Despite major uncertainties in Sino-American and global trade/political relations, the country in question has massive gravitational appeal for the margin-hungry.
As predictions for 2021 go, manufacturing powerhouse China will figure prominently for the world and especially the Asia Pacific region, if a study on global supply chain trends across 1,181 respondents Italy, France, Germany, the UK and the US is accurate.
While almost all respondents expectedly reported disruptions to their supply chains, and just above half were considering new suppliers and moving productions elsewhere, China appeared in the top three desired countries for the targeted supplier/relocation options in 18% of the group.
According to the report by credit insurer Euler Hermes, this sentiment could show a ‘will of continuation’ of current supply chain dynamics. Many companies already have suppliers in China, and the latter thus remains an attractive choice for many companies.
One other explanation is that companies continue searching for cost-effectiveness in times of great uncertainty and after an unprecedented shock; “improving margins” was cited as the most popular reason to look for a new supplier.
Choosing the target of a trade war?
Companies based in Germany, Italy and the UK mentioned China as their first choice significantly more than companies based in France. But the UK stood out when looking at China’s rank in respondents’ Top 3: 30% of UK companies considered changing suppliers mentioned China in their Top 3, which was significantly higher than in the US (12%), France (14%) and Italy (18%).
Companies in the automotive sector mentioned China significantly more than companies in chemicals and IT, tech and telecoms.
Another group that was more likely to look well upon China despite its global tensions were the highly-digitalized companies. This could be put in the context of the fast digitalization drive that China has been experiencing in the past years.
Meanwhile, the trade outlook for the Asia Pacific region was more positive among respondents than in other regions in the world due to, in no particular order:
- The faster recovery of the Chinese economy following the pandemic that originated therein.
- The relatively more successful control of the epidemic in several exports-oriented economies (e.g., Taiwan and Vietnam).
- A surge in global demand for electronics. Yearly export gains worth of US$372bn were envisioned for China in 2021. This could mean exports from China should be comfortably above the pre-crisis level in 2021, as was the case for those from Vietnam, Taiwan, Australia and South Korea.
- Conversely, the recovery in exports was lagging and unlikely to be complete by 2021 in Indonesia, India, the Philippines and Thailand, due to the slower restart of the economy and/or the reliance on exports of services (tourism).
Commented the firm’s regional CEO (APAC) Holger Schaefer: “The Asia Pacific has been showing encouraging signs of recovery over the past few months, thanks largely to the momentum provided by China. Moreover, the signing of the Regional Comprehensive Economic Partnership (RCEP) last month is very good news for multilateralism and sends a signal of confidence for regional trade and supply chains in (the region). Our economic research estimated that RCEP can boost regional trade by US$90bn per annum.”
Concluded the firm’s Senior Economist (Asia Pacific), Françoise Huang: “China remains an important offshore base for manufacturing with 21% of responding companies. Furthermore, companies that saw ‘little’ or ‘a fair amount’ of pandemic disruption were more than three times more likely to consider China as a relocation destination than those that had experienced a severe or significant disruption. Global companies could continue to consider establishing production sites in China, to provide for the country’s large and growing domestic demand, and as authorities continue to loosen regulatory restrictions in order to attract foreign direct investment.”