Trade war forcing 93 per cent of Chinese companies to transform supply chains, survey shows

A vast majority of companies in China are being forced to reconsider their supply chain and production functions due to the trade war with the United States, a new survey has found.

In a poll conducted by the law firm Baker McKenzie, 93 per cent of Chinese companies were considering making some change to their supply chains to mitigate the effects of trade tariffs.

Of these, 18 per cent were considering a complete supply chain and production transformation, with 58 per cent making major changes. A further 17 per cent were making small changes in response to the trade war, with just 7 per cent making no changes at all.

The survey helps put a figure on a trend which has been well-reported, that companies are reconsidering their Chinese manufacturing bases to avoid the tariffs placed on US$250 billion of Chinese exports by US President Donald Trump.

In some cases, this might mean the closure of a factory in China, with production transplanted to another country, often in Southeast Asia, with Cambodia, Indonesia, Malaysia and Vietnam proving popular destinations for new production facilities.

However in other cases, it can involve a reallocation of production, where the manufacture of goods bound for the US moves to a country not affected by tariffs. The Chinese plant can then be redesignated to produce goods bound for countries that do not place tariffs on Chinese-made goods.

“Many companies are still looking at moving the location of specific manufacturing steps that affect the country of origin of an article. If possible, companies often try to do this within their existing global manufacturing footprint, but some are entering into relationships with new suppliers or are breaking ground on new facilities,” said Jon Cowley, senior international trade partner at Baker McKenzie in Hong Kong.