It looks like China will have problems soon. And the whole world will face problems with it.
Starting from a large industrial region of China (Wuhan), where the offices of 500 international companies are located, coronavirus showed the developed countries’ critical dependence on Chinese production chains.
Over the past two decades, China has become the world's largest exporter of intermediate goods used to produce final products.
It accounts for 1/3 of this world market, which far exceeds the country's share in most consumer sectors.
A report published by the Henry Jackson Society states that the United States, Great Britain, New Zealand, Canada, and Australia are critically dependent on China for 831 separate categories of imports, of which 260 are critical national infrastructure services (!).
- Australia is strategically dependent on China in 595 product categories. 167 of them have links in critical national infrastructure;
- New Zealand is strategically dependent on China in 513 product categories, 144 of which have links in critical national infrastructure;
- The US is strategically dependent on China in 424 product categories, 114 of which have links in critical national infrastructure;
- Canada is strategically dependent on China in 367 categories of products, 83 of which have links in critical national infrastructure;
- The UK is strategically dependent on China in 229 product categories, 57 of which have links in critical national infrastructure.
The report gives recommendations to each of the 5 countries:
1. To conduct and publish an audit at the national level and at the company level regarding the degree of dependence on China in relation to raw materials, components in complex supply chains.
2. To conduct a national review of strategic industries to identify and prioritize protection against dependence on China.
3. To review the bilateral investment and free trade agreements to assess how much
they effectively manage risk from strategic dependence on China.
4. To review the existing trade partnerships to identify ways in which cooperation can reduce strategic dependence on China.
Most likely, the audit legalizes a process that has already been triggered by US sanctions against China.
- According to the Nikkei Asian Review, more than 50 multinational companies are in a hurry to avoid punitive tariffs set by the United States.
- Apple encouraged major suppliers to consider exporting 15-30% of iPhone production from China.
- HP and Dell plan to transfer up to 30% of their laptop production from China to Southeast Asia and other countries.
- Microsoft, Google, Amazon, Sony and Nintendo also plan to withdraw part of their production from China.
“In a survey published earlier by the American Chamber of Commerce, approximately 40% of the 250 firms surveyed said they “were considering or relocating manufacturing facilities outside of China.”
Despite the fact that the delivery time from Thailand to the United States can take up to 40 days, that is, almost twice as much as from China, only a few retailers are willing to pay the premium price that must be charged in order to maintain production in Guangdong.
Before the start of the trade war, Japanese, South Korean and Taiwanese companies began to diversify their investments in offshore production in Vietnam and other countries of Southeast Asia, and in some cases, such results exceed supplies from China.
So, Japan has allocated $ 2.2 billion from its record package of economic incentives to help its manufacturers transfer production from China.
The problem that has arisen now is that the economies of Southeast Asia are already very dependent on China in terms of production.
As a result, the strategy of moving value chains to Southeast Asia from China has had a limited impact on the ultimate goal of companies to reduce concentration risk.
And American companies, in turn, have already begun to transfer the production of spare parts from China to Mexico.
The Dutch Rabobank recently published its report saying how countries will benefit from the relocation of production from China.
However there is no Ukraine in it...
And why should we, with the right industrial policy, not create conditions for the transfer of production to Ukraine and not become an inexpensive and fast supplier with good product logistics for the whole world?
The question is rhetorical. Read, think, draw conclusions...