Supply Chain Adjustment Doesn’t Mean Market Exit

Both domestic and foreign-funded companies in China have been readjusting their supply chains amid dynamics in total costs， uncertainty in tariffs， vulnerabilities of globalized supply chains and governmental push for reshoring.

Nonetheless， the supply chain shifting outside of the global manufacturing powerhouse doesnt mean companies are leaving China， according to experts.

The globalization of supply chains over the past quarter century has improved economic effi ciency， but at the cost of economic resilience and sustainability， partner and emerging market strategist with Macro Research Board Partners Mehran Nakhjavani said recently.

The novel coronavirus disease（COVID-19） pandemic， arriving on the back of the U.S.-China trade tensions， has clearly demonstrated the vulnerability of global supply chains， Lucy Qiu， strategist at UBS Global Wealth Management， told Xinhua on September 16.

It is likely that some supply chain duplication will be necessary to improve resilience in the face of mounting policy risk， Nakhjavani told Xinhua.

Following the pandemic crisis， companies and governments will likely seek to diversify their supply chains or bring them closer to home， Qiu said. It doesnt necessarily mean onshoring to high-wage countries in Western Europe or North America， but perhaps Eastern Europe， Mexico， or other Asian countries.

Economies such as India and some Southeast Asian or sub-Saharan African countries could possibly emerge as future“workshops of the world” at a time when the perils of protectionism have been understood， according to Nakhjavani.

“Considering the high wage costs， if companies decide to onshore， we see automation and robotics as long-term benefi ciaries of this trend，” Qiu said.

Qiu added that the importance of multilateral trade and economic integration should in fact grow in light of the challenging growth environment amid COVID-19.

Amid higher labor costs and Chinas effort to climb up the value-added ladder， supply chains have been gradually shifting out of China. This structural trend is accelerated by U.S.-China trade tensions， not caused by them， Qiu said.

With China increasingly striving to become self-reliant in high-value technology products like semiconductors and investing more in this area， low-end manufacturing should gradually leave the country， Qiu said.