Evelyn Cheng | CNBC
Since Covid-19 disease first appeared at the end of last year in the Chinese city of Wuhan, restrictions on business that started in the world’s second largest economy have highlighted the important role that China plays in the production of global goods ranging from children. pharmaceutical drug toys.
“This was a wake-up call for just about every business,” said Gerry Mattios, expert vice president of Bain, in a telephone interview last week. “The number one item on the agenda is:” How can I build resilience in my business? ” Supply Chain?’ “
A key element of this strategy is building flexibility – the ability to move quickly from different production sources in response to future challenges, said Mattios.
“We are not going to see China suddenly dry up in manufacturing,” he said. “Much (part) of China’s export production capacity could potentially move out of China, but much of the capacity for domestic consumption in China will remain in China. “
The Asian nation accounts for 35% of global manufacturing production, said the McKinsey Global Institute in a report last summer. The country has also become the world’s largest market for many products such as automobiles, luxury goods and mobile phones, accounting for about 30% or more of their consumption worldwide, added the McKinsey report.
Covid-19 infected more than 5.4 million people and killed at least 345,000 people, including more than 4,600 in China. The pandemic has disrupted the global flow of goods, which in some industries was already changing in light of trade tensions between the United States and China and cheaper labor costs in countries outside. from China.
In order to control the virus, more than half of China has extended the Lunar New Year holidays by at least a week. These regions accounted for 90% of the country’s exports, according to CNBC calculations of data accessible via Wind Information.
From a business perspective, building resilient supply chains following the coronavirus also means recognizing that a pandemic could happen anywhere, said How Jit Lim, managing director of consulting firm Alvarez & Marsal. Lim is based in Shanghai and focuses on supply chain management.
He stressed that the decision to shift production requires long-term planning and commitment, and cannot happen overnight, especially as companies try to keep costs down as they struggle in a economic downturn.
“China is still a very attractive total supply chain solution,” said Lim. “There are very few countries in the world where you can find almost everything you need to build something … The maturity of the workforce and the talent pool around it are still very attractive in China. “
Yet a key factor that could affect supply chains is politics, said Lim, noting that such changes do not necessarily lead to greater efficiency for businesses.
Political motors of all stripes
Just as some countries are pressuring companies to leave China and return to their countries of origin, Beijing defends the reasons why companies should stay.
Chinese authorities have stressed the attractiveness of their market to businesses at press conferences this month.
The Chinese economy contracted 6.8% in the first three months of the year, as exports plunged 11.4% in yuan. The secondary or manufacturing sector accounted for 27.6% of jobs in 2018, or more than 214 million, according to official data.
Authorities did not share a growth target for the year at a much anticipated annual parliamentary meeting on Friday. A day earlier, congressional spokesperson Zhang Yesui said that foreign companies had not left the country in a major way, and that the United States and China should work together for supply chains. and global growth.
Exports rebounded unexpectedly by more than 8% in yuan in April as reopened factories rushed to fulfill orders, particularly for medical supplies.
Cross-border financial payments platform Payoneer, which works with e-commerce sellers, saw an “explosion” in business activity in March that spread in May, according to James Huang, vice president of Payoneer and director of country for Greater China.
Huang expects that changes in consumer behavior will lead to more online shopping. He said he was still cautious in the short term, but fairly confident about growth in the medium term.
Challenges for future growth
Although China is the first economy to emerge from the economic recession, other countries may not be ready to buy massively. Even Chinese officials remain cautious.
“With the global spread of the virus, demand in the international market has declined sharply and China is facing unprecedented challenges in foreign trade,” Commerce Minister Zhong Shan told reporters last week, according to a translation from CNBC for his comments in Mandarin.
Political pressure on international business activities is also expected to increase, and a closer look at China’s role in world markets could accelerate diversification. The rest of the world has become more dependent on China, while the country has become more self-sufficient in trying to rely more on domestic consumption for growth, the same McKinsey report found last summer.
“We will start to see new regions around the world, new sites around the world, to start increasing manufacturing capacity … which they did not have in the past,” said Mattios de Bain, pointing Europe in particular.
“Ultimately, where we are headed for more fragmented manufacturing – many small factories in the world,” said Mattios, rather than the idea of a “factory for the world.”