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Sun, December 3, 2023 | 04:52
SCMP
China kicks off Boao Forum for Asia, seeking to reconnect with business world that is looking elsewhere
Posted : 2023-03-29 15:59
Updated : 2023-03-29 15:59
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                                                                                                 Viktor Zubkov, former Russian Prime Minister and chair of the board of directors of Gazprom, attends a board meeting at the Boao Forum for Asia in Boao in southern China's Hainan Province, Wednesday, March 29. The forum runs through March 31. AP-Yonhap
Viktor Zubkov, former Russian Prime Minister and chair of the board of directors of Gazprom, attends a board meeting at the Boao Forum for Asia in Boao in southern China's Hainan Province, Wednesday, March 29. The forum runs through March 31. AP-Yonhap

                                                                                                 Viktor Zubkov, former Russian Prime Minister and chair of the board of directors of Gazprom, attends a board meeting at the Boao Forum for Asia in Boao in southern China's Hainan Province, Wednesday, March 29. The forum runs through March 31. AP-Yonhap
In the face of U.S. decoupling and tense geopolitical complications, Chinese and multinational companies need to make contingency plans for their production in the world's second-largest economy, according to business executives.

But even as that occurs, they say, China will continue to remain a global manufacturing hub.

The remarks came at the Boao Forum for Asia that began on Tuesday in South China's tropical Hainan province.

Billed as China's answer to the World Economic Forum in Davos, the economic conference in Boao serves as a major platform to reconnect with the business world after three years of isolation under a restrictive zero-COVID policy that caused many companies to diversify their supply chains outside of the country.

Also in mind at this year's gathering are external headwinds, a murky trade outlook at Washington's stepped-up efforts to contain China technologically.

George Zhu, CEO of Vital Thin Film Materials, said his company was looking to set up joint ventures in other countries and move part of its production chain out of China to stem the potential risks of further decoupling from the U.S.

The China-based company, which produces materials for electronic products, has a particular eye on the ramifications of economic decoupling between the U.S. and China, as half of the firm's customers are located overseas.

"I am desperate because we are facing unstoppable changes every day," Zhu said. "I think, currently, the shifting of supply chains is not being driven by the natural market economy, but rather manipulated by politics.

"We have to have a plan B."

                                                                                                 Viktor Zubkov, former Russian Prime Minister and chair of the board of directors of Gazprom, attends a board meeting at the Boao Forum for Asia in Boao in southern China's Hainan Province, Wednesday, March 29. The forum runs through March 31. AP-Yonhap
Beijing is focusing on climbing the industrial value chain to fuel sustained economic growth. Xinhua-AP

Zhu said that some clients are willing to bear higher costs, but if decoupling intensifies, his company plans to set up a full subsidiary with most of its shares ceded to overseas customers within the next three years, while the main R&D center remains in China.

He also said some provincial governments are even helping Chinese companies diversify their manufacturing process overseas to places such as Vietnam and Mexico, to help them stay competitive against Western rivals while mitigating any geopolitical fallout.

Tense relations with the U.S. and Beijing's highly restrictive COVID-19 controls in recent years have upended economic activity in China, forcing many companies to embrace the so-called China Plus One strategy in a bid to reduce their reliance on China.

But even with the pandemic and geopolitical entanglements straining China's supply chain, the country is poised to remain a global manufacturing hub for the foreseeable future, according to Benjamin Simpfendorfer, a partner with American management-consulting firm Oliver Wyman.

He suspects it will take more than a decade for regions such as Southeast Asia to supplant China in manufacturing.

"China will remain the world's manufacturing hub," Simpfendorfer said. "The country accounts for 80 percent of all smartphone exports. Suppose three years has made it decline slightly, but they aren't possibly back to zero, because no other market has the [same production] scale as China."

However, multinationals still need to do more to prepare themselves to improve the resiliency of their supply and industrial chains while continuing to invest in China, according to Simpfendorfer.

One way of de-risking the supply chain is to relocate some production capacity to other markets, mainly Vietnam, and also to India and Indonesia, he said.

                                                                                                 Viktor Zubkov, former Russian Prime Minister and chair of the board of directors of Gazprom, attends a board meeting at the Boao Forum for Asia in Boao in southern China's Hainan Province, Wednesday, March 29. The forum runs through March 31. AP-Yonhap
In this July 10, 2022 photo, containers are piled at Yangshan Port in Shanghai, China. AP-Yonhap

Another strategic step that multinational companies must take involves relocating essential elements of production back to their home markets, similar to what the U.S. has been doing with its reshoring initiatives to bring companies back, he added.

Meanwhile, multinational firms need to consider more mutually beneficial business cooperation, as the global economy will be more closely linked at the multilateral level in the future, Simpfendorfer said.

"This isn't about production in China for the rest of the world," he said. "American firms can invest in Chinese manufacturing, Chinese firms can invest in American manufacturing or in Vietnam or India or Indonesia. It really is about commercial collaboration and making sure it is a win-win scenario."

Chinese leaders have, in recent weeks, kicked off charm offensives to woo foreign and private businesses, as the country opens up fully amid urgent needs to revitalize business confidence and restore market allure. (SCMP)


Read the full story at SCMP
 
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