European Manufacturers Not Eager to Exit China, Head of EU Chamber Says
As plans are raised in some countries to persuade manufacturers to move their factories back home, after disruption caused by the Covid-19 pandemic left many wondering if the world’s current supply chains were fit for purpose, European businesspeople in China told Caixin that they are generally not looking to move their operations outside of the world’s biggest manufacturing nation.
The head of the European Union Chamber of Commerce in China Jörg Wuttke told Caixin Monday that European manufacturers wouldn’t find it easy to move their operations back to their home countries, as they involve a lot of high-tech elements that are difficult to move. Also, supply chain security is not their only concern. The location of future demand and markets is also a key point of consideration.
Considering the size of China’s economy and its GDP per capita, European companies will not give up on the Chinese market even if they do choose to decentralize their supply chains in the future, he said.
Sabine Weyand, a senior official of the EU Commission, said in a webinar hosted by the U.S. Department of Commerce’s International Trade Administration on Thursday that moving supply chains would be inefficient and manufacturing products entirely at home is not a reliable choice for any country, or even any continent.
As the coronavirus pandemic has disrupted logistics both within and between countries, causing shortages of medical supplies in some countries, diversification of supply chains has become a hot topic.
White House adviser Peter Navarro said in an interview with CNBC last month that he is preparing an executive order that would help relocate medical supply chains from overseas to the U.S. Last week, the Japanese government unveiled a plan that would incentivize domestic companies to move onshore the production of medical supplies and high value-added items that rely heavily on factories in one country.
The pandemic has shown large multinationals that it is highly risky to rely on a single source for any item, Jörg Wuttke said, adding that some degree of supply diversification is needed in the future, even if it raises costs.
Weyand said the best way to make supply chains more resilient is to allow as many countries as possible to participate in production, instead of companies just moving their factories back home.
China has been a crucial exporter of medical supplies during the coronavirus pandemic. From March 1 to April 4, China exported 10.2 billion yuan ($1.4 billion) of medical supplies, including masks, protective suits and ventilators, a Chinese customs official said (link in Chinese) last week.
Xing Ziqiang, the chief China economist at Morgan Stanley, wrote in an op-ed published by Caixin (link in Chinese) that the coronavirus pandemic will not accelerate the relocation of supply chains out of China, because the pandemic has slowed investment, and Chinese manufacturing has shown resilience as production has resumed after the virus was largely contained in the country. Xing said that it will be hard to replace China in international supply chains even in the long run as manufacturers need China’s quality labor force, infrastructure, integrated industrial chains and huge market.
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