Why the coronavirus crisis won’t weaken China’s position in the global supply chain
- China’s role is changing, without a doubt, as the economy shifts gear into developing its hi-tech and services sectors
- Its innovation, and still considerable manufacturing heft, will ensure it has a place in the global value chain while its huge domestic market will continue to draw businesses from around the world
Engagement by the United States and China is especially important. In the wake of the 2008 crisis, the global economic recovery got a major boost from Sino-American cooperation, which supported individual stimulus measures (quantitative easing in the US and large-scale fiscal stimulus in China).
On the contrary, some US politicians immediately latched onto the Covid-19 crisis to argue that no country – especially China – should have such a central position in global supply chains.
The US is wrong to disregard China’s potential to contribute to resolving the Covid-19 crisis. It is also wrong to expect that the pandemic will weaken China’s position in global supply chains.
World needs China at the centre of supply chains more than ever
Even if more regionalised and diversified supply chains would reduce risks, China retains considerable competitive advantages in many areas, such as electronics, and machinery and equipment manufacturing. It cannot be replaced, at least not in the near term.
This is not to say that China’s role in global supply chains will not shift. But that has been happening for a decade, with a large number of low-value-added manufacturing jobs being transferred to neighbouring countries.
Far from weakening China’s position, this has enabled the country to climb the value-added ladder. The Yangtze River Delta and Guangdong province – regions that used to produce garments and shoes, and assemble electronics – have become hubs for hi-tech innovation.
Meanwhile, China has worked to boost domestic consumption, thereby reducing its reliance on foreign demand. As a result, the world may now be more dependent on China than China is on the world.
But they also enabled the country to stem new infections at a time when the virus was just reaching the rest of the world. Already, in mid-February, China began working to restore production in an effort to stabilise global supply chains.
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Unlike after the 2008 crisis, it looks like China’s government does not have to plan even more massive new investment spending. It should be enough to follow through on existing infrastructure-investment plans – including the construction of ultra-high-voltage power grids, intercity high-speed railways, and 5G networks – while taking other steps to support economic and employment recovery, such as subsidies and tax exemptions. With a fiscal deficit of less than 3 per cent of GDP, China can certainly afford such measures.
These investments will help China to build on recent progress in even more hi-tech sectors, including big data, artificial intelligence, the internet of things and the industrial internet.
This will deepen China’s integration into the global technological supply chain. Not even a Sino-American decoupling will stop technological exchanges between China and the rest of the world.
Neither US resistance nor the Covid-19 pandemic will stop China from opening its services sector or becoming an increasingly attractive export destination for advanced economies and emerging-market economies.
Indeed, at a time when some might be tempted to turn inward, China remains as committed as ever to globalisation. The trade, investment and growth opportunities that this commitment generates could well be a godsend for struggling countries in the aftermath of the Covid-19 crisis.
Zhang Jun is dean of the School of Economics at Fudan University and director of the China Centre for Economic Studies, a Shanghai-based think tank. Copyright: Project Syndicate
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