Some factories might leave China, but big picture it doesn’t matter
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China holds the keys to global supply chain networks, regardless of Covid lockdowns that frustrate businesses. On May 13, 2022, an employee worked in a factory producing the screen for the 5G phones. The worker was located in Ganzhou Province.
Zhu Haipeng | Visual China Group | Getty Images
BEIJING — China still holds the cards for global supply chains, whether or not Covid lockdowns frustrate businessesIn the immediate future.
Since labor costs are rising and U.S. China trade tensions have worsened, analysts and businesses have long discussed the possibility of moving Chinese factories.
These conversations have been rekindled by the pandemic. Businessmen from foreign countries talk about the ease with which they can travel to Southeast Asia factories. But not China. Some people point out that rising exports to Vietnam is an indication of the fact that China has cut off its supply chains.
“Supply chain diversificationThis is because it’s so difficult, as people talk about it all the time, and boards love to discuss them, but it can be very hard for people to actually implement it,” stated Nick Marro (global trade leader at The Economist Intelligence Unit).
Marro explained that in 2020 when these discussions were held, China managed to stay open and Malaysia and Vietnam closed down. The key issue right now is China’s plans for maintaining these. [Covid]”Controls are being opened up by the rest of the globe.”
China’s “zero-Covid” strategy, which involved swift lockdowns and quick arrests, helped it quickly recover its growth rate in 2020. Since then, however, the implementation of these measures has been tightened, particularly this year. China faces a resurgence of Covid in ShanghaiOther parts of the country.
Vietnam has a’significant’ level of interest
These numbers are: China’s exports rose by 3.9% in AprilThe pace of growth in the last year was slower than that recorded in June 2020. This is according to Wind Information official data.
Vietnam, however, saw its exports increase by 30% in April compared to a year earlier, after a March growth of nearly 19.1%, Wind revealed.
The level of manufacturing interest in Vietnam is “very significant,” Vishrut Rana, Singapore-based economist at S&P Global Ratings, said in a phone interview. Vietnam is now a major supply point for consumer electronics.
China is still the most important player in APAC’s electronic network.
Vishrut Rana
Economist, S&P Global Ratings
However, Vietnam’s April trades amounted to $33.26 billion, about one-eighth the amount of China’s February exports (which totaled $273.62 trillion), Wind reports.
Rana stated that “China’s view is that the move out of local manufacturing will not be substantial enough to alter China’s position in the overall supply chain.” Rana stated that China remains the center of APAC’s electronics network.
China still attracts businesses.
China’s Ministry of Commerce announced Thursday that foreign direct investments into China increased by 26.1% over the past four months to $74.47 million. The investment from Germany rose by 80.4% during that period, and that of the United States jumped 53.2%.
Wind data shows that Vietnam suffered a 56% decrease in foreign direct investments to $3.7 billion over the same period last year. By 14%, foreign direct investment from America fell.
China’s recent Covid lockdowns has slowed trucks’ ability in China to transport goods. However, many factories have been unable to produce for many weeks in Shanghai due the Covid lockdowns. This is the Jiangsu provincial textile workshop.
Getty Images| Future Publishing | Getty Images
Rana stated that it is difficult to rival the size and extent of China’s supply chain outside China. Only supply chains for very specific products — like semiconductors or electric vehicle parts —might be moving to Vietnam, Malaysia or other countries, he added.
China’s long-standing supply chain dominance is supporting innovative business models.
Shein is one the best-known. The company is supported by Sequoia Capital China funds. It has combined big data analytics in China with its supply chain network to create an international ecommerce platform that sells low-cost, fast fashion.
Skyline Ventures managing partner James Liang said that China’s supply chains advantage does not depend on labor costs. This was translated into Mandarin by CNBC.
His analysis shows that at least 20% of sales price for furniture and apparel producers goes into labor costs. Electronics producers are only 5%.
China’s benefit is its supply chain hubs. According to Liang, these hubs are beneficial for companies and allow them to improve efficiency through integrating their suppliers on one digital platform.
His firm had invested $5million in October to Povison furniture, which he said was trying to copy Shein’s clothing design. He said that Covid travel restrictions have delayed additional investment plans.
“A Story of Doubt”
Covid Lockdowns in recent days have also affected the transport of goods across China by slowing down trucks, but keeping some factories in Shanghai. limited or no productionIt can take up to weeks. That’s on top of Beijing’s policy since 2020 requiring two- or three-week quarantine upon arrival in China — if the traveler can book one of the few flights in.
It is hard to shift operations from China. However, Joerg Wuttke (president of the EU Chamber of Commerce China) stated during a webinar that there would be less Chinese investment and more in Southeast Asia.
He pointed out that it’s now much simpler to fly executive to Singapore, or any other country in the region than to China.
A quarter of those who responded to the survey by the EU Chamber of Commerce in China in April revealed that they had considered shifting their investments or plans to other markets as a result of Covid controls.
However, 77% of respondents said that they did not have any such plans. A survey of U.S. businesses in ChinaSimilar trends were found.
According to Marro of the EIU, those survey results show that companies don’t want the market to end but don’t know how to go about it. It’s more about hesitation at the moment.
“Foreign corporations will be angry about these [zero-Covid]He said that policies are important, but there isn’t many companies who will jeopardize the position of their company in a long-term market built on temporary shocks.”
Even companies like StarbucksThe Covid Unpredictability had caused the suspension of guidance. However, the governing body said that it was still able to provide guidance. expects its China business will become bigger than the U.S.In the long-term.
Analysts believe that China could relax its zero Covid policy following a political shakeup in the fall.
China’s Ministry of Commerce did not respond to a question about Thursday’s findings from the EU Chamber. It only mentioned the worldwide impact of the supply chain pandemic. China’s Ministry of Commerce stated that China plans to improve its foreign investment services as well as increase foreign business opportunities.
Stephen Olson (senior research fellow, Hinrich Foundation) said that reconfiguring supply chains can be more complicated than flipping on and off the light switch.
He said, “Ofcourse the chessboard will be reconfigured in case lockdowns continue indefinitely.” In such a case, companies will feel pressure to shift supply patterns and will see the commercial and economic benefits of it.
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