Despite the coronavirus crisis and trade war, factories have good reasons to stay in China

The Covid-19 outbreak is holding up production in parts of China, and making relocation a more concrete possibility. However, China’s logistics infrastructure and huge consumer market give it advantages over other production locations

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An employee wearing a face mask works on a production line at a textile factory in Haian, Jiangsu province. Photo: Reuters

Published: 9:00pm, 21 Feb 2020Updated: 10:22pm, 21 Feb 2020

Moving house is a pain. So imagine how it feels to be moving a factory with millions of dollars’ worth of equipment to another country will different tax and other regulations.

Talk of multinational companies moving their factories from China to another location has been going on for some time. The Covid-19 outbreak has made this discussion more urgent, as companies in China struggle to restart production, with workers unable to travel back to workplaces in large parts of the country, much less get Chinese-made components delivered to factories around the world. CEOs might have to rethink their supply chain strategy.

Moving production out of China is not a new subject. Labour costs in the country, including wages and social security contributions, have risen in recent years. Hence, some labour-intensive manufacturing operations have already relocated to countries with a plentiful supply of workers, including Vietnam, Indonesia, Bangladesh and Sri Lanka.

Despite this relocation, China remains the largest exporter of textile and clothing, according to the World Trade Organisation. It accounted for about one-third of the textile and apparel trade in the world in 2018.

The trade war between China and the United States has accelerated the relocation, because of the tariffs’ impact on a broad range of products.