China urged to build stronger supply chain role like Apple to counter US decoupling

Speakers at the China Development Forum in Beijing call for high-value-added industrial clusters and interdependent supply chains in face of US trade war
Not even superpowers like US and China could build a completely self-sustained supply chain, former vice commerce minister Yi Xiaozhun says

China's economic recovery

Mandy Zuoin Shanghai

Published: 8:00am, 27 Mar 2023

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China should build high-value-added industrial clusters to strengthen its position in the global supply chain and counter the US-led decoupling, former top officials said on the weekend, as they downplayed concerns over factory relocations to Asian neighbours.

Much of the factory exodus was driven by China’s own private companies, former Chongqing mayor Huang Qifan told a high-level annual forum in Beijing, citing the need to readjust strategies to avoid tariff barriers amid the US-China trade war.

Around 60 per cent of foreign companies newly registered in either Thailand or Vietnam in recent years were Chinese-owned and mostly engaged in labour-intensive industries, Huang told business leaders and policymakers at the China Development Forum on Saturday.

These firms mainly produce low-value-added products such as apparel that were sensitive to tariffs, and it was “understandable” that they would make “some adjustments”, Huang – now a distinguished professor of economics at Fudan University – told the audience, according to a transcript released on the Sohu news portal.

For China, the real issue is to build up industrial clusters. Instead of low value-added sectors, we should focus on high-value-added industries

Huang Qifan

Though a small section involved providers of electronic assembly services, hi-tech and new tech products had not been affected, said the outspoken ex-official regarded as an expert on financial and economic affairs.

“It’s also reasonable for some multinational companies to strengthen their presence in Southeast Asia, and this will naturally lead Chinese firms providing support services to move there as well,” Huang added.

Such a shift was “not necessarily bad for China’s industrial restructuring”, he said, as Beijing pursues quality over quantity in economic growth.

“For China, the real issue is to build up industrial clusters. Instead of low value-added sectors, we should focus on high-value-added industries,” Huang added.

An intensifying trade rivalry between China and the United States, alongside nearly three years of stringent pandemic control measures and rising labour costs, has forced businesses to reconsider their heavy dependence on China, with many moving manufacturing to India and Southeast Asia.

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Tech giants such as Apple, Samsung, and Dell are moving parts of their operations to factories in Southeast Asia where labour costs are much lower, as are smaller firms in sectors such as footwear, apparel and toys.

Beijing has also focused on advanced manufacturing, hi-tech industries, artificial intelligence, healthcare and a green transition to climb the industrial chain and fuel sustained economic growth.

This is fuelled in part by increasing tech rivalry with the United States, which has restricted China’s access to high-end components, including advanced semiconductors, over what Washington says are national security concerns.

“We should cultivate a series of leaders in the manufacturing industry, or companies like Apple Inc that are on top of the supply chain … based on key products designed and produced on their own,” Huang said.

Yi Xiaozhun, a former vice commerce minister and ex-deputy director general of the World Trade Organization, warned that no country could set up a completely independent supply chain and decoupling would not ensure a secure or competitive supply chain for any nation.

The world should drop “zero-sum thinking” and protect an “interdependent, highly efficient and steady” global supply chain, Yi told the forum – the first time the annual event was held in person since the Covid-19 pandemic.

No country, not even superpowers like the United States and China, could build a completely self-dependent supply chain, Yi noted.

“Building high walls around one’s own small yard” would not help to guarantee national security, he said.

“Security is always an issue of relativity. China’s experience in growth has told us that there won’t be development without opening up, and the biggest insecurity comes from being economically backward.”