Supply chains going nowhere

By Li Qiaoyi in Ningbo Source:Global Times Published: 2020/4/14 21:58:40

Concerns over relocation from China overblown amid scrambling global economy

Editor's Note

The whole world is now contemplating the tough balance between virus containment and economic revival. After having primarily blocked the domestic spread of the deadly disease, China has put increased focus on restarting its economy. 

To understand the Chinese approach to handling the economic fallout from the pandemic, GT Source reporters recently visited the manufacturing and export hub of Ningbo in East China's Zhejiang Province. The visit came on the heels of GT Source's investigative tour of Zhejiang's Yiwu, the small commodities capital, intending to offer a glimpse inside the mechanics of economic development amid the virus spread.

The spotlight on Ningbo's auto parts manufacturing preludes a feature on Ningbo-based supplier to Nike and Adidas, Shenzhou International Group Holdings Ltd., to be published on Thursday.

An employee at Ningbo Zhenzhi Machinery and Mould Company works on April 8 in Ningbo, East China's Zhejiang Province. Photo: Yang Hui/GT

Conversations with locals in the port city of Ningbo were on most occasions filled with down-to-earth thinking about how the local economy, essentially underpinned by the city's manufacturing prowess, could better weather the coronavirus storm. 

The clean and modern city in East China's Zhejiang Province that epitomizes the nation's power-ful position in global supply chains is proof that supply chain relocation concerns are overblown, according to local industry insiders and officials.

Ningbo is home to many smaller businesses and, unlike a multitude of businesses of similar size in other parts of the country, the city's business community is composed of many "inconspicuous individual champions," Bao Zhengcao, deputy director of the Ningbo Municipal Development and Reform Commission, told the Global Times in an interview. 

In one typical case, a local sealing parts manufacturer rakes in annual revenues of close to 200 million yuan ($28.39 million), taking a lion's share of the global market for sealing components whose output totals roughly 300 million yuan annually, Bao revealed.

Ningbo added 11 individual manufacturing champions in 2019, bringing its championship number to 39 and putting the export-oriented city at the top of a national list of manufacturing powers.

The Ministry of Industry and Information Technology announces its championship list annually, selecting individual champions, referring to firms with a long-term focus on specific niche markets and manufacturing techniques that hold powerful market positions and take a substantial market share.

Local entrepreneurs over the years have strived to move up the value chain and make timely re-visions to their products and business strategies, Bao said.

The swift response to market changes likely meant the local business community was well pre-pared for a crisis such as the coronavirus pandemic.

With a substantial part of the world on lockdown as the global fight against the COVID-19 pan-demic continues, supply chain disruptions have frequently hit the headlines over the past two months. Media focused initially on an economic freeze in China and later on the suspension of ac-tivities in Europe and the US.

For a host of smaller businesses in Ningbo, the coronavirus-induced freeze has inevitably weighed on broader supply chains in which their strong positions are closely linked to the func-tion of many related sectors.

That in particular seems to be the case in the auto parts industry, a pillar of local manufacturing prowess.

A downturn in the domestic auto market and the COVID-19 fallout in overseas markets have dampened business optimism for the second and third quarters, Liu Jin, head of the general management department of Ningbo Zhenzhi Machinery and Mould Company, told the Global Times.

The auto mould manufacturer, located in an industrial park in the city's Daqi subdistrict, which produces high-end auto parts and mould, has been roaring up production as many orders were secured back in January or even before, Liu said.

A gradual decline in new orders for April and May will see reduced activity in the second and third quarters, she went on to say, noting that her company plans to take advantage of the slack to renovate its premises and upgrade its manufacturing equipment in preparation for a massive rebound in orders.

The industrial park, situated in the Daqi Industrial Community in Ningbo's Beilun District, houses 78 companies and nearly 20,000 employees, tallying an annual output of 20 billion yuan in 2019, Zheng Lingyun, an industrial park management official, told the Global Times. 

In the niche market of die-casting mould, 11 out of 20 of the largest companies have operations in the industrial park, she disclosed.

Chinese President Xi Jinping visited the industrial park in late March during an inspection tour for virus containment and work resumption in Zhejiang.

Speaking during the inspection tour, Xi called for efforts to smooth global supply chains to ensure normal economic and trade activities, according to the Xinhua News Agency. 

Ningbo Zhenzhi's handling of coronavirus-inflicted supply chain disruptions is believed to have eased fears of supply chain relocation from China.

For the time being, industrial chain relocation is unlikely to take place, Zheng Dengke, chief of Xiaolin Town in Cixi, Ningbo, said during an interview with the Global Times.

Instances of relocation from China mainly involve the transfer of labor-intensive industries to Southeast Asian nations such as Vietnam, Cambodia and Indonesia, but these nations still rely on China for raw materials supplies. With the global economy thrust into a freeze, such reloca-tions don't make any sense, Zheng said.

There are also cases in which supply chains are relocated from coastal regions to inland parts of China, but uncertainties over growth prospects tend to put such plans on hold, he continued.

Reflecting on the much-talked-about relocations, Lu Zhengwei, chief economist at the Industrial Bank, said that the China-US trade frictions have shone a spotlight on the relocation of China's industrial chains over the past two years. Heavy tariffs the US placed on Chinese products stoked fears of reduced competitiveness in the business community, prompting thoughts on al-ternative manufacturing bases to those in China.

Some firms considered setting up factories in the US and found that US-made products export-ed to China would come with high costs. Additionally, the items would be subject to equivalent tariffs imposed by China in response to US actions. 

A different approach - relocating supply chains to other markets supposedly exempt from both Chinese and US tariffs - is also largely unjustified, Lu commented. The manufacturing of most globally traded goods, especially bulk industrial goods, involves tremendous manpower, physical resources and even territories, rendering China essentially an unparalleled economy for supply chains.

A more realistic approach to coping with the virus-induced disruptions, Zheng argued, would be upping the ante in research, development and technological advancement.

Yao Xianjun, general manager of Ningbo Junling Mould Technology Co, also located in the Daqi industrial park, revealed to the Global Times that moulds for 5G base stations are set to make up a growing part of the company's business, under efforts to join the nation's push for emerging technologies.

The pandemic has paralyzed a big part of the global economy, leading many to rethink the securi-ty of industrial chains, Lu said, noting that the virus outbreak actually serves to ease concerns over the excessive rerouting of supply chains from China.

Wise entrepreneurs have taken note that basing supply chains in China proves propitious to mit-igating risks, as the Chinese way of handling various risks differs from what prevails in their home markets, he concluded. 


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