MNI EXCLUSIVE: China To Weather Supply Chain Fears-Advisors

By Wanxia Lin

     BEIJING (MNI) - China's large domestic market, diversified industrial base

and supply of skilled workers will ensure it remains a leading destination for

foreign direct investment, despite calls in some countries for their

manufacturing industries to return onshore, government advisors have told MNI.

     While international firms may diversify some capacity away China as the

world's second-largest economy concentrates increasingly on higher-technology

industries, a large portion will stay, said Tu Xinquan, dean of the China

Institute for WTO Studies, adding that no country can locate a complete supply

chain at home, no matter how much anti-globalisation sentiment rises. China's

developed infrastructure and relative speed in restarting its economy will also

lend it an advantage.

     "For manufacturers, the best way may be to spread the risk throughout

several regions," he said.

     Concerns over supply chain security often emerge following crises, Tu said,

noting that manufacturers still rely on Japanese intermediate goods despite

disruption caused by the 2011 tsunami. Song Hong, head of the international

trade research at the Chinese Academy of Social Sciences' Institute of World

Economics and Politics, noted that supply chains had been tested by multiple

crises over the years.

     --ALLURE OF CHINESE MARKET

     White House National Economic Council Director Larry Kudlow has said the

U.S. should "pay the moving costs" of every American company that wants to

depart China. Tokyo's latest stimulus package leans heavily on tempting

companies back to Japan.

     These are reflex reactions to counter the impact of the virus, according to

Tu, while Song noted that many concerns focussed on personal protection

equipment used by healthcare workers.

     For all that governments may promote diversified overseas investment,

companies will always prefer to centralise manufacturing hubs in large markets,

said Wang Haifeng, director of International Trade and Investment at the Chinese

Academy of Macroeconomic Research, run by the National Development and Reform

Commission, adding that about 80% of foreign manufacturers in China concentrate

on the local market.

     "Companies will make their calculations better than politicians, as they

have to weigh costs and profits," Wang said. Previous attempts by foreign

companies to relocate to cheaper parts of Asia had been reversed once cost rises

in the new locations failed to compensate for the superior productivity of

China's workforce, he noted.

     Wang expected muted cross-border investment this year, during what could be

the deepest global recession since the 1930s. But a recent survey by the

American Chamber of Commerce in China showed 40% of respondents saw investment

and production holding steady at March levels.

     China received CNY81.78 billion of foreign investment in March, with the

month's 14.1% y/y rate of decline improving by 11.5 percentage points from

February, according to the Ministry of Commerce.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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