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Samsung is a Case Study in How Manufacturers Leave China

Visitors walk beneath a Samsung logo at the Mobile World Congress (MWC), the telecom industry's biggest annual gathering, in Barcelona on February 27, 2023. (Photo by Pau BARRENA / AFP) (AFP)

  • The company still has significant operations in China but its smartphone manufacturing business pulled up stakes years ago

“De-risking" is the latest buzzword describing Western governments’ strategy toward China. While it sounds less ambitious than “decoupling," the basic idea is similar: reducing reliance on China for manufacturing, especially for key technological goods.

Driven by both geopolitics and commercial needs, the trend seems likely to pick up further steam: Even Apple, the most visible beneficiary of the “made in China" phenomenon in the tech space, is starting to push its suppliers more aggressively toward India and other alternatives. But the practicalities of even a partial move away from China-based manufacturing are daunting.

Luckily there is at least one conspicuous example of a major high-technology company that has successfully relocated large parts of its production apparatus: Samsung Electronics, the global electronics giant and Apple’s smartphone rival.

WSJ

Samsung still has significant operations in China, including for its crucial memory chip business. But from a head-count perspective, it has been edging away from China for years. The company had over 60,000 employees in China in 2013 according to its 2014 Sustainability Report, but that number had fallen to less than 18,000 by 2021. Samsung closed its last smartphone factory there in 2019.

Lower labor costs in other Asian countries are a big draw. But geopolitics was probably also an important factor. In 2016 and 2017 Beijing and Seoul became embroiled in a major diplomatic spat over South Korea’s plan to host a high-tech U.S. missile defense radar system. In an early preview of the coercive economic tactics that China has employed against a widening range of countries in recent years, Beijing effectively forced the sale of Korean conglomerate Lotte Group’s China supermarket business and curtailed tourist visits to Korea.

One result is that as Apple and other big manufacturers increasingly scope out Vietnam and India, Samsung is already there in spades—which could add up to a significant competitive advantage given the difficulties of replicating China’s scale abroad. Vietnam, for example, has a population of around 100 million. But China’s Guangdong province alone has over 125 million.

Samsung is now Vietnam’s largest foreign investor. It accounted for nearly a fifth of the country’s total exports last year. The company has also invested big in India: the country accounts for around 20% to 30% of Samsung’s smartphone production, according to Morgan Stanley.

The fact that the world’s largest smartphone maker has managed to ditch China may offer some comfort for other companies looking to “de-risk." But Samsung’s success was also related to market factors that could be hard for Apple, for example, to replicate. Samsung’s smartphone market share in China was battered in the mid-2010s: Strong competition from Chinese companies like Xiaomi that make comparable Android smartphones with affordable prices was one major reason.

On the other hand, Samsung is the top-selling brand in India and Southeast Asia—meaning it can produce and sell a big chunk of its output in the same places. Apple, with its high prices and premium focus, could struggle to achieve that, especially in price-conscious India.

Another issue for both Apple and Samsung is that even if the final assembly of gadgets is moved outside of China, manufacturers will still depend on many suppliers there. During the height of the 2020 Covid-19 outbreak in China, Samsung also found itself scrambling to secure suddenly-scarce Chinese components. Chinese suppliers have moved rapidly up the value chain in recent years and now make many high-tech electronic components too.

Samsung’s success in relocating its smartphone business is instructive—but it also had a major first mover advantage and a product mix suitable to lower income Asian nations. Others will now try to follow in its footsteps, at least in part. But for Apple and many other top manufacturers, China will loom large in the global supply chain for a long time.

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International Edition

Samsung is no longer manufacturing phones in China

Samsung Galaxy Note 10+

What you need to know

  • Samsung has closed its last remaining smartphone factory in China.
  • The closure comes in response to stiff homegrown competition, rising labor costs, and the economic slowdown.
  • Production will be shifted to India and Vietnam.

Samsung has been losing ground in China for years now as homegrown brands, such as Huawei and Xiaomi, continue to rise. In what is another sign that China is a lost market for Samsung, the company has just officially shut down its last phone factory in the country .

Park Sung-soon, an analyst from Cape Investment & Securities, had this to say:

In China, people buy low-priced smartphones from domestic brands and high-end phones from Apple or Huawei. Samsung has little hope there to revive its share.

The news comes after Samsung initially reduced production at the factory in Huizhou last June and suspended another factory last year. A decrease in demand for Samsung phones is not the only reason Samsung has decided to close its last smartphone factory in China.

It also cites increasing labor costs and the economic slowdown. At the same time, smartphone sales have been on a downward trend globally for years now and that certainly played a factor as well. With its last phone factory in China closing, production has now shifted to more affordable countries such as India and Vietnam.

Samsung isn't the only one getting out of China though. Sony has also stated it will be closing its Beijing smartphone plant and using factories in Thailand instead. We also reported back in August that Google was moving its production of the Pixel smartphones outside of China to Vietnam citing the rising labor costs and tariffs as the reason.

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Dwindling Trade Highlights China's Shrinking Role as Workshop of the World

samsung is a case study in how manufacturers leave china

xPACIFICA / Getty Images

If you’ve seen fewer “made in China” labels on the products you buy, it’s no accident: trade between the U.S. and its biggest Asian trading partner has diminished as manufacturers have left China for friendlier shores.

Key Takeaways

  • China is slipping behind Mexico and Canada as the No. 1 U.S. trading partner in goods, new data shows.
  • Trade wars and "friendshoring" policies intended to encourage high-tech manufacturing in the U.S. have taken their toll on trade between the world's two largest economies.
  • Companies have sought to "de-risk" by moving production of consumer electronics and other goods to Vietnam, South Korea, Taiwan, and Malaysia.

U.S. trade in goods with China totaled $44.6 billion in June, down from $46.6 billion in May, and far short of the $60 billion the same month in 2022 according to non-seasonally adjusted data released Tuesday by the Bureau of Economic Analysis. China was often the number one U.S. trading partner throughout the 2010s, but Canada and Mexico have traded the top spot since February 2022.  

The slumping U.S.-China trade in goods highlights how a number of trends have eroded China’s status as the “ workshop of the world ” and especially the source of products for U.S. consumers. The trade war started by former president Donald Trump in 2018 has taken its toll, as both sides have raised tariffs on one another’s goods. More recently, U.S. policy has encouraged businesses to move away from China, its political rival on the world stage, and towards countries that have closer ties to the U.S., a strategy called “friendshoring .” 

For example, the CHIPS Act, signed in 2022 , subsidized domestic production of computer chips while restricting exports to China. Meanwhile, some manufacturers have moved production away from China and to other Southeast Asian countries. Among them: electronics giants Apple ( AAPL ) and Samsung, which both moved some production to Vietnam in 2022, and toymaker Hasbro ( HAS ), which shifted to Mexico, the U.S., India, and Vietnam in 2019, according to press reports. Companies have left China in an effort to “de-risk” their operations, according to Mark Hopkins, an economist at Moody’s Analytics who studies trade. “There are opportunities to essentially diversify the portfolio, so not everything is going to be produced in one country,” Hopkins said. “There's a combination of better comparative cost favoring some of these other countries than maybe five or 10 years ago, together with this notion that even if it's not a lower cost center, there may be fewer risks associated with sourcing all of your imports from plants in Vietnam than in China.”

Business leaders may also view China’s government as more heavy-handed than other nations competing for factory sites.

“There are always going to be risks associated with doing business in a country that is not 100% democratic and open,” Hopkins said. “They’re essentially just an autocratic government that can shift policies on a whim.”

Vietnam, South Korea, Taiwan, and Malaysia have all benefited from the downturn in U.S.-China trade. American imports from those four countries combined, once overshadowed by China, have nearly caught up according to Tuesday’s trade data. 

To be sure, some of the slump in China trade may be a hangover from the pandemic—trade surged in 2021 and 2022 as global supply chains recovered from their pandemic disruptions, and some of the decline of imports is probably just a reversion to normal patterns, Hopkins said. U.S.-China trade is likely to stabilize and slow down gradually but not plunge, Hopkins predicted.

“Ultimately, I have a positive outlook overall for U.S.-China trade because as the two largest economic superpowers, I think there's going to be a shared need to manage the global economy, and have the view that trade is a positive sum game, not zero-sum … but that’s more of a long-term outlook. In the short term, it’s still very much clouded by geopolitical uncertainty.”

Bureau of Economic Analysis. " Balance of Trade. "

Bureau of Economic Analysis via Federal Reserve Economic Data " U.S. Imports of Goods by Customs Basis ."

CNBC. " Hasbro CEO says moving out of China has ‘gone very well for us .'"

Wall Street Journal. " Samsung Is a Case Study in How Manufacturers Leave China ."

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Samsung is a case study in how manufacturers leave china.

“De-risking” is the latest buzzword describing Western governments’ strategy toward China. While it sounds less ambitious than “decoupling,” the basic idea is similar: reducing reliance on China for manufacturing, especially for key technological goods.

Driven by both geopolitics and commercial needs, the trend seems likely to pick up further steam: Even Apple, the most visible beneficiary of the “made in China” phenomenon in the tech space, is starting to push its s... [Short citation of 8% of the original article]

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Samsung prepares for a Chinese exit - to relocate TV production

Smartphones are already out

samsung is a case study in how manufacturers leave china

China's consumer electronics related supply-chains appears to be losing its sheen in the post-Covid-19 world. Samsung and arch-rival Apple initiated the shift of shifting their smartphone manufacturing to other locations. The South Korean tech giant is now following it up by moving its only TV making facility out of of Tianjin. 

Reports in the South Korean media suggests that Samsung could soon shut down its only manufacturing factory in Tianjin before end-2020. Nikkei Asian Review , said production could shift to Samsung's facilities located in Vietnam, Mexico, Egypt, Hungary and possibly to newer destinations as well. 

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However, the electronics giant has clarified that there would be no slowing down of the current production from the Tianjin unit. Nikkei quoted company officials to state that the move was part of a greater trend of businesses shifting supply chains out of China. 

Samsung's arch-rival Apple has already stated that it intends to shift smartphone manufacture completely out of China, having already announced that its upcoming flagship iPhone 12 could be made out of India. Apple's manufacturers have visibly enhanced their Indian operations over the past couple of months. 

What's driving Samsung's move?

In recent times, Samsung, which has been the world's top seller of flat-screen TVs, lost market share in China due to rising local competition as well as local reactions to South Korea's decision to deploy anti-missile shields despite Beijing's objections. The growing anti-China sentiment further exacerbated Samsung's decision to shift out. 

The company started manufacturing television from Tianjin close to 27 years ago. In recent times, the company downsized its operations considerably with just about 300 people working there now. Samsung would be reassigning these workers to other facilities or help them find alternate employment, says the report. 

Whatever your entertainment fix is, our 2020 #QLED line-up is ready.Check the thread to discover whether the Q60, Q70, Q80, or Q90 suits your needs best.#SamsungQLED #SmartTV pic.twitter.com/5Jyg95EoBR August 27, 2020

The Indian option is open

The production from this factory could shift to other geographies with India already on the radar for the electronics giant. In June, the company had indicated that it will be making more than 85% of its TVs sold in India locally. Both Samsung and OnePlus had partnered with Chinese firm Skyworth to make TVs at their Hyderabad facility, operated under a joint venture with an Indian partner. 

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A report in the Economic Times had also claimed that Samsung had deepened its association with its Indian contract manufacturer Dixon Technologies to expand its range of TVs in India to include 43-to-58 inch models. Till now, Dixon was making only televisions in the 32-43 inches range. 

Readers would recall that Samsung had exited TV production in India in 2018 after the federal government imposed additional duties on open cell TV panels that led to Samsung importing finished televisions from Vietnam at zero duties through the free trade agreement route. 

In 2019, these additional duties on open cell panels were brought back to zero. Given that open cell panels account for close to 70% of a TV's manufacturing cost, Samsung's shift back to India is understandable in the present context where it's need to exit from China is supplemented by India's open door policy. 

India has witnessed large scale action on the TV manufacturing front with some of Samsung's top rivals including LG , Sony , Panasonic , Xiaomi and OnePlus, joining the bandwagon of making in India. 

  • In case you missed: The top-tech stories of the week-ending September 12

A media veteran who turned a gadget lover fairly recently. An early adopter of Apple products, Raj has an insatiable curiosity for facts and figures which he puts to use in research. He engages in active sport and retreats to his farm during his spare time. 

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Aarian Marshall

Biden Is Trying to Buy EVs Time With New Tariffs on China. It Might Not Work

Aerial view of BYD vehicles waiting for shipment

Today, the Biden administration announced a near-unprecedented 100 percent tariff on Chinese-made electric vehicles , a move the White House said would protect the American industry from “unfairly priced Chinese imports.” Previously, tariffs on Chinese EVs sat at 25 percent.

Electric vehicle batteries and battery components will also be subject to new tariffs—Chinese lithium-ion battery tariffs rise from 7.5 percent to 25 percent, and rates for Chinese critical minerals, including manganese and cobalt, will move from 0 percent to 25 percent.

The move, just the latest in a flurry of actions taken by the Biden administration against Chinese vehicles and their components, comes at a delicate time for the US electric vehicle industry, which lags behind China not only in vehicle price but quality.

China’s lead in electrics, experts say, stems from years of investment in vehicle software, battery, and, critically, supply chain development. BYD , which briefly overtook Tesla as the world’s top EV seller last fall, has been manufacturing electric vehicles since 2003.

Meanwhile, the prospect of catastrophic global climate change hangs not only over the US auto industry, but the entire world. Motor and diesel fuel consumption in the US transportation sector accounted for nearly a third of the country’s energy-related carbon dioxide emissions last year, according to the US Energy Information Administration.

The tariffs reflect the US government’s unfortunate bind: It hopes to rev up sustainable energy sources while tamping down on imports from a country that happens to produce sustainable energy sources very well.

The tariffs are also meant to start the clock on the US’s own domestic electric vehicle development, which will need more and cheaper electric cars , but also the batteries and battery supply chains to make them go.

Or, maybe not start it. “The clock started 10 years ago, and we’re behind. We’re way behind,” says John Helveston, an assistant professor in engineering management and systems engineering at George Washington University who studies electric vehicle development and policy. The tariffs, he says, will not insulate the US against competition from Chinese cars forever. “They’re not going to make us better at making things.”

Will the effort work? In a written statement, John Bozzella, president and CEO of the US’s main auto lobbying group, the Alliance for Automotive Innovation, was sanguine: “US automakers can outcompete and out innovate anyone on the EV transition,” he said. “No doubt about that. The issue at this moment isn’t the will … the issue is time.”

But even with more time, the future will be complicated. Automakers and auto suppliers selling in the US will have to figure out how to stay afloat even as they continue to pour billions into electric vehicle and battery development. And while US electric vehicle sales are going up, their growth has slowed .

Meanwhile, another influential US policy, the Inflation Reduction Act , directs billions to building up domestic supply chains for electric vehicles and other renewable energy sources. But those efforts could take years.

“The administration is trying to walk a line,” says Susan Helper, a professor of economics at Case Western Reserve University, who worked on electric vehicle policy in the Biden administration. “One goal is a strong auto industry with good jobs and clean production methods, and the other is fast action on climate change. In the long-term, they're consistent with each other. In the short term, there's conflict.”

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An example of the complex nature of the problem ahead: Just last week, the Biden administration said it would allow car buyers to get up to $7,500 in tax credits on electric vehicles even if they contained Chinese-mined or processed graphite through 2026. The decision, a reversal in policy that extends the deadline for automakers to eliminate Chinese graphite by two years, was a concession to US automakers’ insistence that they couldn’t meet the aggressive timelines of the original policy.

But as a result, US electric vehicle policy amounts to “stomping on the gas and the brakes at the same time,” says Helveston, the EV researcher. “We’ve made it hard to source” electric vehicles and their components, he says. Now, unless something changes, global automakers outside of China may have to learn to build the technology by themselves.

It's unclear whether the tariffs will do much in the short term to protect US automakers' business abroad, in places where Chinese EVs have already made serious inroads. The White House noted in today's announcement that China's exports of electric vehicles grew by 70 percent between 2022 and 2023. The majority of those vehicles have gone to the European Union and other European countries, including Albania, Ukraine, and the UK. The European Commission last fall opened its own probe into Chinese subsidies of electric vehicles.

But even European automakers aren't unified against Chinese imports. Last week, BMW and Volkswagen executives warned that EU tariffs might backfire by forcing the Chinese to retaliate. (China is BMW's second-largest market.)

Earlier this year, Mercedes-Benz CEO Ola Källenius argued the EU should lower , not raise, tariffs against Chinese electric vehicles to push other automakers to compete, saying that an open market will be far more likely spur European firms to improve.

The tariffs will not have much of an immediate effect on the US car market, because China does not currently export many electric vehicles to the US. But specific models, including BYD’s electric Seagull sedan and Sea Lion SUV, could pique the interest of EV-curious buyers, who may be attracted to the vehicles’ $12,000 and $26,000 sale prices—less than half of the $62,590 that US consumers paid for the average electric vehicle transaction in March.

And, of course, any protection afforded US makers by domestic tariffs on Chinese EVs will not aid manufacturers in a global market. Last year, Ford sold nearly 2 million vehicles in the US, less than half its global sales.

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How China Rose to Lead the World in Cars and Solar Panels

Heavy subsidies for industry, together with weak sales in China, have set the stage for an export boom, raising fears of factory job losses elsewhere.

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People standing inside a car factory on the production line.

By Keith Bradsher

Reporting from Beijing

For decades, China has moved methodically to dominate ever more industries, from toys and clothing in the 1980s to semiconductors and renewable energy today. China now produces a third of the world’s manufactured goods — more than the United States, Germany, Japan, South Korea and Britain combined. Its trade surplus in these goods is equal to a tenth of the entire Chinese economy.

And those exports keep increasing, causing alarm about China’s manufacturing “overcapacity” among its biggest trading partners. Top leaders in the United States and Europe have begun calling on China to dial back how much it sells to the world, and to increase its imports. On Tuesday, President Biden raised U.S. tariffs sharply on imports from China of electric cars , solar panels and other high-tech manufactured goods.

China’s industrial policies had a consistent focus.

Almost a decade ago, China launched an ambitious program called Made in China 2025 . The plan was for China to replace key imports in 10 advanced manufacturing industries by making its own products. The state-controlled banking system directed loans to those key sectors.

Fast forward 10 years, and China’s domestic economy is hurting mostly because of a housing market crash. Leaders in Beijing have ordered increased lending for many of the same manufacturing sectors to compensate for slower consumer spending, and are stepping up exports.

For China’s economic policymakers, the strategy is familiar.

It works like this: Regulators restrict the investment options of Chinese households, which have little choice but to deposit enormous sums of money into banks at low interest rates. The banks then lend the money at low rates to start-ups and other businesses. According to China’s central bank, net lending for industry swelled to $670 billion last year from $83 billion in 2019.

Beijing instructs local governments to help the chosen industries. The assistance takes the form of cheap land for factories, new highways for freight trucks, bullet train lines and other infrastructure.

The Kiel Institute for the World Economy in Kiel, Germany, calculated in a study that more than 99 percent of Chinese companies whose stock traded publicly received direct government subsidies in 2022.

China keeps factory wages low, which helps the competitiveness of its manufacturers. Residence permits limit the ability of rural families to move permanently to cities, where they would qualify for better job benefits. Independent labor unions are barred, and would-be organizers are detained by the police.

Those programs have helped China grow in many industries, fanning fears in the United States and elsewhere that factory jobs could be lost. American tariffs are now targeting exports in some of China’s largest and fastest-growing industries.

Car exports rose fast.

The auto sector is a prime example of how China has been able to move so fast to gain manufacturing dominance.

Just four years ago, China was a weakling in car exports, shipping one million low-priced cars a year mainly to less affluent markets in the Mideast and elsewhere. China has since surpassed Japan and Germany by a wide margin to become the world’s largest car exporter. Shipments are running at an annual pace of nearly six million cars, sport utility vehicles, pickups and vans.

Three-quarters of these exports, particularly to Russia and to developing countries, are cars with gasoline engines, which fewer buyers in China want. Battery electric cars are cheaper to buy in China, and electricity to charge them is cheaper than gasoline.

China’s top leaders have heavily subsidized the research and production of battery electric cars for the past 15 years .

Companies are ramping up their manufacturing of battery electric cars and building a fleet of ships to export them to distant markets, particularly in Europe. Automakers are introducing 71 models of electric cars in China this year, many of them loaded with advanced features and selling for less than comparably equipped cars in the West.

China now leads in producing electric car batteries.

China started off far behind the West in electric car batteries — and Chinese officials knew it.

By 2011, Beijing had begun requiring Western companies to transfer key technologies to operations in China if they wanted consumers in China to receive the same subsidies for imported electric cars that were being offered for cars made in China. Without the subsidies, automakers like General Motors and Ford Motor could not compete with electric cars made in China.

Multinational automakers responded by pressuring their South Korean suppliers, which at the time led the electric car battery industry to build factories in China. Beijing went further in 2016 and declared that even electric cars made in China would qualify for consumer subsidies only if they used batteries from factories owned by Chinese companies . Even automakers like South Korea’s Hyundai abandoned the Chinese factories of South Korean battery manufacturers and switched their contracts to Chinese battery companies like CATL.

Chinese companies now produce the majority of the world’s electric car batteries. Technological breakthroughs over the last several years have meant the cars can achieve greater range.

According to a new report from the Atlantic Council, a research group in Washington, China’s exports of lithium-ion batteries leaped to $65 billion last year from $13 billion in 2019. Nearly two-thirds of these exports went to Europe and North America. Much of the rest went to East Asia, where the batteries are often assembled into products that end up being sold to Europe or North America.

China turned to solar to reduce reliance on oil imports.

China has long made solar panels a top priority to limit its dependence on imports of oil and other fossil fuels along sea lanes controlled by the United States or India, another geopolitical rival. A tenfold expansion of China’s solar panel manufacturing capacity from 2008 to 2012 caused the world price of solar panels to drop about 75 percent. Many American and European factories closed.

Three of China’s largest solar panel producers suffered financial collapses of their own as prices plunged, saddling banks with losses on loans. Smaller rivals in China were able to buy their factories for fractions of the original construction cost. This second generation of companies was then able to make panels more cheaply and invest in cutting-edge research.

Chinese companies make almost all of the world’s solar panels. The country’s exports of solar cells, which the Biden administration is raising tariffs on, have more than doubled in the past four years, to $44 billion last year. China is ramping up twice as fast its exports of solar wafers, a key component.

U.S. limits on chips promoted a China shift.

Export controls by the United States have limited the sale to China of the most advanced semiconductors, which make up about 5 percent of the market, and the technologies to manufacture them. But Chinese companies, benefiting from enormous government subsidies, have become more competitive in the other 95 percent of the market.

The chips made by China are used in a range of equipment in the West, including many cars. Even gasoline engines in cars are controlled by semiconductor often made in China.

Why is the West acting now?

The November election has put political pressure on President Biden to show that he is taking a tough stand toward China .

Trade issues have also become enmeshed with security concerns. Russia’s war in Ukraine is showing that wars may be decided in part by which side can make more drones, artillery shells and vehicles.

China contends that its rising trade surpluses are the legitimate result of the competitiveness of Chinese companies.

Jorge Toledo Albiñana, the European Union’s ambassador to China, disagreed. “In Europe,” he said in a speech last week, “there is increasing pressure to react to what is widely seen as a worsening lack of level playing for our companies and investors.”

Keith Bradsher is the Beijing bureau chief for The Times. He previously served as bureau chief in Shanghai, Hong Kong and Detroit and as a Washington correspondent. He has lived and reported in mainland China through the pandemic. More about Keith Bradsher

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