Beijing confident that trade war won’t mean massive factory moves

China is still a competitive location for investment, according to Premier Li Keqiang, even as some companies look to move production out of the country to avoid tariffs and damage from the trade war with the U.S.

“The relocation of the global industrial chain is a natural trend during globalization, and global industries will improve during the process,” Li told a group of foreign and domestic business leaders at the World Economic Forum’s summer meeting in Dalian.

“You move some industries outside China, while leaving some others in China, or even increase the investment to China,” he said. “As long as we can build the industrial chain according to commercial and market principles, China, with its complete industrial clusters and huge market, will be competitive.”

The rising tariffs and tensions between the U.S. and China over the past year have led companies to move some production out of China to Vietnam or other countries. Even with the truce agreed over the weekend, both China and the U.S. are still tariffing much of the items they buy from each other, and there is no certainty for business that this won’t increase if talks break down again.

The government also indicated it was fine with some firms moving low-end manufacturing business overseas, with a commerce ministry official saying only a few companies are leaving due to the trade war.

“China’s role in the global supply chain reflects its comparative advantage, as well as division and cooperation in the context of globalization. It is a natural choice of the market, and it is the effect of economic rules,” the official, Chu Shijia, said at a briefing in Beijing yesterday.

Chinese companies are going global and moving part of their supply chains to cheaper places, but as China makes progress in its technology and opening up, there are also new domestic industry areas such 5G or integration in overseas supply chains such as Tesla Inc., he said.

“China’s comprehensive advantage in the supply chain can’t be replaced by any other country currently,” he said. Bloomberg