China seen fortifying strained supply chains

Pandemic highlights need for more resilient networks in Asia, analysts say

Chinese companies can play a key role in making Asia's business supply chains more resilient in the face of shocks such as that caused by the coronavirus pandemic, analysts say.

Upgrades to supply chain management in the Asia-Pacific region, especially in Southeast Asia, will help counter the effects of disruptions, they said.

Over the long term, Southeast Asia and China can fortify their supply chains by capitalizing on the trade links fostered by the Belt and Road Initiative, said Siriwan Chutikamoltham, a senior lecturer at the Nanyang Business School in Nanyang Technological University in Singapore.

The Belt and Road's maritime route will help link a number of Southeast Asian cities not only to China but to other parts of Asia, Europe and Africa, Siriwan said. This, in turn, will expand the role of Southeast Asia as a manufacturer and distributor and raise the profile of China as a key investor.

Anne Petterd, head of international commercial and trade, Asia Pacific, at the law firm Baker McKenzie, said: "Throughout the pandemic we have seen parts of towns and countries closing down and opening up again.

"The extent to which manufacturing, the movement of labor, transportation and demand have been disrupted has differed enormously between jurisdictions."

Exploring alternative suppliers to cope with pandemic-related disruptions is just a short-term solution, she said. Over the long term, businesses need to know how to navigate multiple supply chain issues.

Petterd called for digitalization to improve supply chain management. This will include using artificial intelligence and geospatial analytics to identify and analyze potential risks, taking into account the suppliers' location.

Hitendra Chaturvedi, professor of practice at Arizona State University's W.P. Carey School of Business, said Southeast Asian businesses also need to have stronger collaboration with their Chinese partners so they can jointly prepare a proper risk mitigation plan.

Production disrupted

Countries in the region closed borders and shuttered businesses and public facilities in the first half of the year to keep the coronavirus from spreading. But while these measures have helped the region to limit the number of infections, they have also disrupted the production and transport of raw materials and finished goods.

This has been evident in Malaysia, one of the region's key manufacturing centers and its third-biggest economy. It is also one of the world's biggest producers and exporters of medical gloves, an essential item during the pandemic. But in March, due to lockdowns, the glove manufacturer Top Glove encountered difficulties in shipping out its products.

Singapore's decision to close its borders in April meant temporary disruptions for the transport of food from Malaysia. The city-state imports more than 90 percent of its food, and Malaysia is one of its biggest food suppliers.

The disrupted global supply chain has also pushed Indonesian factory activity to a record low. Bank Indonesia, the country's central bank, said the Prompt Manufacturing Index stood at 28.55 percent in the second quarter. A reading of below 50 percent indicates a contraction.

Southeast Asian governments have been easing mobility restrictions in the past few weeks, allowing businesses to restart operations. Countries such as Singapore, Malaysia and Cambodia are even allowing the entry of limited numbers of business travelers via travel bubbles.

A survey conducted in June by the management consultant McKinsey & Company revealed that 60 percent of manufacturers in the region believe their sector will fully recover within the next six to 12 months.

Chaturvedi said Southeast Asian businesses need a two-pronged strategy to keep their supply chain resilient.

A global challenge like a pandemic spares no one, making it more urgent for countries to diversify their supply chain links and reduce dependence on any single country.

Michael Taylor, Moody's Asia Pacific managing director and chief credit officer, said: "Ensuring supply security by enhancing the strength of supply chains will become the overarching objective of governments and companies, overtaking cost and efficiency considerations.

Oswald Chan contributed to this story.