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China’s belt and road may accelerate exit of manufacturing to Vietnam and India, researchers warn (South China Morning Post)

April 23, 2019

From the article:

The trade war with the United States coupled with the “Belt and Road Initiative” has the potential to add further pressure to China’s sluggish economy and debt pile, according to researchers, as the benefits of manufacturing in the mainland decrease.

China’s manufacturing industry has already been hit by the US trade tariffs, in particular, the smaller exporters who are the most vulnerable to slowing demand and slimmer margins in the face of competition from low-cost alternatives including Vietnam and India.

Many of China’s competitors in Southeast Asia have already joined the belt and road plan to grow global trade, meaning the manufacturing situation in the mainland is likely to get worse, the researchers said, as investment in the initiative may speed up the exit of low to mid-end production from China to the likes of Vietnam and India despite the benefits of better infrastructure and supply chain.

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Washington has heavily criticised the belt and road plan, warning of the danger of debt traps and threats to national security that the project has brought. But even with the risk of rising tensions with the US and to its own economy in the short term, China is unlikely to give up the plan, researchers said.

“The Trump administration’s stance toward the initiative has been consistently critical, and I don’t expect that to change no matter what happens with the trade negotiations,” said Scott Morris, senior fellow at the Centre for Global Development and director of the US Development Policy Initiative.

“However, to the degree tariffs are contributing to a slowdown in China, they could indirectly slow the pace of investment under belt and road.”

 

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Photo of Scott Morris
Senior Fellow, Director of the US Development Policy Initiative