Journal : Global Times (Chinese) Date : Author : Qian Feng Page No. : 14

According to several reports in the Indian media,  the Ministers of Trade and Commerce of India, Japan and Australia will hold their first meeting in the near future to launch the tripartite “Supply Chain Resilience Initiative” in an attempt to build on their existing bilateral supply chain networks to find alternatives to reduce dependence on China’s supply chain on a proposal of the Japanese government. Once an understanding is reached on the future (pattern), this so-called “supply chain alliance” initiative will be opened to ASEAN countries also. This move is not only in continuation of the pace of adjustment of the industrial chains initiated in the wake of the global new corona epidemic, but also tied up with intricate geopolitical considerations. Behind it is the invisible hand of the United States trying to get the “four-nation (Quad) grouping” going.

The tide of globalization that began in the 1990s has created a closely integrated and interdependent global industrial chains, value chains and supply chains. That process of globalization suffered loss of momentum and reverse development even before the epidemic due to increased trade protectionism, the emergence of new technologies and industrial revolutions, the rise of political populism and widening of the gap between the rich and the poor in recent years. The unforeseen once in a century kind of epidemic has severely disrupted global logistics, commercial flows and production, exposing the fragility of the globalised industrial chains and international division of labor and impacting politics, economy, people’s livelihood, security, and psychology in many countries. This has prompted many governments to rethink the security issues underlying industrial layout and supply chain. China had a lead in getting out of the epidemic and demonstrated strong production and supply capabilities but, despite providing tremendous support for the global fight against the epidemic, it also aroused concern in some countries about over-reliance on China for supply of strategic materials. There is enhanced inclination to speak out against dependence on China.  Influenced by non-economic factors such as the sharp turmoil in Sino-US relations and the growing United States’ efforts to contain China in an all-round manner, some countries plan to divert related industries back to the country or transfer them outside of China in order to avoid risks.
Take India for example. In May this year, the Modi government launched a large-scale economic stimulus plan, proposing to review its legal system such as land, employment and taxation, focusing on revitalizing “Made in India” and building a new domestic supply chain and market. After the Sino-Indian border confrontation and conflict, India has, on the one hand, stepped up the pace of “de-Sinicization” in the economic field. On the other hand, it has actively sought international cooperation to cater to the U.S.’s “decoupling” policy against China, even allocating large tracts of land for setting up projects transferred out of China.Japanese companies had begun to pay attention to the issue of the industrial chain’s dependence on China as far back as 2012, following deterioration of Sino-Japanese relations due to the Diaoyu Islands problem and rising labor costs in China. The so-called “China+1” strategy was discussed, alongside efforts to export the (Japanese) production facilities in China.  At the beginning of the epidemic, China’s economy had halted temporarily. This exacerbated Japan’s concerns. The Abe government allocated special subsidies to encourage companies to relocate their manufacturing industries out of China. Australia is closely following the strategic competition between China and the United States, as it has severely damaged Australia-China economic relations. Among the three countries, Australia relies the most on China and also because of structural problems in Australia’s economy, Australia too is eager to transfer its economic and trade links with China, its largest trading partner, to Japan or India.The introduction of this initiative is closely related to the recent “decoupling” policy of the US government towards China. In April last year, the United States announced the adoption of an “Economic Prosperity Network” plan that would cooperate with Australia, Japan, India and other countries to try to reset the global supply chain, pushing companies from the countries concerned to leave China, in a bid to weaken China’s position in the global industrial chains.

In the post-epidemic era, although the trend of adjustment and reconstruction of the global economic system is inevitable, and political factors will continue to get amplified, economic interests will still be the decisive factor. Regarding adjustments in industrial chains, two different logics entangle politics and business. Under the influence of political logic, politicians consider aspects such as geopolitical games, ideological competition, and national securityAs capital gravitates towards profit, the consideration for companies is business logic –cost, profit, risk, and trade-offs between these three factors.

China is the only country in the world that has all the industrial categories in the United Nations Industrial Classification. According to World Bank data, China’s manufacturing value added exceeded that of the United States in 2010, becoming the largest manufacturing country. In 2018, the value added of China’s manufacturing industry accounted for more than 28% of the world’s share. China’s huge potential market, high-quality labor resources, mature supply chain, government policy support, stable and safe social environment, and complete infrastructure are all huge attractions for international capital. The profit maximisation motive makes it difficult for companies to easily change their course and start all over again. Politicians can boast on the stage, but in the end they have to dance to the rhythm of capital and commercial interests. The fundamental driving force for adjustments and changes in the industrial chain is still economic laws, capital attributes and technological progress. 

(The author is the Director of the Research Department of the National Institute of Strategic Studies, Tsinghua University)

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