Is it time to shutter China’s status as factory to the world?
The global supply chain shortages that we’ve been talking about for months continue to pose risks across the global economy affecting production and manufacturing, logistics and shipping, and overall predictability and certainty. These effects are now being felt directly at the retail and consumer level through product shortages and higher prices.
Now there’s a new worry that China’s reimposed lockdown will exacerbate these challenges even further given the world’s reliance on China for a variety of goods and inputs.
It’s now long overdue to state the obvious: the world needs to significantly lessen its reliance on China in the first place.
It is undeniable that China has become the factory to the world across the board. Since it joined the WTO in 2001, it has gone from minor but important manufacturing player to the dominant global manufacturing powerhouse it is today producing everything from textiles, toys, clothes, footwear, furniture, clothing, medicines, and electronics to name just a few.
Moreover, many of the production inputs that are used in value-added and advanced manufacturing around the world are produced in China including structural components, electrical components, machine parts, tools, fixtures and fasteners and a variety of building materials – again to name only a few.
Yet now we’re told that global recovery may be stalled even further as Shanghai and the manufacturing hubs that surround it are locked down due to the latest surge in coronavirus cases.
Already the effects are being felt around the world. Tesla has reportedly shut down its Shanghai-based factory, and shortages of semiconductor chips in cars and electronics continue to throw a wrench in the production plans of the largest multinationals in the world.
To make matters worse, shortages are directly impacting consumers through delays and higher prices at a time when people around the world are already reeling from record high inflation.
So, what needs to be done? To be sure, there are no easy fixes, nor can everything be blamed on the pandemic which has quickly become “the dog ate my homework” excuse for everything.
There is no shortage of public policy failures around the world to point to. Labour shortages and the lack of skilled and talented workers have been a concern for years.
The need to invest in ports and trade facilitating infrastructure has been a key ask of these stakeholders long before the coronavirus.
And issues related to supply chain resiliency and ensuring offshoring policies are planned carefully is just good business practice.
Perhaps most important of all, the world needs to wake up and realize that overreliance on China just isn’t worth it. The savings on labour and raw materials are being felt elsewhere, and the risks are now painfully obvious and have been laid bare for the world to see.
In recent years, ‘reshoring’ has become a key objective for governments eager to bring manufacturing jobs back from the ‘offshoring’ that caused them to leave in the first place.
For those not yet ready to close the door on these practices, other countries looking to become emerging, low cost manufacturing export hubs include India, Bangladesh, Cambodia and Indonesia.
Whatever the road ahead looks like, one thing is for sure: Without significant changes in its behaviour and practices, China’s days as factory to the world may be numbered.