Happy New Year everyone!
Not gonna beat around the bush here. 2019 was a tough year for foreign companies that do business in or with China and we see 2020 only getting tougher.
As a bit of a preface, way back in October, 2018, we were one of the first (maybe even the first) to call the US-China trade war “the New Normal” and we took an incredible amount of grief for that. We turned out to be right and now many are calling it that. In August of this year we were one of the first (maybe even the first) to forecast Hong Kong’s demise as an international business center and we took an incredible amount of grief for that also. Now, few whose livelihoods are not tied to Hong Kong would disagree.
Businesspeople tend to be optimistic. Lawyers less so. Lawyers are trained to see the problems in everything and then figure out solutions. So please forgive us our pessimism for pretty much everything China for 2020. But, please also note that for years the most common criticism we would hear was that we viewed China through rose colored glasses because we were always writing about how things were getting better there. And that is because for a long time they were getting better and we were always happy to call that out.
I mention the above to convince you that we make the following positions not because we want to, but because we feel that we must.
- Tariffs and the threat of more tariffs will necessarily continue to play a huge role in foreign company decisions regarding China in 2020. For every foreign company that left China in 2019, there were two to three more seriously contemplating doing so and we expect more companies to leave China in 2020 than in 2019. See China Tariffs and What to do Now, Part 1 and China Tariffs and What to do Now, Part 2. Many of these moves will create chaos and some companies will simply not survive them. See How to Leave China AND Survive.
- For every company that leaves China in 2020, there will be another company that reduces its footprint in China. We expect to see foreign companies continue to reduce the number of their employees in China and we for many others to switch from doing business in China to using Chinese companies to do their business in China for them, via distribution contracts and/or licensing agreements.
- A whole host of companies are going to get sued for illegal transshipping. See Illegal Transhipping/False Country of Origin — Help Us Help You Get Rich.
- Speaking of getting sued, international litigation, disputes between Chinese and Western companies will greatly increase in 2020. Much of this is happening because of the uncertainty and the disruptions involving China; with disruptions and uncertainty come disputes.
- Chinese factories will copy and sell their foreign customers’ products sooner and more often than in 2019, which was a very bad year for this. Chinese factories see foreign companies leaving China and this has caused them to question the viability of long-term relationships with their foreign buyers and convinced them that they can make more money by selling their customers’ products online themselves. See China Trademark Theft. It’s Baaaaaack in a Big Way, China and the First to Market Fallacy, and Protecting Your Product From China: The 101.
- Every year we say this because every year it has been true, but this will be especially true in 2020: China will get even more serious and more effective at enforcing its laws against foreign companies and foreign individuals and the punishments will get way harsher. See Doing Business in China Without a WFOE: Will the Defendant Please Rise for a good example of where China has really cracked down against foreign companies. See also How to Avoid China Prisons: Know YOUR China Risks.
- Decoupling between China and the West will accelerate in 2020. See China and the West Are Decoupling: Please Act Accordingly.
- Hong Kong will decline even further as the gateway to China or to anywhere else for that matter. Its role as an international business center is over and 2020 will only further highlight that. See Hong Kong for International Business: Stick a Fork in It, Hong Kong for International Business: Stick a Fork in It, Part 2 and Macau vs. Hong Kong: And the Winner is Singapore.
- Speaking of Hong Kong, politicians in the United States and in the EU will increasingly see being tough on China as good for their careers and so we expect a raft of new sanctions and restrictions being placed on China for its actions in Hong Kong and Xinjiang and Tibet. These sanctions and restrictions will anger China, further accelerating the decoupling. See e.g., U.S. House Passes Xinjiang Bill, Prompting Threat From China and German Lawmakers push for probe of German companies’ role in Xinjiang.
- The United States is currently investigating more than 1000 IP/trade secrecy thefts involving China and most of these cases involve Chinese government participation. Even more such cases will be brought in 2020 than in 2019 and this will disrupt trade and lead to the curtailment/elimination of cooperative R&D with Chinese companies and research centers and universities. It will also lead to a decrease in U.S. hiring of PRC nationals in the tech sector, something which is already occurring.
- More consumers in the US and the EU and elsewhere will become troubled with how China treats its Uyghur and Tibetan populations (see this and this), how it acts towards Hong Kong and Taiwan, and its efforts to exert control over information and people outside China. The hoopla/uproar about the Beijing 2022 Winter Olympics will accelerate this. This will lead to more consumer boycotts and to Western companies ending their relationship with China for business and PR reasons.
- Countervailing duty and anti-dumping cases against PRC industry sectors will continue to increase in both the US and the EU. Higher and higher duties against Chinese industry are being ordered. See Yet Another International Trade (AD/CVD) Petition Against China: This Time it’s Metal File Cabinets.
- The next chapter of the US-China trade war “will be fought through export and import controls, investment restrictions, and sanctions.” See The U.S.-Chinese Trade War Just Entered Phase 2. The US will be the vanguard of this next round but EU countries will follow relatively closely behind.