Ding Heng
When China was carrying out a dynamic zero-Covid policy, there was a warning that China wascausing uncertainty for global supply chains, even posing a threat. After China bid farewell to stringent Covid restrictions,some media outlets have once again embraced this narrative, citingtemporary low activities in the country’sfactories and portsin late 2022 amid a surge in Covid cases.
Is anything missed here?
During China’s first wave of Covid in early 2020, there were also questions on China’s reliability in supplyingproducts and components to global consumers and businesses. However, aseconomic activitieswent back to normal after the virus was effectively contained, China ended up being a stable supplierwhen the coronavirus wreaked havoc across the globe. China’s exports did well in the second half of 2020. In 2021, exports in goods saw a surge of more than 20%.In 2022,there was still a rise of over 10%despite more domestic and international headwinds.
Many things could changeover a period of three years, butChina’sresiliencehas largely remained unchanged.
There are signs that factory activity in the country isquickly recovering, just like howit did in 2020. Since mid-December, 2022, production has resumed in more than 90% of the manufacturing companies in the northern province of Shanxi. In the southern city of Guangzhou, the number of orders on the truck-hailing platform Huolala surged more than 50 percent month on month in the first week of December.As of late December,Foxconn’s factory in the central province of Henan, the world’s largest iPhone supplier, had restored 90% of capacity and a full staffing level.
In addition, there is a sense of urgency to make up for the losses caused by Covid.In the central city of Luoyang, normal production levels have been ensured in hundreds of factories during the week-long Chinese New Year holiday.
As business people and haulers are able to move around more freely under China’s optimized Covid policy, there seems to be every reason to be optimistic that China will continue to be a reliable supplier. When OECD Secretary-General Mathias Cormann suggested recently that China’s reopening is very positive in terms of making sure the supply chains function more efficiently and effectively, he didn’t say it for fun.
Instead of being a risk, China has arguably contributed stability to global supply chain during the pandemic. The Europe-China rail link is a flagship project of the Belt and Road Initiative. Trade between China and the EU rose 2.2% in 2020, butthe number of freight trains running on the rail network soared 50% in the same year. The reason of that phenomenon was that at a time when the pandemic causedsevere disruptions to maritime shipping and airfreight, the rail link served as a trade artery between China and Europe. And this is certainly not the only example.
The pandemic has reshaped our supply chains, prompting businesses to rethink the “just in time” model. Before the pandemic, some companies already began diversifying sources of supply away from China, and the pandemic has probably accelerated this trend.Overall, however, China’s attractiveness as a manufacturing hub remains unbeatable.
Relocation of production lines away from China is more complicatedin reality than what it might sound like. The New York Times has recently told a story in which a kitchenware manufacturer can’t train workers well in two months in another Asian country. By comparison, training of its employees in China takes five to eight days.
Apart from a skilled labor force, many companies are also unwilling to lose the benefits – such as convenience and reduced cost – that they get from China’s industrial clusters, wherecomponent suppliers, manufacturers, and service providers in a particular industry concentrate in a specific area. Because of government policy support, there are more than 100 such clusters in China today.
So, it’s not surprisingwhen a recent survey by the China Council for the Promotion of International Trade, the country’s main foreign trade promotion agency, showed that nearly 90 percent of the foreign-invested businesses in China plan to maintain their industrial chains in the country.
By the way, supply chain diversification from China is not necessarily a bad thing for China. As a matter of fact, we are already seeing an industrial chain emerge where intermediate goods are made in China, shipped to Southeast Asia to be made into finished products, and then exported to the US and Europe. The ensuingregional economic integration between China and Southeast Asia is certainly in the interests of both sides.In fact, that is exactly the common goal of many projects of the Belt and Road Initiative.
[The author is a host with CGTN Radio. The opinions expressed in this article are the author’s own.]
