Panic in China: Exports Halted, Companies Shutting Down. When I Woke Up, the Sky Had Fallen

It's all covered in today's China Truths. I woke up to find the sky was falling. I am now in Vietnam's industrial zone. Let me show you the current situation. Look, there are very few people. This place used to be bustling with trucks and people coming and going. Everyone was eating and drinking. Now it's empty. The tariff policy has had an immediate impact on enterprises and freight in the industrial zone. I've been in Vietnam for 13 years, and this is the first time I've seen such heavy tariffs. I am in Vietnam now. Once tariffs are raised, factory exports will face serious challenges. In recent years, many Chinese factories relocated to Vietnam to avoid high domestic tariffs. And this year, more Chinese factories and bosses are expected to come to inspect the situation. Now that Vietnam has raised tariffs, especially to such high levels, its status as a manufacturing hub is in jeopardy. I'm witnessing firsthand the reality of Vietnam's economy. In fact, aside from some growth in industry and real estate, the real economy here is in poor shape. Since the trade war started in 2018, countless Chinese factories have moved to Vietnam. Back then, many believed the U.S. was only targeting China and that things would change if they moved to Vietnam or Cambodia. Now Trump is telling us that this strategy won't work. Many people tried shifting operations to neighboring countries, but now it's all falling apart. Why did Trump impose heavy tariffs on Southeast Asian countries? In fact, it's because this move blocks all our paths. We used to export through Southeast Asia to sell to the U.S., but that route is no longer viable. Many of our industrial chains and capital were moved to Southeast Asia. Now that investments have been made, capital, labor, and equipment, it will be very difficult to move again. The U.S. has announced a 49 percent tariff on Cambodian imports. Those familiar with the situation know most factories in Cambodia are Chinese-owned. They moved there to avoid tariffs, but now they're paying even more. Besides Cambodia, Vietnam, Thailand, and Indonesia have also been hit with tariffs of over 30 percent. How can this problem be solved? Unless factories move directly to the U.S., there seems to be no way out. People often say, wool comes from the sheep, but this wave of tariffs is making it almost impossible for factories to export to the U.S. As you can see from the video above, Trump's global trade restructuring, especially the high tariffs on Southeast Asian countries, is putting Chinese bosses who move their factories to Southeast Asia in a tough spot. Today we'll talk about the background of Chinese companies relocating production capacity and why the U.S. launched this trade war. First of all, why do Chinese companies want to relocate, and is changing the place of production effective? Since 2018, the Trump administration began imposing a 25 percent tariff on hundreds of billions of dollars of Chinese goods, covering electronics, machinery, furniture, clothing, and more. This significantly increased export costs and reduced price competitiveness. These are the reasons why the Trump administration extended high tariffs beyond China to Southeast Asia. Faced with this situation, many Chinese people feel pessimistic. Some believe this wave of tariffs will be the most damaging economic event in the coming years. There are two major characteristics of this tariff wave. First, it exceeded all expectations. The capital markets had predicted a 30 percent tariff with a gradual increase and a buffer period of one to two years. Instead, we were hit with a heavy blow. An immediate 20 percent, plus a coming 125 percent, totaling 145 percent. The second characteristic is encirclement. The surprising part is how Southeast Asia has become a primary target. Vietnam 46 percent, Cambodia 49 percent, Thailand 36 percent, Indonesia 32 percent. This is a complete tariff blockade. The whole world knows our enterprises are export-oriented and our manufacturing is shifting to Southeast Asia. ASEAN has become our largest export and transit destination. The fact that these countries now face tariffs as high or even higher than ours sends a clear message. Block all channels for Chinese goods to reach the U.S. This wave of tariffs will have a major and immediate impact on the economy. People often say the economy has three drivers, investment, consumption, and exports. But a more accurate analogy is one horse and two carts. The horse is exports, pulling the carts of investment and consumption. All the money spent on investment and consumption comes from the wealth originally generated by exports. Now, that horse has taken a serious hit. What is the background of the Sino-U.S. trade war? Will Trump target the CCP in both terms? In December 2001, China successfully joined the WTO after 15 years of negotiations. The premise of joining was that China must promise to open its market, reduce tariffs, eliminate non-tariff barriers, and allow foreign companies to enter the Chinese market. More than 20 years have passed, and it has been proven that the CCP has completely violated all the rules. One of the main manifestations is that it provides huge government subsidies to specific domestic industries, especially traditional manufacturing industries such as steel, solar energy, and textiles. This allows these industries to continue production at extremely low costs, even when global demand is insufficient, and dump them in large quantities into overseas markets, causing a devastating blow to the manufacturing industries of other countries. For example, China's steel was still exported in large quantities in 2015 when there was a global oversupply, making it difficult for local steel mills in Europe and the United States to operate. Solar panels were dumped in large quantities in the European and American markets, causing German and American solar companies to go bankrupt, one after another. Although China promised to open its market under the WTO framework, in practice, foreign companies are often forced to form joint ventures with local Chinese companies and share technology in order to enter the Chinese market. For example, if American technology companies or automobile manufacturers want to set up factories in China, they must establish joint ventures with Chinese companies, and patented technologies and management methods must be shared with Chinese companies. The premise of the WTO is fair competition, but China's huge state-owned enterprise system and a large number of private enterprises subsidized by the government have obtained a lot of privileges in financing, taxation, land, energy prices, etc., forming a government and enterprise-as-one competition model. The CCP also manipulates currency and weakens trade fairness. In terms of export prices, Chinese products are inherently low-priced, and coupled with the exchange rate, they are more attractive, exacerbating trade imbalances. Therefore, the Trump administration launched a trade war against China in 2018 and has imposed tariffs on China and Southeast Asian countries again today. The background is a strong counterattack against China's cheap dumping and unfair trade practices for more than 20 years. Facing the upcoming tariffs, Chinese netizens who are engaged in e-commerce shouted, The sky is falling. It is too difficult. It is really too difficult. Too many companies in Shenzhen have closed down. This company was engaged in cross-border e-commerce. It had persisted for more than half a year since last year. In the end, it still closed down. Now the office furniture inside is basically new. Others said that the U.S. tariff policy has had a great impact on cross-border e-commerce. There was a policy of 800 U.S. dollars tariff exemption before, which has now been cancelled. That is to say, no matter what kind of small package, as long as you send it to the United States, you have to pay tariffs, and each one cannot be less than 25 U.S. dollars. This is extremely terrifying. They set a line. Each one cannot be less than 25 U.S. dollars, and it will rise to 50 U.S. dollars later. Finally, let's take a look at the video uploaded by netizens. Faced with the deserted logistics industry, they don't know whether there is hope in the future. The off-season has really come early. How could it be so quiet in previous years? The current market situation is really scary. I just walked around the entire steel market. There are basically no customers, and even if there are customers, they are very few. This year's market situation is really hard to understand. So, I am a little scared. It's already past 10 o'clock in the morning, and there are no cars in the customer parking lot. How do you feel? It's very bleak. It's 11 o'clock in the afternoon, and the merchant parking lot is full of cars. At this time of year in previous years, everyone's cars had gone out to do business. How could they park here collectively? This year's market situation is really too difficult. The container business is finished this year. Fuhua Company, Panyang, CIMC, Xinhuashang, and other companies are all laying off employees. This year, the trade war began to increase tariffs, which will inevitably lead to a decrease in trade. The container ship operation industry is engaged in this kind of import and export trade, so the impact is the most obvious. Recently, I have visited many industrial parks and petrochemical enterprises and found that compared with previous years, this year's business is very bleak. In previous years, cars and ships were busy, but this year there are few people. Not only car transportation, I am now in Jiangsu, but also the business of ships and cargo ships is very bad. Many ships are parked in ports and rivers. The ship owner said that there is no business this year, the freight rate is low, and there is no activity. The logistics industry is a weathervane for economic development, which is very telling. Overcapacity and falling prices, China's economy caught in a vicious cycle. China's economy is grappling with overproduction across various industries, including paper products. According to the Wall Street Journal, one of China's largest paper manufacturers, Shandong Chenming Paper, is taking the same approach as many other companies, slashing prices to clear inventory. However, the company's financial losses are mounting. Last month, the company disclosed that its overdue debts had reached approximately $250 million. Creditors have filed lawsuits, and some of the company's bank accounts have been frozen. As China's economy remains sluggish, factories are struggling to cope with overcapacity and weak demand. The Producer Price Index, PPI, in China has declined year-on-year for 26 consecutive months, with a 2.5% drop in November compared to the same month last year, showing little sign of recovery. Meanwhile, China's GDP deflator, a broader measure of overall economic price levels, has remained negative for six consecutive quarters, marking the longest stretch since the late 1990s. This week, Chinese Communist Party, CCP, leaders pledged to implement more measures to stimulate the economy, including cutting interest rates and increasing government borrowing. However, Beijing is under growing pressure. With U.S. President-elect Donald Trump preparing to impose higher tariffs, the CCP faces significant challenges in redirecting surplus industrial capacity to the U.S. market. This will likely result in more unsold goods domestically, further driving prices down. The next potential consequence for businesses is layoffs, which could lead to reduced consumer spending. Others may delay purchases in anticipation of further price drops. This is becoming a vicious cycle, said Penelope Prime, founding director of the China Research Center in Atlanta. Lisa Wang, a salesperson at a textile factory in China's Zhejiang Province, explained that her factory has been forced to lower prices to compete with numerous rivals. This has cut profits and led to layoffs, which she fears is only the beginning. In November, China's consumer price index, CPI, rose by just 0.2 percent year-on-year, far below the 2 percent level that most central banks consider conducive to healthy economic growth. In contrast, the U.S. CPI increased by 2.7 percent during the same period. Last month, CCP policymakers approved a $1.4 trillion debt swap plan to bolster local government finances. However, the current policies have not effectively driven up prices. Two key issues contribute to this. These policies primarily aim to mitigate immediate financial risks rather than promote sustained growth in consumer spending. Beijing continues to extend loans and subsidies to Chinese factories. While this has supported production growth, it has also exacerbated the oversupply problem, putting further downward pressure on prices. At Shandong Chenming Paper, management has shut down nearly three-quarters of its production capacity. According to China's National Bureau of Statistics, as of October this year, the country's paper and cardboard production had increased by about 10 percent compared to the same period last year. Since October 2022, the factory prices of paper products in China have declined year after year. Similar trends are evident in other industries. In September, William Li, CEO of Chinese electric vehicle maker NIO, remarked during an earnings call that China's internal combustion engine car manufacturers had entered an unsustainable vicious cycle of price reductions, eroding profits. Yet, automotive production in China continues to grow. Nomura Securities forecasts that China's producer price index will decline by 1.2 percent, while Macquarie predicts a 1 percent drop by 2025. Viral resignation letter from a Beijing post-2000s generation sparks nationwide attention. Recently, a resignation letter written by a member of Beijing's post-2000 generation has been circulating online, garnering widespread attention. Bloggers across platforms have produced short videos promoting the letter, sparking heated discussions. The letter vividly encapsulates the struggles faced by today's youth in China, highlighting the severe economic challenges and the significant disparity between the lives of those within the Chinese Communist Party, CCP, system and ordinary citizens. In the letter, the young Beijing resident states, My grandfather is retired, earning over 10,000 yuan a month in pension. My grandmother is retired, earning more than 8,000 yuan a month. My maternal grandfather is retired, receiving over 9,000 yuan monthly, and my maternal grandmother receives more than 7,000 yuan. My grandmother's family owns two apartments in Haidian district, my maternal grandfather's family has three apartments in Chaoyang district's Wangjing area, and my family owns two apartments in Zhongguan. We also have a villa in Tongzhou. Both my parents are only children and work within the CCP system. They don't have the time to take care of the elderly. I am the only young person in my family, and despite working tirelessly, I only earn 5,000 yuan a month. Therefore, I formally submit my resignation to the company, intending to return home and take care of my four elderly family members. Money is not important, ensuring the health and longevity of my grandparents is what truly matters. This resignation letter has attracted widespread attention, with various bloggers and influencers eagerly creating short videos to discuss and promote it. A woman from Jiangsu province expressed her dismay. Not only do we have to support these retired high-income individuals in the CCP system, but we also have to support their grandchildren. Meanwhile, our own pensions are being delayed. Another netizen commented, I've never understood how the system works. How can retirement pensions be higher than salaries for those still working? It makes no sense. A migrant worker speculated, I feel like the 400 yuan I pay for medical insurance is probably being used to fund their pensions. Some noted the privileges enjoyed by government workers, stating, When civil servants retire and pass away, the state even gives their families 40 months' worth of salary. It's a pity for the workers and farmers. The resignation letter has been described as heart-wrenching by some commentators, who see it as a stark reflection of societal realities. Others have called it a profound satire on the current state of society. It underscores the growing disparities in income and quality of life between those within the CCP's bureaucratic system and the rest of the population. While a small group enjoys stability and privileges, the majority struggles with stagnant wages, delayed pensions, and an increasingly unaffordable cost of living. Please share your thoughts in the comments section below. We will keep reporting on the COVID surge in China, so don't forget to subscribe to our channel and turn on the notification bell to get the latest videos. And thank you for tuning in.