Replacing China in supply chains 'not possible', says European chamber

By Huang Ge Source:Global Times Published: 2020/5/19 18:58:41

Visitors on the Bund in Shanghai look at the skyline in Pudong New Area across the Huangpu River on Thursday. Photo: Yang Hui/GT

The coronavirus pandemic is unlikely to produce an exodus out of the Chinese market, and replacing China in global supply chain is impossible to materialize, a European business representative told the Global Times.

Most European companies in China are for the local market, which is still expected to grow extensively in the coming years and decades, said Joerg Wuttke, president of the European Union Chamber of Commerce in China. 

"The market is too important (for European companies) to leave," he said.

The Chinese market has world-class industrial clusters, a strong mix of skilled, less skilled and highly professional labor force, and some of the best infrastructure in the world, Wuttke noted. "Yet, taking all this for granted would be a mistake." 

The Covid-19 pandemic has led to some companies looking to invest their limited resources elsewhere. Few are leaving China, although fewer are doubling down on the market anytime soon, not only because they lack the funds at the moment, but also because diversification of supply chains is being given extra value, according to Wuttke. 

The pandemic dealt a blow to transnational investment and China also faces challenges in attracting new foreign capital, Commerce Minister Zhong Shan said on Monday.

But China has many edges: ample, high-quality labor, comprehensive industrial support and a market of 1.4 billion people, Zhong said. "I believe smart entrepreneurs will not give up this massive and still growing Chinese market."

Foreign direct investment in China rose 11.8 percent year-on-year to 70.36 billion yuan ($9.9 billion) in April, after dropping in the previous two months. 

Thanks to the quick recovery of many sectors of the economy following the COVID-19 crisis, multinational companies are seeing again the benefits of serving a strong Chinese market, with imported and locally produced products and services alike, Denis Depoux, global managing director of consulting firm Roland Berger, told the Global Times. 

"This crisis will only accelerate the importance of China as a major outlet for many products in the consumer and business markets," Depoux said, noting that it will also accelerate the localization of more multinational companies in China.

Yet, at the same time, some supply chains may diversify their localization, as well as "relocalize" in the European and US markets as a risk mitigation measure that will be demanded by their shareholders, he said.

"But this will not change dramatically the overall picture of a globalized economy, with an efficient distribution of production resources across countries and the strong appeal of a growing market like China," Depoux said.

Foreign capital is likely to be under the spotlight during this year's two sessions, and the EU Commerce Chamber anticipates that there will be more talk about the magnitude of a fiscal stimulus during the two sessions to keep China's economy moving forward. 

Reforms to China's healthcare system and food safety laws seem likely in the aftermath of the COVID-19 outbreak, Wuttke said. "These are all of significance to European companies in China that are eager to participate in reform and economic recovery."

European healthcare, agriculture, food and beverage businesses are experienced to make sure that these practices can be part of the reform agenda, he noted. 

Beyond stimulus, major reforms to the business climate are needed to create conditions for the private sector to recover, according to Wuttke.

China-EU trade ties have advanced smoothly since the bloc replaced the US as China's second-largest trading partner in 2019. Bilateral trade expanded 5.7 percent year-on-year to 1.35 trillion yuan from January to April this year, Chinese customs data showed.


blog comments powered by Disqus