Global market relies on China to secure supply chain as Indian industries hit by COVID-19
Published: Apr 28, 2021 06:53 PM
A textile workshop in East China's Zhejiang Province Photo: VCG

A textile workshop in East China's Zhejiang Province Photo: VCG

Affected by the COVID-19 epidemic, many enterprises in India cannot guarantee normal delivery, including textiles, active pharmaceutical ingredients (API) and electronic devices. In order to ensure the supply of goods, European and American retailers have transferred many orders originally produced in India to China.

IHS Markit, a London-based global information provider, said in a research note on Wednesday that the prolonged COVID-19 surge has negatively affected India's economic outlook. 

Electronic manufacturing, one of the pillar industries that contributed nearly 20 percent to India's GDP, is among the hard-hit list, according to statistics from National Investment Promotion & Facilitation Agency of India.

Canalys, a global IT analyst firm, predicted a sudden plunge in smartphone shipments for the second quarter in the Indian market due to the worsening pandemic situation. India is one of the largest country markets for smartphone brands, including Chinese ones such as Xiaomi, Vivo and Oppo.

"The smartphone supply chain will be affected in the manufacturing, transportation and retail sales stores, since the epidemic hit various Indian localities," Richard Ma, an internet industry practitioner who just returned from working in India last year, told the Global Times on Tuesday. 

While some Chinese textiles enterprises are seeing a huge rise in international orders, making their factories working in full swing, they also worry the trend could be temporary, making it unnecessary to increase production capacity, industry insiders have said. Some other textiles enterprises also revealed that they haven't seen overseas orders shifting from India to China but instead rising domestic orders.

Back-up supplier

A source with Zhejiang Textiles Import & Export Group told the Global Times on Wednesday that there is rising number for orders from Western markets to flow back to China from India after the production disruption since the epidemic last year. The recent new outbreak is definitely accelerating the trend.

The Indian textile industry is the second largest manufacturer and exporter in the world, with a share of 5 percent of the global trade in textiles and apparel, after China. The textile industry contributes to 2 percent of India's GDP and to 12 percent of the country's export earnings, according to the Ministry of Textiles of India.

China's textile trade with India is small. Because both China and India are large textile manufacturers, with the Western countries being their major target markets for exports, said the source.

The insider added that as long as India's epidemic is not contained, its textile supply will not be secured. International orders will still shift to China.

But analysts said the flow of textile orders from India should be temporary, as textile industry is labor-intensive. Labor costs in China have been rising over a number of years and many such factories have been transferred to Southeast Asia.

Some other Chinese enterprises see it differently. A manager surnamed Chen from Quli Textile company in Shaoxing, East China's Zhejiang, told the Global Times that orders were "slightly up" since March this year, but mostly from rising domestic demand.

China is shifting from a cost-driven to innovation-driven manufacturing destination. Also, the focus of Chinese manufacturers is expected to increase toward their fast-growing domestic market. Its global share is likely to reduce and this is expected to create export market vacuum of around $50 billion by 2025, which is a great opportunity for countries to cash in on newly available market share, including India, Vietnam, Bangladesh, Ethiopia, Kenya and Myanmar, according to a report by the Federation of Indian Chambers of Commerce and Industry (FICCI).

New supply chains emerging

The situation of COVID-19 epidemic has reached new crisis levels in India, with 2.97 million active cases and 201,166 deaths in total according to latest data, global buyers worry that industries in India cannot provide sufficient supply and are looking for backup sources, for example, China.

Indian people with COVID-19 symptoms queue for an Antigen Test at a government hospital. Photo: VCG

Indian people with COVID-19 symptoms queue for an Antigen Test at a government hospital. Photo: VCG

"Given the very limited net profit margin for textile industry, the textile supply chain is rather short, almost within one country, which is different from the production of medical drugs that involves many participants in different countries before delivering to the final market," one industry insider said.

Normally, India is a processor on the API supply chain between China and the final destinations in Europe and the US. But buyers are seeking to skip India on the supply chain due to its serious epidemic outbreak.

There are 10-20 percent of the API from the company exported to India for proceeding before exporting to the West, a secretary of the board of a large API company based in Zhejiang Province surnamed Dong, told the Global Times on Tuesday.

"We are looking at the possibility of directly exporting to the third countries instead of through India to fend off the potential disruption over supply chain," said Dong.

A manager surnamed Yang with an API exporting company based in East China's Shandong Province, told the Global Times on Tuesday that the orders directly from the third countries are increasing in the past two weeks by around 10 percent after India's epidemic, including countries in Europe, South America and Southeast Asia.

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