China remains crucial link in supply chain

Release time：2024-05-21 07:05:00 Source：Earth Explorer news portal

Market: Foreign companies investing more in China

China will retain its position as a key global manufacturing hub, as the supply chain diversification moves by certain multinational companies are gradual and limited only to low-end sectors, according to senior analysts and business leaders.

They also emphasized that the country's continuous efforts to promote industrial upgrade and deepen opening-up will further cement its status in the global supply chains.

However, they suggested that the country should make more efforts to strengthen international cooperation and create a level playing field for market entities, while leveraging the advantages of a huge domestic market and manufacturing capability to attract more foreign investors, especially in advanced manufacturing, consumer products and services industries.

Their comments echoed a recent report by Fitch Ratings, which said the move by global and Chinese companies to relocate production away from China amid rising trade barriers and geopolitical tensions remains limited to sectors involving low-skill assembly and mass production, such as textiles, apparel and footwear, with manufacturers persisting with higher value-added production in China.

"We believe the supply-chain shift is likely to be gradual, as China's competitive advantages of a large and relatively high-skilled workforce, well-developed infrastructure, industrial expertise and efficient and complete manufacturing value chain are unlikely to be overtaken by other countries in the near term," the report said.

Besides, thanks to its increasing production of higher value-added products underpinned by the government's continued efforts to encourage manufacturing upgrades and movements up global value chains, China's share of global manufacturing output has continued to grow despite the supply-chain shift, the report said. It cited data that showed the country's share of global manufacturing output reached around 30 percent in 2022, compared with 28.5 percent in 2018 and 22.3 percent in 2012.

Zhao Zhongxiu, president of the University of International Business and Economics, said: "Some manufacturing companies are moving factories out of China, implementing the so-called China-plus strategy. But that is just part of the picture."

"China is strengthening efforts to move up global value chains while further stabilizing foreign direct investment. No global company can ignore a market as big as China," Zhao said.

Despite some developed economies leaning toward protectionism, China has unwaveringly expanded high-standard institutional opening-up, and is seeking to integrate deeper into global industrial and supply chains through proactive opening-up measures. That will add resilience to its appeal to foreign investors, he said.

Ge Shunqi, a professor at Nankai University's Institute of International Economics, said he believes it is natural that some companies in labor-intensive industries are relocating production away from China as the country upgrades industry structure and moves up global value chains, just like they came to China decades ago to produce and then export those products.

Currently, it is important for China to maintain a stable and consistent approach of proactively expanding opening-up to deepen international cooperation, with bold opening-up measures, Ge said.

He also said the country can encourage Chinese enterprises, private ones in particular, to take the "going global" approach, because their increased presence overseas will strengthen China's ties with global markets, therefore building up the country's strength in global industrial and value chains.

Zhao, from UIBE, suggested that the country should further lower tariffs on intermediate goods — probably on a large scale — to reinforce willingness of companies to retain production capacity in China.

He said he expects the country to treat all types of enterprises more equally, ensure policy stability and transparency, and most importantly, encourage innovations and fair competition to boost confidence of market entities, especially those in the private economy.

Such efforts will further unleash development potential of enterprises, to help expand the domestic market and shore up economic recovery, and eventually, to further leverage the country's advantages of a huge market to attract more foreign investors, Zhao said.

David Lynne, head of corporate banking at Deutsche Bank, said that China will remain a significant destination for FDI, and a number of large multinationals are planning to or are already expanding their manufacturing capability within the country to supply the China market.

"The (Western) companies are increasing their manufacturing capability and investment in China," said Lynne. "China remains a significant marketplace for a large number of our multinational clients. Consumer wealth will continue to go up over time here, (so will) requirements around automobiles, consumer goods, chemical products and industrial manufacturing."

Market confidence in the Chinese economy has been growing as the authorities have been ramping up efforts to adjust policies to further revive the economy and support financing demands from companies of all categories.

At a work conference in Beijing on Thursday and Friday, the People's Bank of China, the country's central bank, vowed to provide strong and effective support for steady economic growth and high-quality development this year.

A variety of monetary policy tools will be used to maintain reasonable and sufficient liquidity, and keep the scale of social financing and money supply in line with expected targets for economic growth and price levels, the PBOC said in a statement.

The central bank will also focus on ensuring a balanced allocation of new credit, enhance the efficiency of existing funds and improve the credit structure, so that social financing can achieve a relatively rapid growth in a sustainable way throughout the year, the statement added.

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