Is trade war pushing seafood processing out of China?

Published on
July 30, 2018

The current Sino-U.S. trade war, which has seen tariffs imposed on most seafood products from China (but not on re-exported processed product), is causing many seafood processing companies in China to reassess whether or not to move their operations out of China. This is the first of a two-part series looking into the issue.

Many seafood processing companies are now assessing whether to move to another Asian location where wages and costs are lower. Even before the trade war heated up between the United States and China, it was a well-known fact that the cost of doing business in China has been rising steadily for years. Today, the average Chinese worker’s wages are twice those in Vietnam.

There are plenty of takers for anyone moving processing activity out of China, starting with what Asia-focused advisors have begun to refer to as the new “Big 5” of Asian manufacturing competiveness. As listed in the Deloitte 2016 Global Manufacturing Competitiveness Index, the Big 5 are: Indonesia, Malaysia, Thailand, India, and Vietnam.  

All of those countries have committed to reforms that have improved their rankings, such as creating a national credit scoring system that allows for quick due-diligence checks on would-be local partners, and regulatory reforms that make it easier to wind up companies in those countries. Also, there’s been movement on better utilities connections in several ASEAN countries, including Indonesia. Vietnam has created a one-stop shop for business licenses and tax remittances while Malaysia has put much of the process online. And India and Thailand have worked hard to streamline their export and import licensing systems. 

The World Bank’s Ease of Doing Business rankings, which count factors like ease of opening a business, getting credit and permits, as well as ease of moving goods in and out of the country, have found that India and Thailand (and Vietnam) have been able to improve their standings come due to streamlining their export/import licensing systems and, in many cases, putting these systems online.

The logical alternative to China, India has sought to take advantage of its enormous population (and market) by making it easier to get credit and start a business. As a result, India jumped from 130 to 100 in the ranking of most competitive nations in the World Bank’s Ease of Doing Business report. 

In 26th place, Thailand leads the way in ASEAN, in part due to its efforts to draw in more high-tech manufacturing. Thailand’s seafood processing factories increasingly survive on their ability to hire in low-wage labor from neighboring Myanmar, and the country has Chinese-level infrastructure for moving goods. But Thailand has a cost structure to China and wants higher-tech business activities – seafood processing may not be one of those.  

The World Bank report makes for sobering reading on other regional players. Bangladesh is a shocking 177 on the list, behind even Myanmar in this ranking of 180 countries. Laos and Cambodia (a favorite change of location for Chinese garment firms) rank 141 and 135, respectively. Both have borrowed from China’s economic (and to some extent political) model, but lack the kind of infrastructure, scale, incentives, and port connectivity that made China compelling for processors.

Though full of promise, Myanmar’s low ranking is exacerbated by a shortage of feed and high costs in the country, which are hampering the growth of the seafood sector, according to Zaw Lin, the head of the Myanmar Fisheries Association. He warned recently that high prices for traditional inputs like wheat (for feed) are forcing member firms to sell off their fish stocks. The problems of Myanmar’s seafood sector are many and not much appears to have changed in this regard in the past five years despite much interest by aquaculture investors from China, in particular in investing along the country’s lengthy coastline.

Processing firms and investors are always worried about the unknown. Hard-won Chinese certifications required for selling in foreign markets may or may not be transferable to locations like Burma or Bangladesh (which has a “developing country” status that gives it easier access to Western markets). 

In addition, a 2016 American Chamber of Commerce (AmCham) ranking lists Myanmar, Indonesia, and Vietnam as the three most corrupt states of the ASEAN bloc. 

And well-publicized scandals over working conditions and child labor in Bangladesh and Thailand provide valid cause for concern. Relocating to one of those countries could make it difficult to achieve labor standards that comply with the requirements of most sustainability certification schemes – now a prerequisite for doing business with many Western retailers.

And in all the ASEAN countries, logistics and business processes are less developed than China and still need further improvement. 

All this combined means processing firms are not in any rush to move their operations out of China. 

The blunt question asked by one processor interviewed by SeafoodSource was, “If I’m struggling to survive here then how do I fund moving all my equipment and buying or building a factory in Vietnam or Cambodia?” 

Photo courtesy of Rizhao Nichiro & Rongsense Foods Co. Ltd.

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