Virus accelerates changes in global retail supply chain
Published: Feb 27, 2020 06:37 PM

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The outbreak of the deadly coronavirus has pushed global retailers to rethink their supply chains, which have been heavily reliant on China, and this could accelerate the ongoing trend of shifting certain production away from China to Southeast Asia, industry insiders said on Thursday.

However, the reallocation of low-end production outside of China also plays into China's own plan to upgrade toward high-end manufacturing and China, with its massive manufacturing capabilities and consumer market, will remain essential in the global retail supply chain, Chinese analysts said.

As the global retail supply chain was seriously disrupted due to factory closures in China amid the epidemic, there have been rising calls from overseas industry leaders to diversify the supplies of consumer products such as clothes and shoes, and reduce reliance on China.

Terry Lundgren, former CEO of US department store giant Macy's, said on Wednesday that the trade war between China and the US and the coronavirus epidemic showed that the US retail supply chain relied on China "too much," particularly the supply of products such as budget shoes, of which 90 percent are produced in China. 

"We all need to diversify that strategy," he told CNBC. 

Lundgren's call echoed that of many retailers and other businesses around the world that have been affected by the epidemic in China as well as some US politicians who have been calling for a China-US decoupling.

"Certainly after this epidemic, there will be some adjustments in the global supply chain system and China's own manufacturing sector," said Shi Xinyu, a trader based in Yiwu, East China's Zhejiang Province, a major export hub of small consumer products such as clothes, toys and electronics. "This epidemic indeed exposed some problems," he told the Global Times on Thursday. 

In the retail business, 20 percent of the global supply chain is reliant on China, with apparel in particular being at risk of disruptions, said Oliver Chen, an analyst at the US firm Cowen, according to CNBC.

While some companies, including Chinese ones, have been trying to shift some low-end production to Southeast Asia, it will take years if not decades to replace China as a supplier of cheaper goods such as clothes, said Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting.

"[The shift in production] is not about trade war or the epidemic. It is an inevitable eventuality because labor in China will be more expensive and companies will have to relocate low-end labor-intensive production to other places. But the problem is that will not happen overnight," Lu told the Global Times on Thursday, noting that China will still play a bigger role for the global retail sector "not only because of its production but also its vast market."

But the key to address the supply chain disruption is to contain the epidemic and help factories to resume production, Lu added. 

With the epidemic showing abating signs in the vast majority of China except for the epicenter Hubei, many Chinese businesses have resumed operations.

 Over 30 percent of China's 18.07 million small and medium-sized firms, which account for 99.8 percent of total businesses in China, have resumed operation and production, official data from the Chinese industry ministry showed on Thursday.