assembly foundries and so on.

Most of the nearly 10 million mobile phones that Xiaomi sells in India every quarter are assembled and produced locally. It can be said that the Indian smartphone industry chain has grown up under the cultivation of Chinese enterprises.

For companies that have just entered India or have not yet entered the Indian market, it is not impossible to stop losses in time, withdraw from India, or choose other countries to diversify risks. Previously, Honor and Huawei said that they would abandon the Indian market and choose the opportunity to enter Southeast Asian countries such as Indonesia or Vietnam.

At present, India is by no means the best choice to go to sea, but more like a difficult trial. However, the international situation is already turbulent and is destined not to be smooth sailing, and when encountering setbacks and changing ideas, the ability and coping strategies of Chinese enterprises to go overseas can be gradually improved.

There is a set of data that shows that China's industrial output is close to 30% of the world's, but China's market accounts for only 18% of the world's market, which means that China has to transfer 12% of its industrial output to the global market for digestion.

From the perspective of the process of division of labor and integration of the global industrial chain, European and American countries have transferred their manufacturing industries to China, and some of them have moved from China to Southeast Asia and India, following a step-by-step transfer strategy.

Chinese companies should also be forward-looking. The role of China's manufacturing industry in going overseas is changing from exporting products to exporting industrial capacity, from simply selling products to technical cooperation, from "snatching jobs" to integrating into the regional industrial chain.

For example, the core accessories and technologies of TCL, Haitian Precision, Lake Electric, Midea and other companies are in China, and Vietnam is only equipped. Of course, such an industrial choice is in line with the current economic strength of the two countries, and it is also a manifestation of win-win cooperation.

As Li Dongsheng, chairman of TCL, said, "The global industrial layout can also drive local exports, and don't separate going out from exports." Industrial globalization, the export of the industrial end at the same time, can drive the export of domestic core devices, materials, equipment, the cake bigger, our country's exports can naturally also pull. ”

In general, Chinese companies are no longer mere manufacturing plants, but "world resource integrators".

In the face of trade barriers, Chinese enterprises have changed their strategic direction, diversified their layout, avoided risks, and reshaped the global industrial chain in the vast overseas market. Vietnam and India are two typical microcosms of the nationalization of Chinese enterprises.

The global economic situation is constantly changing, and there are many differences in one country, one region, and one place at a time. The ability of Chinese enterprises to respond quickly and make proactive adjustments, as well as their resilience and wisdom, is an important sign of the maturity of their competitiveness.

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The content of this article related to listed companies is the author's personal analysis and judgment based on the information publicly disclosed by listed companies in accordance with their legal obligations (including but not limited to temporary announcements, periodic reports and official interactive platforms, etc.); The information or opinions contained herein do not constitute any investment or other business advice, and Market CapWatch disclaims any liability for any actions resulting from the adoption of this article.

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