On 25 February, a China Eastern cargo flight carrying parts required by General Motors took off from Shanghai’s Pudong Airport. The payload consisted of 422 pieces of automobile parts, weighing 80.45 tons in total. The airplane reached Chicago in the early morning of 26 February. This was one of 16 chartered flights planned for the automaker as the result of cooperation between Chinese auto parts vendors and logistics operators.
On the same day, China Eastern’s cargo flight CK287 also departed from Pudong Airport with 94 tons of parts for which Ford had chartered the plane. The aircraft touched down in Bangkok at 5pm later that day. The auto components had just arrived in Shanghai on the night before from Chongqing and elsewhere. They had been relayed between logistics companies and airlines, and got to pass through a customs green channel. From the transnational automaker’s submission of a request for a chartered flight, down to the final arrival at Bangkok, the whole process took only about one week.
This means that neither General Motors’ manufacturing base in Chicago nor Ford’s base in Bangkok are troubled by the repercussions in China from the coronavirus outbreak. Instead, the Chinese end of each of their global supply chains is quickly restored “at the speed of China”, so to speak, for effective connections and connectivity.
... particular media sources and individuals... claim that the epidemic will change the global supply chain system, and even believe that manufacturers will pull out from China.
Needless to say, the extraordinary supply chain connections outlined above can never be the norm. Nevertheless, they are completely commendable as emergency arrangements for circumstances of great urgency and gravity. They are a sign that China is acting as a responsible country, and that its corporations have integrity. With such service consciousness and means for providing service, notably reinforced by a strong determination and confidence to keep global supply chains going, would the coronavirus situation impact and alter the global supply chain system as some critics have feared?
Risk to global supply chains
And yet, there are particular media sources and individuals who are leveraging on the coronavirus situation in China to voice certain notions. They claim that the epidemic will change the global supply chain system, and even believe that manufacturers will pull out from China. However, there are well-informed individuals who are quick to put out their rebuttals and criticisms of such views.
When interviewed by the Xinhua News Agency recently, Nicholas Lardy, a senior fellow at the American think tank Peterson Institute for International Economics, made an important point: a coronavirus-induced exodus from China is not very likely since global enterprises are highly reliant on the Chinese supply chains in some sectors. As he explained, it is costly for a corporation to relocate its supply chain. Should some enterprises choose to have their supply chains migrated out of China in their future investment plans, they would have to bear higher costs, disadvantaging themselves in relation to the competition. Such relocations on a massive scale are therefore “not very likely”.
Apple has restarted 80% of its brick-and-mortar stores in China, and that its factories in the country have also resumed production...
Meanwhile, Apple Inc.’s CEO Tim Cook also expressed a similar opinion. Responding to a question by the American media about whether Apple will transfer its operations from China to Vietnam and elsewhere, he pointed out that the supply chain in question is a global one, so there are other issues to consider for a relocation apart from costs. One has to take into account the time it takes for the market to respond, as well as the availability of engineering or technological capabilities.
Cook underscored the fact that Apple has restarted 80% of its brick-and-mortar stores in China, and that its factories in the country have also resumed a certain level of production, albeit at a capacity that is currently still climbing. According to him, even though the production capacity will take some time to get upgraded, this is generally just a temporary slowdown in China now, not a long-term problem.
Thus, it is clear what the naysayers are doing. Those who proclaim that the epidemic will cause global supply chains to show a dramatic reaction (or even believe that manufacturers will pull out from China in some significant manner) are playing an old trick — that of wilfully painting a negative picture of the Chinese economy. Only this time, they are taking advantage of the viral outbreak. The intention is to inspire panic artificially and scare companies that invest in China into stampeding out of the country.
The scaremongers fail to recognise this: given that globalisation is already applauded and accepted by the vast majority of the world’s countries and corporations, how could the global supply chains possibly see a general reconfiguration, widespread relocations and mass withdrawals from China because of unrealistic talk?
The gestalt of global supply chains is the way it is today not because of what a particular country or company did unilaterally. No single country or company can shape the whole network as it desires. Changes thereto depend on the joint actions, cooperation, strategic placements and efforts of the vast majority of the world’s countries and corporations.
... the coronavirus situation has indeed affected China’s economic development. However, as mentioned by Tim Cook, the impact is only temporary.
In reality, as far as global supply chains are concerned, there is one thing we truly need to be doing. We should constantly perfect the supply chains with our common understanding on globalisation, boosting their operational efficiency and effectiveness, making them serve the various countries and corporations of the world better, rather than sabotaging, severing or disrupting the supply chains. As the world’s second largest economy, China not only benefits from the formation of global supply chains, it also plays an extremely important part in this process.
In the automobile sector, in particular, China stands at the very heart of the global supply chains. Without the central link that is China, these chains would be severed completely. When that happens, China would certainly not be the only party affected. The falling dominoes would include many countries around the world, especially major auto-making nations like the US, Germany, Japan and South Korea, not to mention the countries where top international auto-makers have set up shop, as well as the residents there.
We do not deny that the coronavirus situation has indeed affected China’s economic development. However, as mentioned by Tim Cook, the impact is only temporary. As the epidemic gradually comes under control in China, the authorities have taken initiative and made active arrangements. With recovery efforts proceeding at a fast pace, China's drive to resume work and production is showing results.
Data shows that currently 91.7% of China’s central enterprises have resumed work, and over 95% are back in operation in a range of sectors from petroleum and petrochemical, communications, electric power to transport. The work resumption rate for foreign companies in China exceeds 80%, while 95% of major chain supermarkets have reopened for business. More than 30% of SMEs have resumed work and production. The work resumption rate is also impressive on the local level. The figure is 82.5% for Guangdong’s enterprises in general, over 85% for Zhejiang’s foreign-funded enterprises, and as high as 96.1% for enterprises above the designated size in the Yangtze River Delta integration demonstration zone.
The local governments, in particular, have elevated various supportive services to the highest level, even deploying dedicated airplanes to help businesses transport their employees. Some of the foreign-funded enterprises here marvel at how thorough China is in helping companies resume work and production.
In terms of containing the Covid-19 outbreak and helping companies quickly resume work and production, no other country in the world can take the measures that China is taking. To those who hope for a manufacturers’ exodus from China as a result of the coronavirus situation, we say: “Be ready for a huge let-down.”
The post-Covid Chinese economy will be better than before.
China will not extract itself from the global supply chains, nor will there be problematic, mass relocations of existing supply chains. On the contrary, it must win the trust of even more foreign investors and businesses, such that more companies with high quality, superb technology and admirable standards will invest in it. These will further help the country to achieve high-quality development and economic transformation.
The post-Covid Chinese economy will be stronger than before. For the global supply chains, its standing and role will reach greater heights.
Note:
Reuters reported on 11 March that Japanese automaker Nissan plans to partially resume production at its Xiangyang and Zhengzhou plants in China, with partner Dongfeng Group, some time this week. Honda had also resumed limited operations and will be gradually resuming vehicle production at its auto plant in Wuhan. Separately, some key industries in Wuhan, the epicentre of Covid-19, were also told that they can resume work on Wednesday (11 Mar), a day after President Xi Jinping visited the city for the first time since the outbreak began.
Bloomberg said in a report published on 10 March that the Chinese economy was likely to be running at 60% to 70% capacity last week, according to a Bloomberg Economics report, up from about 50% earlier in February, as the country makes slow but steady progress in its effort to get back to work.
Related readings: Covid-19: Can the global economy operate without China? [Part One] | Covid-19: Can the global economy operate without China? [Part Two] | A better, stronger China after the epidemic? But at what cost?
