Hey guys, it's Sasha The world's biggest companies are abandoning China and in the last few weeks, the number of companies moving their manufacturing out of China has exploded. Rats seem to be leaving in the sinking Chinese ship. And the big question is, what is it that they know that you and I don't? Just this morning that an email reported that Chinese president Xi Jinping has announced that China is now actively preparing for war. According to the report, Z said that China's security has been increasingly unstable and uncertain and Beijing will now comprehensively strengthen its military training and preparation for any war. And China's cyber rattling is not exactly breaking news or something new. But when you consider this latest escalation in the context of the biggest companies in the world queuing up to suddenly do a U-turn on China, it begins raising some alarming questions. Just a few weeks ago, after Apple announced their brand new iPhone 14, they quietly opened a new manufacturing plan for this new iPhone in India Apple used to manufacture all of their Flagship iPhones in China. So the move to India was already in itself an eyebrow razor. But what was even more interesting is that the Outsourcing company who built and are running that factory are Foxconn Foxconnor, a Taiwan based company that mainly operate in mainland China And it is a very telling move that the largest private employer in China who just happens to be domiciled in Taiwan has just moved a significant part of Apple's manufacturing business out of China. And just a few days ago, a second Taiwanese company called Pegatron has also started assembling iPhones in India Tata A company that supplies components that go into iPhones announced last week that their Factory in South India that currently employs 10 000 people is going to hire 45 000 more people to set up new production lines to manufacture a significantly greater amount of components that will go into iPhones also manufactured in India. At the same time, news broke two days after Apple announced the new iPhone in September that Tata is also in talks with a third Taiwanese manufacturer called Wistron to set up a joint venture Factory in India to manufacture iPhones If you haven't clocked what's going on, Apple has just opened two new factories in two months to make iPhones in India and are potentially about to open a third after exclusively manufacturing their most popular product in China for the last 15 years, and in May. this year the Prime Minister of Vietnam fan Minchin made a trip to the San Francisco Bay area and during this trip he just happened to have a meeting with Tim Cook. The CEO of Apple along with a bunch of other Apple Executives Vietnam has been investing billions in recent months into setting up new manufacturing hubs. newcomers in locations like the Haifong Economic Zone. and who do you think has spent the last two years building multi-billion factories in this specific Haifung Economic zone? Well, I'll tell you it's Foxconn the company that just a few weeks ago started manufacturing the iPhone 14 in India and Pegatron. You know, the other company that started manufacturing the iPhone 14 in India and you guessed that you get the price. Wistron are also building a giant Factory where hundreds of millions of dollars in the same location. What a Magic and completely odd coincidence. And what's even more interesting is that those manufacturing companies don't only make iPhones. They're already manufacturing iPads Apple watches, MacBooks and airports for Apple as well. and they also manufacture products for many, many other Tech Giants including Microsoft who also currently make a load of their products in China And last week, Apple's iPhone Factory in China was shut down once again because of China's Zero Covet policy. A few days later on, Sunday Apple announced that the manufacturing of their iPhones is going to be significantly delayed as a result of the biggest Factory in the world being closed. This coming in the run-up to the most busy sales period in the year when Apple makes a big chunk of their revenue from selling the newly announced iPhones just before Christmas and Apple stock immediately fell by 10. On this news, China is the biggest manufacturing country in the world. The UN estimates that 28.7 of the entire Global manufacturing output in 2019 came from China, but fears are mounting over China's future. policies like Xerokovic seem to indicate that the government would rather safe face and continue to treat Covet like some kind of a plague while every other country in the world has moved on and learned to live with it. Donald Trump started a trade war with China imposing sanctions and restrictions at a time when many thoughts. This was a temporary move by an outspoken and slightly different Republican president. But in comes Joe Biden and the Democrats and the economic war between the United, States and China just gets worse. The US is now publicly banned Expo sorts of high-tech Hardware to China which means that even regular high-end graphics cards that you can go and buy in the shop in the west made by Nvidia or processors made by AMD can no longer be sold to China and China has not been doing its own companies any favors either. Jack Ma gave a speech where he dared to criticize XI Jinping's policies and immediately after that speech, he famously mysteriously disappeared from public view. Alibaba His company got smacked with a huge 2.8 billion dollar antitrust find which obviously had nothing to do with that speech, and a Chinese government immediately pulled the planned IPO off his ant Group business before also stopping dozens of other Chinese companies from going public enlisting their share through Adrs on the U.S Stock Market Adrs in case you're wondering, are American repository deceits I think I got that right? Maybe I didn't These are pieces of paper that let you own shares in a random shell company in the Cayman Islands Who has some kind of commercial claim to some shares in these Chinese companies? Because Chinese law bans non-chinese investors from owning shares in Chinese companies. And naturally enough, the new Chinese government is not a big fan of people taking the Pierce by indirectly owning Chinese stocks despite there being a law saying you're not allowed to do it and there is an ongoing risk that China can at any point pass a decree that will render these adrs worthless overnight, or they can go and nationalize or shut down a company like Alibaba the next time the company does something that the Chinese government don't like. Which is precisely why Chinese stocks like Alibaba have been completely decimated over the last two years. As a non-chinese investor in American repository, the seats, you have exactly zero rights and no recourse to anything should you wake up one morning earning a bunch of worthless shares in a non-existent company. In the Cayman Islands. Now Russia's invasion of Ukraine and China's refusal to condemn it have also raised tensions with Taiwan and the mass Exodus from China is also happening in Taiwan Tsmc. the company that manufactures over 90 percent of high-tech small node semiconductor products in the world is right now building a giant Factory in Arizona. Up to now, all of their factories bar one were based in Taiwan and in China. they also had a production facility in Washington state called Wafer Tech. But until now, the U.S facility only manufactured on Old node technology and in comparatively smaller quantities. Although it was a relatively big business within its space in the Us, but now out of nowhere, Tsmc is investing 12 billion dollars to build the most advanced Fab in the United States in Arizona. The building is already complete and they're now doing the fit out with full-scale production coming in 2024. Tesla was rumored to announce a new location in Shanghai in addition to their existing Factory that has been performing exceptionally well. Tesla Hinted at the announcement coming up, they said they will announce new Factory sites plural in the second half of this year, and despite Tesla and Elon Musk seemingly having a good relationship with the Chinese authorities, the rumor mill about a second Chinese Factory has gone really cold and instead Elon Musk has met with the presence of Brazil and Indonesia And there is a growing rumor of a new Factory being built in Northeastern United States or in Canada Stellantis. The International Car Company has just shut down their Chinese Factory which prompted an angry outrage in China which accused Stalantis of showing disrespect Stanley Black and Decker shut down their Factory in Shenzhen last year after operating there for 25 years. According to the Nikkai Asian review, Dell is moving 30 percent of its manufacturing out of China Samsung has closed down his TV factories, PC Factory and its last remaining Phone Factory in China as well moving their operations to other countries like Vietnam Google has just moved the production of the pixel phones out of China also to Vietnam and the supply chain moved from China to Thailand. An annual survey by Willis Towers Watson is showing that 62 percent of companies that were operating in the Asia Pacific region mostly in China back in 2010 20 were concerned about political risk. Back then now, this number has risen to 95 percent of all companies operating in China in 2022. You can see that the ratio of companies that are concerned to ones that are not is almost 20 to 1 in China. And even after Russia's invasion of Ukraine and the European inflation crisis, you can see that companies are slightly less concerned about doing their business in Europe. The signs are all pointing to a once in a generation change in the global business. Dynamics In the last few weeks and months, companies have suddenly started leaving China at an alarming Pace. Many companies still based in China are putting off delaying investment and considering their options. New laws like the inflation Reduction Act are encouraging U.S companies to come back and start manufacturing within the US once again, not just manufacturing themselves, but also basing all of their supply chains within the US. And the big question is what will happen to China's economy if we do see a mass x Exodus of companies from Manufacturing in China like we're seeing. given the manufacturing makes up about 40 percent of China's total GDP The shift from Manufacturing in China is not going to happen overnight. These are Behemoth Investments of hundreds of billions of dollars into manufacturing capacity and Supply chains that will take you years and years to set up. but we are seeing a mammoth acceleration in the rate at which companies are exiting China abandoning their factories in the last few weeks and with XI jumping getting a brand new five-year term just a few days ago at the party Congress and cementing complete power, the level of uncertainty of where China is headed is only increasing if we do see manufacturing jobs leave China In the coming months and years, the likely outcome is that China's economy would implode I Am sure China would be resourceful and work to reconfigure redeploy their people, but you can't go and replace the world's biggest companies manufacturing everything for the World in Your Country overnight. That would spell major trouble for companies based in China like by doing Tencent and others, but it will also probably have very, very significant repercussions for companies that continue to operate in China Because any Fallout will probably involve an escalation of the economic war that is already raging between China and the West the risk of China nationalizing assets of foreign companies or Banning them from operating there would increase even if it came in spite of more damage being caused to the Chinese economy. Internal tension within China as a result of financial trouble may also make a conflict like one with Taiwan more likely because one lesson history does teach us is that countries do like to go fight a war to take focus of a feigning economy or other problems. So what we're seeing is a very dangerous, self-propagating problem in front of our eyes. Because companies leaving China as we are seeing happen is likely to cause more companies to leave China and as more companies leave China it may become more difficult for those staying in China to continue operating. If this Exodus gets into some kind of a spiral, Will this cause a major economic shock globally in two or three years time? As a result? I Don't know. It's certainly possible that we're seeing the very first steps in the game that leads down that road, But time has a funny habit of throwing new ingredients into the mix. So let's see.