China’s manufacturing mojo isn’t easy to shake off rivals. | So Good News


There has been a lot of talk about moving manufacturing supply chains out of China. Other countries want to cut their dependence on the world’s largest factory floor and are wary that Beijing wields too much power over the global economy. But replacing China is not easy. Making highways and manufacturing lines run like clockwork with tightly connected networks of suppliers is an enormous task.

Over the past two decades, Beijing has delighted global manufacturers with its meticulously built infrastructure and abundant industrial facilities. This means that even sectors that do not dominate the country’s production processes are growing in importance rapidly. Indebted state-owned companies build highways and ensure the smooth running of logistics and supply chains. China certainly has a lot of economic inequality, but its dominance in the global economy is unlikely to change anytime soon.

The US and India, Vietnam and Indonesia are trying to present them as alternatives. The $53 billion Chips Act is an effort by the White House to restore chip manufacturing to a national blueprint to build a lithium-ion battery supply chain by the end of the 2020s. He hailed Vietnam as a promising choice for electronics. Even Indonesia, a nickel producer that is an important part of electric vehicle (EV) batteries, wants to move up the ladder and capture the value additions from the global shift to EVs.

Parts of the supply chain may shift away from China, but no country can now come close to building a complex network of factories across multiple sectors. Switching agreements and suppliers is not an overnight process, nor does it define years of work.

Vietnam is doing a good experiment. Global manufacturers are finding Vietnam easy to catch the brunt of the shortage as Apple suppliers such as Hon Hai Precision Industry Co, known as Foxconn, plan to expand capacity there, sending industrial land prices to record highs. Now, building materials like aluminum windows are abundant in China and hard to come by.

That’s because Vietnam, along with the rest of Asia, imports a lot of basic industrial products like chemicals and plastics from its northern neighbors. Although its business has been open since March. As long as China continues to implement zero-covid restrictions, the Southeast Asian country will continue to experience supply chain disruptions. Vietnam’s PMI suppliers’ delivery time index, which captures supply chain delays, contracted in July.

Over the years, China’s ambitions to move up the value chain have shifted its production towards advanced equipment and industrial products. Its large manufacturing sector provides the major components that go into the final product. It is now the leading global exporter of components by value.

That means cutting the country’s manufacturers out of the equation will cause headaches in Asia and will inevitably be a problem for industrial companies in the US as well.

What do you say about China’s debt expansion? It is a railway, A comprehensive transportation network, including ports and airports as well as 5G base stations, is borne by local governments and state-owned enterprises. According to the latest Global Competitiveness Report, China does not rank well in governance or institutional transparency, but in land, road, and infrastructure. Sectors critical to hard technology supply chains, such as shipping lines and airport connectivity, are distinguished. It also spent heavily on research and development. By comparison, the US has only highlighted its infrastructure challenge in trying to jumpstart the EV supply chain. Kansas recently brought in Panasonic Holdings to build a $4 billion battery plant. One of the draw cards for the Japanese company was the push to upgrade the nation’s infrastructure.

Businesses are not patient enough for offshore operations to resume and are waiting for infrastructure. New pockets of manufacturing may emerge, but logistics may not be efficient for global operators who are used to China. Will it pay to recreate unbroken items? On a recent trip to Vietnam, a businessman lamented that express mail from Hanoi to Ho Chi Minh City can take up to four days.

All of this, including more than 200% of the country’s output and non-performing loans, comes at a high cost to Beijing. It pays to build all this, and foreign companies practically get a free ride on its smooth supply chains. No wonder foreign businesses continue to invest in China. Are the risks increasing depending on China? I am sure, But this kind of danger in Vietnam, There are also other places like Turkey or Malaysia. That’s just a business expense.

Anjani Trivedi and Shuli Ren are Bloomberg opinion columnists covering Asia and industrial companies in Asian markets.

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