China faces fight to retain foreign manufacturers
April 28, 2020 Category Foreign investment, Weekly
Three of the world’s four largest economies, the United States, Japan and the European Union, are drawing up separate plans to lure their companies out of China after the supply shock caused by China’s coronavirus shutdown. European Union Trade Commissioner Phil Hogan said the bloc would seek to “reduce our trade dependencies” after the pandemic, while Japan unveiled a USD2.2 billion fund to lure Japanese manufacturers back to the country or even to Southeast Asia – as long as they leave China – in response to supply chain disruptions. This followed the Director of the United States’ National Economic Council, Larry Kudlow, saying that Washington should pay the moving costs of American firms bringing manufacturing back from China. “I would say, 100% immediate expensing across the board for plant, equipment, intellectual property, structures, renovations,” Kudlow told Fox News, adding to his comments in January that the coronavirus outbreak would be a boon for American employment. However, the U.S. has no formal corporate repatriation program.
Firms from the U.S., Japan and Europe have been moving manufacturing away from China for some time due to rising costs and the impact of the U.S.-China trade war, but the pressure is now on to accelerate this, with the coronavirus pandemic highlighting how reliant the world is on goods made in China, particularly vital medical products.
Michael Alkire, President of health care resource provider Premier, has already identified 22 items of protective clothing and 30 drugs that are likely “so critical that they need to be produced” in the U.S. Many are currently made in China, which dominates the world’s personal protective equipment (PPE) and pharmaceutical markets. “For an N95 face mask, the cost to manufacture it overseas before the pandemic was about USD0.30 vs USD0.34-0.36 cents domestically,” Alkire said. “We’ve dodged a bullet, what we’ve seen in New York could have been widespread, there will be some serious shifting of supply chains after this.” Scott Paul, President of the Alliance for American Manufacturing, said that the idea of reshoring and decoupling is “gaining currency beyond the Navarros”, referring to hawkish White House Trade Adviser Peter Navarro. “How much of that lands back in the United States is an open question. But I think it’s much more certain that it will continue to flow out of China into other places,” Paul said.
For China, this presents a problem. As relations with Japan had been improving, Tokyo’s repatriation package “touched o! a heated debate in the Chinese political world”, according to the Nikkei Asia Review. Li Xunlei, Chief Economist at Zhongtai Securities and Adviser to the Chinese government, said while the rhetoric did not provide an immediate threat to China, it could be a serious long term challenge. About 70% of protective masks used in the U.S. are made in China, as well as a significant portion of its medicines. Reducing that dependence feeds into wider concerns over China’s growing economic, diplomatic and military might. Several law proposals have already been introduced at the U.S. Congress. One filed by Florida Republican Senator Marco Rubio would require the U.S. to reduce its supply chain dependence on China, and has attracted support from three Democratic Senators as the issue gathered bipartisan support. “It is unfortunate that it took a global pandemic to make clear the ramifications of offshoring our industrial base to countries like China,” Rubio said.
According to American analytics and advisory company Gallup, U.S. public opinion of China fell to a 20-year low with just 33% of Americans holding a favorable view. These results were echoed in a survey by the Pew Research Center. According to the 2019 Reshoring Index released earlier this month by American consultancy firm Kearney, the pandemic is forcing companies to rethink their supply chains, accentuating trends already under way, the South China Morning Post reports.
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