Global Supply Chains: Will Businesses Leave China

For the last 40 years, there was a sense among politicians and business leaders that you have to deal and trade with China. With its vast population, the country offers many advantages to businesses worldwide, as a production base, and today also as a consumer market. 

With COVID-19, however, the sentiment has somewhat changed. Supply chains have been interrupted, and the political climate has become tenser. US President Trump has asked US firms to relocate their manufacturing facilities to other countries; Japan has launched an incentive program for Japanese companies to shift their production back to Japan. The question is, will businesses follow suit?

Not much will change in the short-term

According to Reuters, most US firms have no plans to leave China due to the COVID-19 virus. “Companies are considering adjustments to their business strategy, but there is no mass exodus as a result of COVID-19,” said Ker Gibbs, president of the American Chamber of Commerce in Shanghai. Concerns over the logistical challenges of relocating seem to outweigh those of temporary factory closures. 

However, in the long-term, things may change, as businesses are also concerned over increasing political tensions between the US administration and the Chinese regime. There certainly is potential for more significant economic decoupling between the US and China in the months and years ahead, and that might significantly reshape supply routes and manufacturing bases.

However, for most companies, it is still too early to predict whether their long-term supply chain strategy for China will change in the next three to five years. But it will depend less on the COVID-pandemic, and more on the political reaction of both international as well as Chinese leaders. 

This week, the communist party in China will hold its annual gathering. The outcome will set the agenda on how China will overcome the economic slump of the COVID-virus and determine how businesses will look at China soon. 

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