Western supply chain shift to India highlights urgency for China to consolidate industrial chain competitiveness
Published: Dec 10, 2023 08:19 PM

Staff members operate on a 10.5 GWh power battery production line at a local industry park in Ordos, North China's Inner Mongolia Autonomous Region on January 15, 2023. Photo:VCG

Staff members operate on a 10.5 GWh power battery production line at a local industry park in Ordos, North China's Inner Mongolia Autonomous Region on January 15, 2023. Photo:VCG

As Apple appears to accelerate its supply chain shift from China to India, there is a rising urgency for China to protect its critical supply chain capacity.

Apple and its suppliers aim to build more than 50 million iPhones in India annually within the next two to three years, accounting for about a quarter of global iPhone production, with additional tens of millions of units planned after that, The Wall Street Journal reported on Friday.

Almost at the same time, Bloomberg reported that Indian conglomerate, Tata, plans to build one of India’s biggest iPhone assembly plants in the southern state of Tamil Nadu, creating employment for over 50,000 people.

This is not the first time we've seen reports of Apple increasing iPhone production capacity in India. In fact, Apple is just one of the Western manufacturers that have moved capacity out of China amid Western calls for supply chain diversification, and India has been seen as a very promising candidate to become the next manufacturing powerhouse.

Whatever those companies' motivations for planning to increase production in India are, they are free to do so and it's their own business. But as they adjust their own supply chains, there is some undercurrent to watch out for, that is, the impact of those supply chain changes on China's industrial chain. For example, Apple has encouraged battery manufacturers, such as Chinese Desay, to establish new factories in India, the Financial Times reported last week. This is not just a trend worth vigilance, but it also reminds us the growing urgency for China to consolidate its industrial chain advantages.

The reason why these Western companies want their Chinese suppliers to follow them to India is simple. Their assembly lines, wherever they are, still depend on component supplies from China. While they may be able to find in India some substitutes for some common components, it is impossible for them to find a replacement in the short term when it comes to some critical parts. The necessity to continue relying on Chinese supplies in Indian factories’ production often means that efficiency gains will be slow, as logistics, customs clearing and other uncertainties all have the potential to expose the complicated production systems to loss of efficiency and increased costs.

But none of these justify the reason for Western manufacturers to move away from China's supply chain, while asking Chinese companies to go where they want. Enticing Chinese suppliers to move and undercutting the interests of Chinese industrial chain is not an effective solution for foreign investors to improve their production in India.

As we all know, China's supply chains have been characterized by being complete, comprehensive industrial chains, maintaining low costs, large-scale production capacity, rich supplier resources, and convenient logistics networks. If Chinese companies, especially those producing key components, are at the mercy of Western manufacturers, this may be a huge risk to the competitiveness of China's industrial chain, because this may disrupt the layout of the original industrial chain, leading to shocks to both upstream and downstream companies.

As the competition in the global industrial chain has become increasingly fierce, it is entirely reasonable and justifiable for China to safeguard the interests of its key industrial chain. China's manufacturing advantages are hard earned through decades of efforts. They are the fundamental reasons why Western manufacturers still rely a lot on Chinese supplies. As long as the core industrial chain remains in China, the competitiveness of Chinese manufacturing will stay, which will continue to play a key role in the global supply chains.

This is not to say that Chinese companies cannot invest overseas and build factories there, but that whether or not to invest overseas should be the independent choice of Chinese companies and industries based on their own considerations and development assessment. Such initiative must be in the hands of Chinese companies, which should by no means be led by the nose by Western companies.

The author is a reporter with the Global Times.