Missing the boat again

As soon as it was certain that Trump had won the elections, business news media started publishing a lot of stories about worried investors in China-based manufacturing facilities as well as US marketing companies dependent on their China supply chain. Trump has announced he will impose a tariff of 60 percent or more on Chinese products entering the US as soon as he takes office.

Actually, tariffs on Chinese exports to the US have been increased over the past years under the Biden administration. Channel News Asia reported that last May, the US said it would increase tariffs on Chinese semiconductors from 25 percent to 50 percent by 2025. This was among a slew of US tariff hikes meant to protect domestic industries. Other tariffs – including a 100 percent duty on Chinese electric vehicles, 50 percent on solar cells and 25 percent on steel, aluminum, EV batteries and key minerals – went into effect on Sept. 27.

The US has long accused China of unfair trade practices. The US imported $427 billion in goods from China in 2023 and exported $148 billion to the world’s second largest economy, a trade gap that has persisted for decades.

The Conference Board, a research organization, released a survey in June that revealed more than half of China-based CEOs, mostly from US and European multinational companies, expect investments or operations to shift away from China to India in the next two years.

The New York Times reported that a company selling shoes in the US got their agent in China on the phone at 4:30 a.m. Beijing time and pressed him to ask their factory how many more pairs of men’s dress shoes they could make before Chinese New Year, at the end of January. “I told them if they could make an additional 30,000 pairs, we would take that,” the co-owner of a shoe company called Deer Stags said on Thursday following Trump’s election.

The chief executive of the footwear brand Steve Madden, said that his company currently sources more than 70 percent of its products from China but had been making more shoes in Cambodia, Vietnam, Mexico and Brazil. But he also said, “There will not be enough production capacity in Vietnam, Mexico or India for all the production that will be moving out of China.”

None of the stories I have seen about businesses looking for alternative manufacturing to China ever mentioned the Philippines. There have been similar movements of manufacturing out of China in the past and we missed the boat as they moved to Vietnam, Thailand and India instead.

Considering how many foreign marketing trips BBM has made, not counting the investment roadshows our economic managers have been making over the past and present administration, it seems no potential investor is making good on promises to check us out for job-creating investments.

What is so wrong with our business climate that investors skip us and go to our neighbors instead?

My guess is, we have failed to dramatically improve the ease of doing business, especially at the LGU level. That means corruption and delays in getting permits and weird regulations among others. Then there is inadequate infrastructure, not just roads, air/sea ports and telecommunications but most important, power availability.

Our power rates are the most expensive in the region and we also keep on getting red and yellow alerts because our power generation capability barely meets current demand. A new law, CREATE MORE, addresses the issue of high power rates by allowing double deduction for power expenses for certain categories of investors. This lifts a large roadblock to foreign direct investments in the country. But is it enough?

Our justice system, the best that money can buy, does not offer quick and fair resolution of business disputes. Then there is peace and order, because personal security is an important consideration for expats to be assigned here.

Congress has passed many pieces of legislation to encourage foreign direct investments or FDI into the country but nothing seems to work. Our neighbors remain more attractive for investors.

The new law, CREATE MORE, sponsored principally by Rep. Joey Salceda, also enshrines the right to work from home in the export service sector, especially the BPO sector. This was a big issue when the Fiscal Incentives Review Board forced companies who have work from home schemes to bring their workers back into the office to continue to be eligible for tax incentives. This raised a howl from the industry.

According to Rep. Salceda, the next move is to reform taxes on the capital markets, which will also boost investments.

“In addition to the existing provisions in the Capital Market Efficiency Promotion Act, we are working on a set of amendments to the Tax Code which will create a portable, sustainably-funded Corporate Pension scheme for employees in the private sector.”

I remain skeptical that CREATE MORE will do enough to change our investment climate so we can catch the boat in this current exodus out of China. Our key problem is implementing our publicized good intentions.

We have shown little ability to cut red tape and reduce corruption especially at the LGUs. Perhaps, if we dedicate one island and declare it a special economic zone managed by Singapore’s Temasek, maybe it could be a different story provided there are iron-clad guarantees to keep the kleptocratic hands of our politicians away from it.

Better than more laws providing investment incentives is a serious effort by government agencies and LGUs to treat local investors, specially MSMEs, with respect by cutting red tape and corrupt demands. Then maybe, foreign investors will take notice and reconsider their negative impression of our country.

In the meantime, we can just watch our neighbors reap the benefits of this investor exodus out of China.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco.