Supply chain

Amid international supply chain restrictions that have stalled China’s chip manufacturing industry, Chinese companies are heeding the country’s clarion call to quickly skill up and help China achieve self-reliance in the field. With all and sundry throwing their hats into the ring, it seems that the country’s currently counting more on enthusiasm, rather than expertise, to make it happen. Will this mean more haste, less speed?

Chinese financial commentator Tan Haojun looks at what China has done right to quickly recover after the pandemic, and what makes international financial institutions and analysts confident about its economy.

China feeds about 20% of the global population, but its overall self-sufficiency in food seems to be dropping. Even though it is self-sufficient in some staples such as wheat, rice and corn, it is less so in others. In fact, it is the largest importer of food in the world. Recent calls by President Xi Jinping to cut food wastage has people thinking that political reasons aside, China’s food supply is at risk. This risk could yet be amplified by changes in land policies, rural-urban migration and more.

Much attention has been focused on the burgeoning US-China tech war and the US’s suppression of Chinese companies. But less is known about China’s firm hold on the rare earths supply chain, which has the potential to derail the world’s production of products from the humble smartphone to F-35 aircraft and guided missile systems. In response, the US and its allies, including the EU, Japan and Australia, are actively coalescing around new rare earths strategies. But private investment alone will not be enough to challenge China’s global monopoly in rare earths. Can new international public-private partnerships be the answer?

Despite US efforts to reduce reliance on China and decouple from it, the process will not be easy, given China’s enormous economic influence. Even with countries such as Vietnam trying to take China’s place as the “world’s factory”, their capacity is limited. However, this does not mean that China’s position is assured, as other countries are noticing China’s penchant for using its economic might as a bargaining chip.

Since the coronavirus pandamic hit, Japan has been trying to reduce an overdependence on China vis-à-vis its supply chains. But this is by no means a sign that it wants to decouple from the Chinese economy. Several Japanese firms in fact have the intention to expand their operations in China. However, the geopolitical situation and other factors have meant a sharp deterioration in bilateral relations including the stalling of a planned state visit by President Xi Jinping. International politics professor David Arase opines that even with the best of intentions and efforts, Japanese Prime Minister Shinzō Abe would find it difficult to maintain meaningful relations with China in a divisive world. Closer Japan-ASEAN ties may be one of the upsides out of the chaos.

As the coronavirus continues to affect supply chains worldwide, especially with China being a key hub, Japan is taking steps to diversity its sources and be less reliant on China. However, contrary to previous speculations, Japanese academic Shin Kawashima does not think that the Japanese government is attempting to decouple from China, in the way that the decoupling of advanced industries is being carried out in the US.

Ray Dalio, founder, co-chief investment officer and co-chairman of Bridgewater Associates, spoke with Lu Mai, vice chairman of the China Development Research Foundation and secretary general of the China Development Forum (CDF), on 8 June 2020. Drawing from patterns and cycles that he observed from history, his talk focused on global economic trends and how the pandemic would shape the world. He also gave his opinions on China-US cooperation and competition, and gave suggestions as to how the two great powers can work together for the greater good of the world.

China is speeding up its construction of a “domestic circulation system” to complement its international efforts, in a bid to protect itself from any anticipated effects of decoupling from global supply chains. If the world wishes to cut itself off from China, it seems to say, so be it, as it can make its own plans.