China US Decoupling Ain't Gonna Happen

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Kobo-Daishi
[asiatimes.com]

A December 8, 2020 opinion piece found at Asia Times

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from article
Senior officials in President Donald Trump’s administration have floated the idea that the US government may reimburse the costs of American companies relocating operations out of China, in order to diversify geographic risks to global supply chains and reduce over-reliance on China.

Japan has taken similar steps, announcing that it will provide direct loans totaling 220 billion yen (US$2 billion) for Japanese companies to shift production from China back to Japan, plus an additional 23.5 billion yen to help Japanese companies move out of China to other countries.

How big a threat is this to China’s position as the second-most-popular destination in the world for foreign direct investment (FDI), trailing only the US? Answer: This is principally cheap talk for domestic consumption.

Although US President-elect Joe Biden also talks about bringing manufacturing jobs back home, his choice for secretary of state, Tony Blinken, has minced no words in distancing the incoming administration from the idea of decoupling.

“Trying to fully decouple, as some have suggested, from China … is unrealistic and ultimately counterproductive,” Blinken said at an event hosted by the US Chamber of Commerce during the election campaign. “It would be a mistake.”

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and still more
China irreplaceable in global supply chain

As Blinken noted, decoupling from China is simply not realistic. China’s comparative advantage is no longer inexpensive labor. In fact, labor costs in China continue to rise.

At the same time, Chinese producers have substantially upgraded their capabilities, first by organizing and coordinating complex supplier networks, managing inventory and performing quality control on materials and components, and second, by moving into production of more sophisticated key components which previously were supplied from abroad.

For example, in 2009, China performed only assembly work for the Apple iPhone 3G, representing 3.6% of the total bill for materials. By 2018, China was producing many of the more complex components for the iPhone X, including the printed-circuit board, battery pack and camera module, increasing its share of the bill of materials to 25% of the total.

This is representative of the overall trends for China manufacturing. Based on figures from the Organization for Economic Cooperation and Development (OECD), China’s domestic content as part of total exports increased from 74% to 84% from 2005 to 2015. This comprehensive ecosystem of the value-added manufacturing supply chain in China will be difficult to replicate elsewhere.

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♭♫
They are not calling it decoupling but if it looks like a duck, quacks like a duck, and walks like a duck.... Then it is a duck.

[www.cnn.com]
Germany announced Thursday that it would reduce its dependence on China in “critical sectors” including medicine, lithium batteries used in electric cars and elements essential to chipmaking.

The government published its first ever “Strategy on China,” a 40-page document that highlights the tightrope Berlin must walk in managing its dependence on the world’s second-largest economy amid growing criticism of Beijing’s human rights record and attitude towards international law.

Quote
Kobo-Daishi
[asiatimes.com]

A December 8, 2020 opinion piece found at Asia Times

Quote
from article
Senior officials in President Donald Trump’s administration have floated the idea that the US government may reimburse the costs of American companies relocating operations out of China, in order to diversify geographic risks to global supply chains and reduce over-reliance on China.

Japan has taken similar steps, announcing that it will provide direct loans totaling 220 billion yen (US$2 billion) for Japanese companies to shift production from China back to Japan, plus an additional 23.5 billion yen to help Japanese companies move out of China to other countries.

How big a threat is this to China’s position as the second-most-popular destination in the world for foreign direct investment (FDI), trailing only the US? Answer: This is principally cheap talk for domestic consumption.

Although US President-elect Joe Biden also talks about bringing manufacturing jobs back home, his choice for secretary of state, Tony Blinken, has minced no words in distancing the incoming administration from the idea of decoupling.

“Trying to fully decouple, as some have suggested, from China … is unrealistic and ultimately counterproductive,” Blinken said at an event hosted by the US Chamber of Commerce during the election campaign. “It would be a mistake.”

Quote
and still more
China irreplaceable in global supply chain

As Blinken noted, decoupling from China is simply not realistic. China’s comparative advantage is no longer inexpensive labor. In fact, labor costs in China continue to rise.

At the same time, Chinese producers have substantially upgraded their capabilities, first by organizing and coordinating complex supplier networks, managing inventory and performing quality control on materials and components, and second, by moving into production of more sophisticated key components which previously were supplied from abroad.

For example, in 2009, China performed only assembly work for the Apple iPhone 3G, representing 3.6% of the total bill for materials. By 2018, China was producing many of the more complex components for the iPhone X, including the printed-circuit board, battery pack and camera module, increasing its share of the bill of materials to 25% of the total.

This is representative of the overall trends for China manufacturing. Based on figures from the Organization for Economic Cooperation and Development (OECD), China’s domestic content as part of total exports increased from 74% to 84% from 2005 to 2015. This comprehensive ecosystem of the value-added manufacturing supply chain in China will be difficult to replicate elsewhere.