Repositioning global supply chains out of China will not be easy; Beijing will enjoy an advantage even post-coronavirus

China has been the factory of the world for 30 long years, with its determined economic growth and stability. Due to the coronavirus pandemic, anti-Chinese rhetoric has been fomented in a number countries and some — like the US and Japan — are vehemently trying to relocate their supply chains elsewhere

Parthu Venkatesh June 08, 2020 10:20:44 IST
Repositioning global supply chains out of China will not be easy; Beijing will enjoy an advantage even post-coronavirus

China has been the factory of the world for 30 long years, with its determined economic growth and stability. Due to the coronavirus pandemic, anti-Chinese rhetoric has been fomented in a number countries and some — like the US and Japan — are vehemently trying to relocate their supply chains elsewhere. Japan has even set up a fund of $2.2 billion to encourage companies to move out of China. Meanwhile, the US had proposed setting up an 'Economic Prosperity Network' (EPN) to partner such countries as Japan, India, South Korea, Vietnam, Australia and New Zealand, in ordrt to work on similar standards, digital business, technology, energy, infrastructure, research and development, education and commerce.

Aspiring to find an alternative to Beijing, however, may not be as effective as some might claim.

The US-China trade war of 2018 had also made matters tense between the two economic giants; the use of tariffs as a weapon had created a snag in the movement of the global economy, resulting in a negative impact on many aspects of global supply chains.

Here are some of the factors that give China an upper hand; these factors will give Beijing an advantage even in the post-pandemic period.

Labour law flexibility

China, like other economically ambitious nations, had set the "flexible hours" system in place. Through this, it gave a free hand to employers where they could designate employees not to stick to the standard eight-hour day. It also permitted employers to not pay for most of the overtime. The only thing that makes employers eligible to practice this system is to have this system stated on the contract. However the system does not allow employers to abuse the employee — there are several legal mechanisms in order to restrict such practices.

Having such flexibility within its labour laws gives China an advantage as it allows employers to obtain high volumes of production and profit margins. Due to this system, China is a favoured and key link for most global supply chains.

Repositioning global supply chains out of China will not be easy Beijing will enjoy an advantage even postcoronavirus

Representational image. Reuters

China's foreign relations

Sino-ASEAN relations: With relations between China and South East Asian nations becoming stronger overall, ASEAN may not be able to afford the same space to non-Chinese foreign global supply chains as in the past. Ever since the US-China trade war, there has been huge competition in ASEAN as the world's two largest economies seek to relocate their business interests. Major Chinese investments have been made in significant sectors of ASEAN countries, further cementing Beijing's relations with the region. With an average GDP growth rate of 5.2 percent in 2019, ASEAN countries have been witnessing an uptick in economic development and are now in need of extensive FDI to sustain the impact of the pandemic. The Belt and Road Initiative (BRI) also plays a vital role in establishing the Chinese stronghold over the region.

Sino-Africa relations: Many African countries are members of the BRI and have been seeing the benefits. Very recently, China had provided a relaxation in terms of loans provided to Africa. Beijing is also offering debt relief to African countries on two bases: First, the country should have been reducing or setting aside debt relief for African countries evaluated by the UN, IMF and OECD and second, write-offs for loans only apply to interest-free loans. Chinese capital flows into the continent with a lack of political strings making it compatible with non-democratic African regimes and various other regimes. Eastern African countries like Ethiopia, Tanzania, Rwanda, Kenya and more are already part of the BRI, giving enough of an edge to China on the continent.

Considering China's relations with ASEAN and Africa, Beijing could, in fact, leave little space for foreign supply chains to establish their businesses.

China plays saviour

China has essayed the role of a saviour for these nations during the global pandemic, providing PPE and various other equipment to countries that were suffering. Beijing has smartly constructed the image of being a helping hand — a major factor in the strengthening of China's ties with a number of countries. As China ramps up its international assistance, irrespective of the quality of its masks and PPE, the Middle Kingdom is able to build the image of a responsible power.

China's political economy

China's unique regime allows it to have a political economy that in turn allows it to have the sort of planned economy where the State becomes the deciding factor for the allocation of resources, even though most of the players are private. Unlike other countries where the regimes complicate the decision-making process, China has been able to proceed at a relatively higher speed in terms of commercial operations.

It has in fact been able to create monopolies in many sectors by offering business friendly laws, allowing foreign corporations to partner with the local ones etc. The political economy — based on a highly growth-oriented structure — also provides space for intensive manufacturing for foreign corporations, which is congruent with China's role of an export-oriented economy.

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