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Supply Chain Resilience Initiative | There’s no escaping China's growing centrality

Most companies are not delinking business with China. They are only talking of adopting a 'China+1' strategy to diversify supply chains to manage their price and supply volatility as also de-risk becoming hostage to Beijing’s whims

September 08, 2020 / 03:40 PM IST

Concerns over global supply chains growing far too China-centric, making it the factory of the world, had been simmering for over a decade.

As China piecemeal emerged as world's largest trading nation and largest trading partner for over 100 nations, and built persistent and formidable trade deficit against all its major partners, its critics did occasionally raise the spectre of Opium Wars histrionics: China's one-sided tea trade with Europe in 19th century had triggered those epoch-making wars laying foundations for Communist China's 'century of humiliation' national narratives.

Yet, much of the world continued sleepwalking into China's unprecedented economic resurgence with its mushrooming of 'Chinatowns' and 'dollar stores' ignoring their deeper structural implications until developed nations saw China’s high-end brands beginning to undercut their global monopolies.

COVID-19 was a wake-up call highlighting major powers’ vulnerabilities to all supply chains being so China-centric. This glaring reality was to become the highlight of their hyperbole on how China's 'wolf warriors' were now threatening to ban imports from those raising the anti-China rhetoric blaming it for the pandemic.

Listen | Business has recovered fast to pre-COVID levels: Urban Company Co-founder Abhiraj Bhal

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More seriously, this coercive strategy did mark a shift from China's earlier tactics of incentivising trade and investments to cultivate internally unstable regimes. This had seen China's successive leaders converting its expanding economic prowess into wielding political influence so aptly reflected in scores of such leaders lining up for Beijing's Belt and Road Initiative (BRI) summits.

This had already triggered a direct trade war between the United States and China. Now, with the US emerging as the worst victim of COVID-19, and with the US presidential elections nearby, US President Donald Trump has issued a spate of executive orders slapping sanctions, new trade barriers, travel advisories and name-calling tweets leading to various knee-jerk reactions with varying possibilities.

Among these were the parleys that began among various stakeholders in global supply chains in China's immediate and extended periphery. They were all deeply worried about China's increasingly assertive behaviour and what it meant to their fight against the twin challenge of a deepening health crisis and a sharply shrinking economy.

As the world's third-largest economy with a reputation for advanced technologies and extensive outreach network and official development assistance programmes, Japan initiated such parleys on de-risking supply chains from its overdependence on China by the end of March itself. Its first outcome was seen in early April when Japan announced a stimulus package of $2.2 billion to help companies move production away from China.

On September 1, the next — and bigger — step came in the first trilateral meeting of the foreign ministers of Australia, India and Japan on what is called the Supply Chain Resilience Initiative (SCRI); though its full details and formal structures are expected to be announced later.

Meanwhile, China has been busy redesigning its strategies, and its post-COVID-19 projections expect to indeed further reinforce its centrality in global supply chains as it shifts to building high-technology brands while offshoring low-value manufacturing of goods and services. China also remains central to world's largest free trade arrangement — the Regional Comprehensive Economic Partnership (RCEP), from which India decided to step aside at the last minute, in November.

Likewise, most companies are not delinking business with China. They are only talking of adopting a 'China+1' strategy to diversity supply chains so as to manage their price and supply volatilities as also to de-risk becoming hostage to Beijing’s whims. This explains Japan, India, Australia trade ministers issuing a rather open ended joint statement where "ministers reaffirmed their determination to take a lead in delivering a free, fair, inclusive, non-discriminatory, transparent, predictable and stable trade and investment environment and in keeping their markets open."

So, while the SCRI may be a timely initiative to germinate resilience for these regional economies of the Indo-Pacific and even more countries may join it, there will be no escaping China's centrality. Over the decades, China has built itself as the manufacturing hub for global supply chains and refashioning these could take a couple of decades. Such incremental drift perfectly suits India which needs time to make itself competitive.

India has initiated various labour and tax reforms to maximise its ‘demographic’ and ‘democratic’ dividend, and they all remain pregnant with possibilities of making this Prime Minister Narendra Modi's Deng Xiaoping moment in India's post-Independence history, and to push India as the next manufacturing hub for the world.

Of course, Modi's front loading relevance of elements of 'trust', 'policy reliability', 'political stability' in cost calculations by potential investors and partners has to be accompanied by rapid reforms, infrastructure building and lowering India's own dependence on China's supplies of basic consumer goods as also in easy finance and technology.

Swaran Singh is Chairman, Centre for International Politics, Organisation and Disarmament, Jawaharlal Nehru University, New Delhi. Views are personal.
Swaran Singh
first published: Sep 8, 2020 08:43 am

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