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China factories pull out all stops to fight trade war

They try to keep foreign customers by giving discounts, tapping tax breaks, trimming workforces and, occasionally, shifting production overseas to skirt tariffs


MANUFACTURERS in China facing trade barriers are deploying an array of moves to try to keep foreign customers - giving discounts, tapping tax breaks, trimming workforces and, occasionally, shifting production overseas to skirt tariffs.

Tit-for-tat tariffs from the China-US trade war have been costly for many. Adding to the strain on Chinese manufacturers have been European Union duties on Chinese products ranging from electric bikes to solar panels.

March brought some encouraging news for manufacturers. Industrial output rose at its fastest rate since mid-2014 and exports rebounded more than expected, while first-quarter growth was better than expected.

Still, some manufacturers who depend on US sales are struggling.

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At the Canton Fair in southern China's Guangzhou city during the past week, manufacturers put on a brave face, but feared that they will need to take more measures to survive, if Beijing and Washington fail to seal a trade deal.

Botou Golden Integrity Roll Forming Machine lost some US customers when tariffs pushed up prices for its machines making light steel girders and bars for building frames, according to Hope Ha, a saleswoman.

It now offers an 8 per cent discount as a sweetener. "We have to give discounts because they pay high tariffs," said Ms Ha.

Ball bearing maker Cixi Fushi Machinery gave long-term customers a 3 to 5 per cent discount, according to representative Jane Wang.

But that was not enough, so the company suspended a product line generating US$30,000 monthly revenue, she said, adding: "We will wait for the agreement and then we will see again."

Some have been able to pass along increased costs. California-based ACOPower has increased prices about 10 to 15 per cent on some of its made-in-China, solar-powered refrigerators, said founder Jeffrey Tang.

"We have no choice," he said. "We must increase the price." He said his portable fridges cannot be made affordably in other countries. But if there is no trade agreement, and tariffs rise, the equation could change.

"Maybe I'll just ship all the components to Vietnam to do the assembly," he said.

Aufine Tyre rented and filled a warehouse last year in California in anticipation of anti-dumping duties, which were later imposed. In another move to circumvent tariffs, it will soon open a plant in Thailand to make tyres.

Jane Liu, a sales manager, said Aufine plans to send 50 containers a month from Thailand, with 220 to 240 tyres in each, and later expand.

Some companies at the fair cheered Beijing's move to trim China's value-added tax to 13 per cent from 16 per cent at the start of April, and its pledge of tax rebates for exports.

"Things like this give us some protection or else we would suffer losses," said Wills Yuan, a salesman at Ningbo Yourlite Import & Export in Shenzhen, which produces LED lights.

Shenzhen Smarteye Digital Electronics, a maker of surveillance cameras, which are not on the US tariff list, was able to drop prices because of the tax break, according to sales manager Simple Yu. "We save a lot on costs, so we can sell at a low price," he said.

However, Smarteye has worries, including increasing rent and labour costs that led it to trim its workforce.

Mr Yu said he is also concerned about the trade war's potential effect on the yuan-dollar exchange rate.

"Before it was 6.9 per dollar, now it's 6.7 per dollar. We worry that it will go to 6.5."

Electric bike makers have reacted nimbly to European anti-dumping duties of between 18.8 and 79.3 per cent imposed in January. Many have started assembling some bikes in Europe; Zhejiang Enze Vehicle does so in Poland and Finland.

"We take the battery, frame, and the other parts, package them up separately and send them over to be assembled by partners," said sales representative Dylan Di.

Anhui Light Industries International, which makes products ranging from plastic protractors for math to movie theatre popcorn cups, says it has lost more than 1 billion yuan (S$202 million) after US President Donald Trump raised import taxes.

Still, company representative Han Geng is optimistic the trade war will get resolved.

"It's not good for America, not good for China," he said, expressing the view that Mr Trump knows the trade war is hurting business and "he will end it".

When that day comes, Mr Han said, "we will sell to America again. . . We need to make money. Everybody loves money." REUTERS

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