Offshore manufacturing and logistics are critical to the success of many businesses, but trade policies and regulations can have a real impact on the way these are managed.
In this article, we’ll explore how China’s trade policies and regulations affect offshore manufacturing and logistics, and how your business can ensure its success in this regulatory environment.
By offshore manufacturing, we mean starting or transferring the production or assembly of your company’s products to another country. Offshore logistics entails contracting with third-party logistics providers in other countries to enable your business's offshore supply chain.
For most manufacturing companies seeking to expand, offshoring manufacturing and logistics to China, long considered “the world’s workshop”, is an essential step to maximize growth.
There are a number of reasons for this. To start, China offers highly skilled workers at much lower labour rates. These savings are then further enhanced by the country’s economies of scale and increasing adoption of complementary automation and technology, which allow it to achieve highly competitive production costs and world-class quality assurance.
China’s logistics industry, meanwhile, leads the world with 2,917 billion ton-miles of freight capacity and 110,000 km of navigable waterways. They are not, however, resting on their laurels. The country’s latest 5-year plan is further encouraging research and development (R&D) into intelligent warehousing, multimodal freight transportation, and intelligent transportation technology.
Trade policies fall into two broad categories, tariffs and non-tariff trade policies. Tariffs are taxes that raise the price of imports to make domestic manufacturers more competitive. Non-tariff trade policies include quotas, which are limits on the volume of goods that importers can bring into the country. Other measures include direct funding, tax incentives and regulations adding administrative requirements on imports.
Despite some negative publicity, trade between the US and China is at an all-time high. Based on US figures, the bilateral goods trade in 2022 was $691 billion US, exceeding the previous record of $659 billion set in 2018.
In addition to tariffs, China’s trade policy focuses on tax incentives and cuts to maintain economic growth, attract investment and encourage R&D. Many tax incentives and exemptions support targeted industries in designated regions. Chinese-based businesses also receive tax deductions for R&D expenses.
“Made in China 2025” is a ten-year plan comprising trade policies and strategies for transforming Chinese manufacturing. It protects key industries such as information technology (IT), robotics, medical devices, green energy, and railway equipment, among others.
Policies include:
These measures drive China’s high-capacity manufacturing facilities and industry analysts expect these policies to protect its status as the undisputed leader in offshore manufacturing for the foreseeable future.
Knowing which Chinese manufacturers benefit from these incentives because of their location, industry, or strategic value can give your business a further competitive advantage.
Much of China’s advanced infrastructure relates to its ambitious global trade strategy, the Belt and Road Initiative (BRI). The BRI includes innovations such as new global trade routes, modernized supply chain design, improved border-crossing processes, and entrepreneurship.
China’s government enacted the BRI to boost its domestic economy as well as to advance foreign policy goals. The BRI supports China’s plans to shift its manufacturing industries to higher-value goods and services. It also promotes regional economic development inside China.
While China’s trade policies and regulations promote its advanced infrastructure, they can also create logistical stumbling blocks. The US, its allies, and China impose significant tariffs on certain categories of goods.
Trade disputes can disrupt cross-border transportation of manufactured goods. Disruptions can arise from more onerous customs regulations and paperwork. Tariffs and non-tariff trade measures can raise the cost and reduce the efficiency of offshore infrastructure and logistics, often by design.
Understanding China’s political and economic landscape can help your business build a stable and efficient offshore supply chain, while avoiding the bottlenecks that can arise from unanticipated trade policy changes.
When doing business in China, it's essential to understand the implications of tariffs, quotas, the “Made in China” policy, and the BRI. The more knowledgeable you are about the market’s regulatory environment, the more you can align your business strategy with China’s drive to be the world leader in advanced manufacturing and infrastructure.
At the same time, China’s trade policies and regulations can pose logistical challenges. Fortunately, there are proven strategies to mitigate the risk. In the past, logistics and supply chain management focused on minimizing costs and just-in-time inventories. Today’s world calls for a greater emphasis on risk management.
It’s vital to identify the potential points of failure and address them by renegotiating contracts and creating options. As in many aspects of business, the key to managing risk is diversification.
By broadening supply, storage, and transportation options, your company can mitigate disruptions involving particular routes, border crossings or ports. If you’re considering offshoring for the first time, this is an ideal opportunity to diversify offshoring logistics.
Fortunately, China’s dependable and sophisticated information and telecommunication networks are purpose-built to support supply chain risk management. With China’s world-leading 5G network, Internet of Things (IoT), and artificial intelligence (AI), shippers can identify regulatory bottlenecks and instantly reroute shipments to alternate facilities.
If you’re looking to maximize your business’ growth, China’s manufacturers and logistics providers are ideally positioned to benefit from the country’s development policies, leading-edge technology and highly-skilled workforce.
Kingstec has worked with China’s leading facilities for over 40 years and can help your business navigate the politics and regulations of this market, acting as an extension of your mechanical and electrical engineering, design, and logistics departments.
Call us today to learn how your business can partner with world-class Chinese manufacturers.
