China to play dominant role in global supply chain as it transitions to complex, high-end products, says HKMA’s Eddie Yue

Cutting China off from the value chain is unlikely because of the complexity and interconnectedness of the global supply chains, HKMA CEO Eddie Yue says

Yue stresses the importance of trade diversification as a hedge against risk of deglobalisation

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A worker checks a rotor core used for wind turbines at a factory in Nantong, in China’s eastern Jiangsu province. Photo: AFP

Yuke Xiein BeijingandZhang Shidongin Shanghai

Published: 7:34pm, 22 Sep 2023

China’s role in the global supply chain will become even more crucial in the coming years, as it garners a bigger market share in intermediate products required for manufacturing globally, according to Hong Kong’s top banker.

Despite ongoing geopolitical tensions that have fuelled calls for companies to reduce their dependence on China, cutting China off from the value chain is unlikely because of the complexity and interconnectedness of the global supply chains of many industries, such as information technology and automobile, said Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority (HKMA).

“Coupled with the capital-intensive nature of these industries, and the fact that most economies in Asia are unlikely to have the necessary scale and capacity to host these complex and large-scale supply chains, it would be difficult for any wholesale relocation of these more sophisticated supply chain networks,” Yue told the Bund Summit in Shanghai on Friday.

“China still has a lot of potential. Based on our previous experience, we think a country’s export can grow in tandem with its domestic consumption capacity, and China is clearly moving in this direction.”

HKMA CEO Eddie Yue says China cannot be cut off from the global value chain because of its complexity and interconnectedness. Photo: Xiaomei Chen

This is happening at the same time as China is transitioning from being a global supplier of simple products, to producing something more complicated, he added.

The global supply chain was roiled for nearly three years because of China’s strict pandemic controls. Some big companies like Foxconn, a major Apple supplier, struggled to keep with production because pandemic-related issues. Since then, the Taiwanese firm has moved some of its iPhone output to India and is seeking to diversify production further. Even smaller manufacturers of footwear, apparel and toy manufacturers are increasingly looking to countries in Southeast Asia to cut their reliance on China.