Shifting production out of China would be a big mistake for US, Japanese companies

By Liu Zhiqin Source:Global Times Published: 2020/4/13 22:32:25

A view of the construction site of the Tesla Gigafactory 3 in Shanghai Photo: Yang Hui/GT

Recent reports about the US and Japanese governments' campaign to pay their firms to leave China as part of a coronavirus stimulus plan have raised broad concerns about further interruption to the global industrial chain and sabotage of the global economic recovery from the pandemic.

It seems that the two countries are rushing to reduce their industrial chain reliance on China, so as to rebuild a new supply chain based in their own territory. And the spread of the deadly virus has been taken as a chance for them to push the plan.

The US' call for shifting production out of China is nothing new. Since Donald Trump took office, his administration has not stopped such agitation, but few companies have responded.

If the US and Japanese governments are determined to move their companies' production out of China, it will be a strategic mistake that will reduce their international influence substantially and cause unprecedented economic losses.

The US and Japan seem to have forgotten the basic fact that their corporations' presence across the globe is the most important foundation stone for their international influence and tech advantages. If the US and Japan move their companies out of China, they will potentially lose the China market, and no other countries can import as many products as China. It will result in a decline in their international role.

It's also not practical or feasible for the US and Japan to let their companies relocate production back to their own countries. Some have argued that China's rising labor costs are the essential consideration behind the move, but the cost argument apparently neglects a more important factor: the quality and efficiency China provides.

China's demographic dividend doesn't only show in cost advantage. More importantly, decades of reform and opening-up have brought profound development in terms of Chinese labor's efficiency and quality. Made-in-China products have also reached the world class level in terms of design. China's sprawling transport network is also something that other countries can't catch up with. 

Without decades of effort, the US and Japan can't build up such a complete system that provides overall support to their companies' production even if the companies were willing to move back. In addition, given that the US and Japan lack production material, the companies that move back will face substantial difficulties in their operations. And the market share they lose during relocation will not be easy to make up afterwards. 

If the US and Japanese governments pay for all the companies' moving costs and foreseeable profits for three years in advance, maybe the companies can consider the option. However, the companies will almost certainly be surpassed by competitors from other countries during the relocation, and there will be no way back for them.

The author is a senior fellow with the Chongyang Institute for Financial Studies at Renmin University of China.


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