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Constructing resilient supply chains | |
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A workshop of Chinese consumer electronics company TCL’s Phu Yen factory in Viet Namon October 13, 2024 (XINHUA) The Economic Policy Uncertainty Index for the United States surged to an unprecedented level in February, higher than during the 2008 financial crisis, reflecting the highest apprehension among investors and businesses since official data for the gauge was first compiled in 1985. The index was originally developed by researchers from Northwestern University, Stanford University and the University of Chicago. This heightened uncertainty is further exacerbated by U.S. President Donald Trump's protectionist policies that are disrupting global supply chains. While the tariffs imposed by the Trump administration were a major shock to the global economy, the deeper problem lies in the pervasive uncertainty these policies have introduced into the global industrial landscape, Zhu Min, a senior expert member of the China Center for International Economic Exchanges and former Deputy Managing Director of the International Monetary Fund, warned at the China Development Forum (CDF) 2025 in Beijing on March 23. Since early this year, restructuring, mergers and acquisitions within global industrial chains have remained sluggish. Large companies are hesitant to commit to long-term investment due to prevailing uncertainties, particularly those stemming from the U.S., Zhu said. Meanwhile, China is strengthening industrial cooperation and leveraging domestic consumption to stimulate global demand, he added. At the opening ceremony of the CDF 2025, Chinese Premier Li Qiang emphasized that China will safeguard free trade and contribute to the smooth and stable operation of global industrial and supply chains. The event, a prominent international gathering hosted by the Development Research Center of the State Council, took place on March 23-24 this year. Navigating instability "This is the critical issue that companies must grapple with in the current environment of profound policy unpredictability," Miguel Angel López Borrego, CEO and Chairman of ThyssenKrupp AG, a German engineering and steel production enterprise, said at a symposium of the forum on March 23. Volatility is a major obstacle to long-term capital and business planning, Zhang Xiaolun, President of China National Machinery Industry Corp. (Sinomach), a state-owned machinery giant, echoed, adding that unstable trade policies have profoundly impacted industrial chain restructuring, necessitating a balance between cost efficiency and resilience, including considerations of geopolitics, standards and tariffs. Resilience, achieved through diversification, localization and innovation, helps supply chains withstand shocks, from geopolitical tensions to demand swings. Entrepreneurs have a responsibility to jointly maintain industrial chain stability, Zhang said. Borrego added that major firms must strike a delicate balance between globalization and regionalization, which requires close collaboration between companies and governments across borders. China's extensive and well-developed industrial and supply chain networks, combined with its world-class logistics infrastructure, offer companies opportunities to reduce costs, enhance risk resilience and improve global competitiveness, Borrego said. Chinese companies are actively integrating into global production networks and expanding their reach beyond domestic value chains, forming a stabilizing force in the global industrial landscape, according to Zhu. A self-supporting and complete industrial chain has gradually taken shape, covering the entire process from end to end, he said. Previously, China's exports concentrated in several sectors where it was strong. Now, it is an exporter of products from entire lengths of the chain, Zhu explained. The domestic industrial ecosystem is gradually opening up to the world, integrating with global supply chains in a mutually reinforcing manner. This reflects the true essence of China's new development paradigm that is focused on the domestic economy but features positive interplay between domestic and international economic flows, he added. Chinese companies are moving beyond traditional product exports by establishing local production and assembly facilities overseas, Li Dongsheng, founder and Chairman of consumer electronics company TCL Technology Group, said. He emphasized the need to transition from exports to localized production, advocating for regional operation centers to deepen global integration. "This approach allows Chinese enterprises to gain local acceptance and support," he said. TCL has established 13 production bases and four research and development (R&D) centers outside China, as well as five regional operation centers in major overseas markets, over the past decade. By integrating technological expertise with regional economic development, these facilities are fostering open and mutually beneficial industrial chains, Li Dongsheng added. China plays a vital role in the global supply chain of furniture and homeware multinational IKEA, producing over 25 percent of the products it sells. "We source almost all our material categories here in China," Jon Abrahamsson Ring, CEO of Inter IKEA Group, said at the symposium. According to Ring, IKEA's operations in China cover the entire value chain, including innovation, R&D, manufacturing and retail. The global home furnishing giant has fostered long-term relationships with over 300 suppliers in China, collaborating on innovation and sustainability. "On average, we have worked with our suppliers in China for 15 years or more. We don't just buy and leave; we develop methods to recycle materials, optimize production processes and minimize waste together," Ring said. Jeremy Weir, Chairman of the Trafigura Group, a market leader in the global commodities industry, highlighted China's proactive approach to supply chain development, noting that the government's long-term mindset and predictable investment climate have been key factors in its success. Challenges vs. opportunities Li Dongsheng sees the restructuring of global industrial chains as both a challenge and an opportunity. He stressed that resilience and sustainable growth can only be achieved through open cooperation, technological innovation and coordinated development. Countries, regions and corporations must reassess their supply chain strategies to reduce over-reliance on any single market while moving their products and services closer to consumers. This requires balancing flexibility, resilience, efficiency and security to ensure regional supply chain stability, Borrego, whose firm supplies critical automotive and industrial components, said. According to Zhu, China's consumption-boosting initiatives will help bolster international demand and contribute to the stability of global industrial chains. ThyssenKrupp is adopting a more diversified approach, recognizing China as both a major market and a global industrial hub. The company aims to strengthen supply chain management in China and maintain strong partnerships with local suppliers. "This approach not only reduces costs and improves resilience to risks but also enhances global market performance," Borrego said. Ring reiterated IKEA's strong belief in the positive role of trade. Maintaining good trade relations and aligning standards and regulations as much as possible are necessary for promoting trade, he said. Li Dongsheng also emphasized the need to oppose protectionism in global supply chain restructuring. He criticized tariffs imposed by the U.S. and other Western countries under the guise of supply chain security, arguing that such measures contradict fair trade principles and hinder global economic development. As the world navigates this era of uncertainty, one question remains: Will nations prioritize fragmentation or collaboration in shaping the next chapter of global trade? BR Copyedited by G.P. Wilson Comments to mamm@cicgamericas.com |
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