What it takes to pull companies out of China

Social media recently circulated reports about some people in Japan and the United States calling for the withdrawal of their companies from China. This is a result of misinformation getting amplified because of fears and uncertainty triggered by the global spread of the novel coronavirus.

First of all, the US has not asked American companies to leave China; it is only a suggestion White House economic adviser Larry Kudlow made while responding to a query on how the US can avoid relying too heavily on Chinese manufacturing.

Second, after the outbreak in China disrupted some supply chains, the Japanese government did propose supporting the return of some production bases from China, even offering subsidies to Japanese manufacturers willing to shift base. However, the idea was to diversify Japan's supply chain and avoid putting all its eggs in one basket, given that its supply chain gets disrupted from time to time thanks to earthquakes and tsunamis in Japan or elsewhere in Southeast Asia.

Globalization has helped establish a new international division of labor in the past few decades. After the 2008 global financial crisis, Western countries tried to promote re-industrialization, but failed to do so even after more than a decade of trying. The novel coronavirus crisis has made them redouble their efforts, but it is unrealistic to assume that every major economy can build a more independent, complete and secure industrial chain of its own in such a short term.

The outbreak in China did initially impact part of the global supply chain, but the subsequent global spread of the novel coronavirus shows it is not China alone that faces such a risk. On the contrary, by quickly bringing the epidemic under control and resuming production, China has shown a stronger resilience to deal with natural disasters than other major countries, cementing China's vantage position in the global supply chains.

China has become a global manufacturing hub because of a complete, efficient and low-cost supply chain for large-scale production to meet domestic and international market demands. Any company moving out of China will end up losing this advantage, putting itself at a competitive disadvantage in the global market. Also, China's booming digital economy infrastructure construction will further consolidate the advantage of its supply chain, something that developed countries and low-cost production bases intent on replacing Chinese manufacturing do not have.