Caixin Global Webinar：How the Coronavirus Could Impact Global Supply Chains

Caixin has been closely following the coronavirus issue from the beginning, and as its impact continues to grow, we presented a webinar on March 11 to provide our audience with the information and insight they need, as well as an opportunity for discussion with relevant experts.

March 11, 17:00-18:00, Beijing Time

Speakers:

• Erik Berglof, Director of the Institute of Global Affairs, London School of Economics

• Greg Gilligan, Chairman, American Chamber of Commerce in China

• Edward Tse,  Chairman and CEO, Gao Feng Advisory

• Qu Yunxu, Managing Editor, Caixin.com

Work resumption status:

Chinese SEMs suffering, but there are ways to channel the support.

• There are bottlenecks, such as shortage of hygiene products and requirements on person-to-person distance at workplace, which slow the process of work resumption down.

• Looking at data, one needs to differentiate work resumption rate and capacity recovery rate. Moreover, data authenticity and accuracy need to be improved.

• Small and medium-sized companies have difficulties getting help from the government. But larger companies may help their sub-contractors and lower-tier suppliers through financial support.

• Telecom and internet companies contributed to prevention, diagnose and treatment of the virus, while data privacy concerns remain.

Sectors and regions differ in resilience.

• By sectors, apparel and shoes, toys, electronics, machinery and textiles, are the most exposed. China's automotive industry is also very much affected, but it actually was in the face of a weakening demand.

• Japanese, Korean, and Taiwanese companies are the most affected. Vietnam is the most affected country, the one most dependent on China's exports. EU’s dependency on China has increased, but that's mostly in consumer goods. The disturbances in terms of production will be with much less.

When will the global supply chains fully resume?

• Expectations range from as early as the end of April to end of August.

• The probability of global supply chains fully resume will be 80% in a couple of months, and over 90% or close to 100% by the summer or late summer.

• We're going to see quick rebound of the Chinese economy. There will be measures taken to create redundancy in the supply chain, which will take a bit longer.

China in the global supply chains:

China is now less dependent on the world.

• China has become the center of global value chains. What happened to global value chains over the last 10 years is very much driven by what happened to China.

• China has started producing more and more of intermediary goods. So ironically, the cross-border global value chains have actually reduced in importance. Through increased vertical integration, China has actually reduced its dependence on the rest of Asia.

• European companies have become increasingly dependent on China and less dependent on the value chains within Europe. In U.S., the increased import of intermediates is largely affected by what China has done.

Multinational companies still keen on China market.

• China is climbing up the value chain, producing more and more intermediaries. It is more difficult to have a dual supply of highly differentiated products.

• There surely will be more diversification. The impact would not be trivial, but the impact shouldn't be exaggerated as well.

• A majority of American companies see China as a major consumption market rather than export-oriented manufacturing base.

Diversification is happening, but not to be over-estimated.

• The virus has been a wakeup call to many producers. The supply chain diversification strategy is already an ongoing trend before the virus came. But it also depends a lot on the specifics of the industry the producer is in.

• Due to the importance of the US market, the decision to build plants in the U.S. will be more customer-responsive, and help them better cater to the exports.

• The decision to move out of China has to be careful in making, since it involves the entire supply base and takes years of planning. The importance of China and its consumer market has also to be considered.

What should be expected post-coronavirus?

There will be profound changes to China’s governance system.

• China has developed into a very unique “3-layer development model”, with the central government at the top, the entrepreneurial companies at the bottom and the local government being a link in between.

• The model works well for economic development, but it may not be adequate to fully address a new public agenda, such as public health.

• China’s governance system will have profound changes and become more transparent and accountable.

There will be a safer and more health-conscious living environment in China.

• The safe and healthy living environment is now considered equally, if not more important than economic growth.

• The value chain of healthcare will be extended to cover early detection and prevention, both of which are crucial for a future public health and management system.

• Future application scenarios will include more participants and promote a comprehensive ecosystem for public health agendas.

Innovation and entrepreneurship will become more prevalent in China.

• After decades-long rising, entrepreneurship and innovation will further accelerate to address the pain points that were exposed during the coronavirus epidemic

• Entrepreneurs, as private sectors, are also expected to be much involved in Public Private Partnerships (PPP).

• There will be more collaboration between private and public sectors to create solutions addressing public agenda issues.

Future of globalization

A decoupling in terms of technology and FDI has been reinforced by the virus outbreak.

• Timing for Implementation of the U.S.-China Trade Deal will be adversely affected.

• The exacerbation of the decoupling is probably the most serious outcome of this crisis.

• Both the United States and China have responsibility for the rhetoric of decoupling. The U.S. government should separate national security from law enforcement, and commercial and trade issues.

China will play a more responsible role in the world.

• China as the exporter of critical medicine, antibiotic and protective equipment, will not use its status as a tool. Instead it will offer to supply other countries protective equipment.

• Enhancing the public agenda is not just a China issue but also an international one, for the whole human beings.

• Issues such as climate change, public health and financial risks, all transcend across national borders.

This webinar is organized by Caixin Global Intelligence, the strategic advisory arm of Caixin Global. We help clients assess policy risk and macroeconomics in China, our clients will also have priority access to the webinars.

If you have any inquiries, please contact us at cgi@caixin.com.To stay connected to Caixin’s analysis, please follow our twitter @caixin_intel or sign up for our weekly newsletter here.

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