US reducing reliance on China forces Hong Kong exporters to sever some local, mainland ties over ‘unwritten rules’, boycott threats: industry leaders
- Hong Kong firms in Vietnam say US asking them to register their company in Singapore, and nominate representative from city state
- But some brush off such requests, as well as demands to cut use of raw materials from mainland China, saying impact of decoupling still limited
A push by the US to drastically reduce its reliance on mainland China has forced Hong Kong exporters to sever some ties at home and over the border, with firms also cutting down on imports of raw materials due to threats of boycotts, industry leaders have told the Post.
But a shippers’ organisation said moves to diversify away from the country would not be easy, as it was an integral part of the global supply chain and difficult to replace. Amid the disruption, manufacturers and brands both locally and abroad said they had to face new business realities, some of which required overhauling operations.
Dennis Ng Kwok-on, vice-president of the Chinese Manufacturers’ Association of Hong Kong, told the Post that the United States had started to ask local exporters who recently moved operations to Vietnam to register their companies in Singapore, and designate a representative from the city state.
“There are some unwritten rules for the companies which newly set up shop in Vietnam – they are not allowed to register their operation in Hong Kong or mainland China,” he said in an interview last week. “They must do it in Singapore with a Singaporean designated representative.
“If these new entrants register their firms on the mainland or in Hong Kong, they will not get any orders from the US and will be totally boycotted.”
Foreign investment has poured into Vietnam in recent years.
After enduring three years of strict Covid-19 restrictions, mainland and Hong Kong companies have been among those setting up operations in the southeast Asian country, including Growatt, a Shenzhen-based power storage firm, and Hangzhou First Applied Material, a solar panel component maker.
But US buyers had reduced orders by 60 per cent in Vietnam in the face of economic belt-tightening, high inflation and high interest rates in the country, Ng said.
The pullback comes as Hong Kong’s exports suffered 17 consecutive months of decline up to September, with an 11 per cent contraction recorded during the first 10 months of the year compared with the same period in 2022.
The gloomy streak was finally broken in October, when exports grew by 1.4 per cent compared with the same month last year. Before that, exports last recorded year-on-year growth in April 2022.
But authorities have warned that challenges will persist amid heightened geopolitical tensions.
The export figures cast a shadow over Hong Kong’s gross domestic product, which the government estimated would grow by 3.2 per cent this year compared with 2022, missing its earlier forecast of 4 to 5 per cent.
Willy Lin Sun-mo, chairman of Hong Kong Shippers’ Council, said Washington’s tougher stance on decoupling started a few years ago when city exporters were told to cut down on made-in-China components or raw materials in their products.
“The US has demanded the city’s exporters to reduce made-in-China components to below 40 per cent by 2026-27 if they want to receive orders,” Lin said.
“But a lot of companies have said it is difficult to source raw materials outside the country, as processing of raw materials such as integrated circuit chips and yarn causes serious pollution, such as water pollution,” he said. “Many Asian countries don’t take part in this kind of production.”
Lin said he believed US buyers would eventually back down as there were no viable alternatives.
“China is irreplaceable in terms of producing raw materials with a very stable supply chain,” he said. “Eventually the buyers will be forced to explain to their country that they will have to make concessions.”
Referring to requests for Hong Kong operators in Vietnam to register their companies in Singapore, he said the impact was very limited.
“Its decoupling impact is not critical at all,” Lin said. “If an operation is backed by Hong Kong investors, the profits will eventually go into their pocket no matter where they register their companies.”
Steve Lamar, president and CEO of the Washington-based American Apparel and Footwear Association that represents more than 1,000 global brands, said US companies were carrying out the largest sourcing diversification process in a generation to prevent being dragged into the geopolitical tensions.
“Although there is no single target number, US apparel, footwear and travel goods companies continue to diversify their sourcing [away] from China and other traditional suppliers to de-risk and build resilient supply chains,” he told the Post.
“As part of that strategy, [the association] has been advocating for more predictable and smart trade policies and programmes to support investment in and sourcing from Central America and the Caribbean, Africa and the United States.”
But Lamar emphasised that as China would remain an important partner and market, US firms should ensure they followed responsible purchasing and production practices in the country.
“It is also important to stress that with China continuing to be a large producer and consumer of fashion, it will be at the forefront of any successful efforts to ensure that the industry meets science-based decarbonisation goals to combat climate change,” he said.
But Louis Chan Wing-kin, deputy director of research at the Trade Development Council, described the shake-up as “labour pains” for exporters forced to reconstruct their supply chains.
“There’s no cause for concern,” he said. “I would not call it decoupling from China but just some kind of strategic reshuffling of the global supply chain.”
Chan pointed out that firms could enter the US market under the North American Free Trade Agreement by establishing a presence in Mexico.
“There are many flexible ways to conduct business and resolve the issue of geopolitical tensions,” he said.
“For example, some firms have moved part of the production processes to Asean countries or set up shop in Mexico to break into the international market.”
