- A raging pandemic along with a dire power crisis will take a massive toll upon the Chinese manufacturing sector, sending shockwaves across borders and continents.
- The power crisis in China serves as a lesson for the world: Decoupling from China is the only way forward.
- As the Chinese economy reaches its pinnacle and stares at an inevitable collapse in the eye, the companies and countries associated with China will have to bite the dust at the end of the day.
First, the Covid-19 pandemic, and now the devastating power crisis; China has given more than enough reasons to the world for shifting the supply chains away from its clutches.
China’s gruesome power crisis
China is reeling under a gruesome coal and power crisis that has threatened its export economy massively. China is forcing its factories to suspend operations to keep its strained power grids afloat. The power crisis has even reached Shanghai and Beijing, which has caused the suppliers of Apple and Tesla to cease their production. A raging pandemic along with a dire power crisis will take a massive toll upon the Chinese manufacturing sector, sending shockwaves across borders and continents.
Beijing’s lion share in world supply chains
China dominates the global supply chains. In 2019, China exported goods worth a whopping $2.6 trillion. Last year, when the Covid pandemic swept through the Chinese economy, the world bore the brunt as the commodity markets fell prey to supply disruptions. The Chinese manufacturers showed some promise in early 2021; however, Xi’s business-subverting campaign combined with his misguided war against Australia left the Chinese businesses paralyzed. Owing to the massive Chinese influence on global supply chains and commodity markets, the great fall of China will eventually wreak havoc on the global markets as well.
Chinese manufacturing has entered the contraction zone. The Chinese factory activity shrank in September owing to high raw material prices and the crisis in the Communist nation. The official manufacturing Purchasing Manager’s Index (PMI) in China stood at 49.6 in September compared to 50.1 a month earlier. Such contraction has been reported for the first time since February 2020.
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Global companies operating in China face a glaring collapse of supply chains
Global supply chains are already at risk with MNCs like Apple and Tesla getting directly impacted by China’s electricity woes. Carmaker Toyota also had to face hurdles in its operations due to China’s power woes. Apart from companies operating in China, several global industries are also dependent on China for essential inputs.
The European Union, for example, is dependent on China for raw materials, batteries, active pharmaceutical ingredients, hydrogen, cloud and edge technologies, and metals like aluminum or steel. Now, with China’s manufacturing activity hitting a nadir, the EU is likely to face a sudden shortage of such basic raw materials. Similarly, India’s booming silicon industry and Pharmaceutical sector are highly dependent on China.
Christmas is around the corner, and the world will most likely suffer from a shortage of essentials. China dominates the Christmas business. In 2017, nearly $416 million worth of “lighting sets of a kind used for Christmas trees” were imported to the U.S., almost entirely from China, according to trade statistics from the U.S. Census Bureau. Thanks to the western world’s over-dependence on Chinese goods, the collapse of the manufacturing sector in China will spoil the Christmas celebrations worldwide.
Read More: The politics behind the fall of Evergrande and why Jinping won’t save it
Decoupling from China: The only way forward
The power crisis in China serves as a lesson for the world: Decoupling from China is the only way forward. Japan learned this lesson the hard way last year. After the pandemic got unleashed from Wuhan in January 2020, Japan’s largest trading partner China abruptly shut down its borders and ceased trade with other countries.
The sudden suspension of trade ties sent shockwaves to the Japanese economy, which prompted the then-Shinzo Abe administration to announce a massive subsidy program worth $2 billion for its companies exiting China and relocating production to Japan. Almost $200 million were also set aside for those seeking to shift production to ASEAN countries. Later, Japan added Bangladesh and India to the list of “relocation destinations” for its companies. As a consequence of Japan’s efforts, 87 of its companies had shifted base out of China. While 57 of such companies moved back to Japan, 30 moved to ASEAN countries like Vietnam, Myanmar and Thailand.
The world needs to follow Abe’s China-doctrine
What Abe had realized back in 2020, the world needs to acknowledge today. Over-dependence on China is not only lethal but a threat to the national sovereignty too. China is known for intimidating smaller countries through its economic coercion and compulsive bullying tactics. The stronger trade ties mean stronger Chinese influence, which hardly bodes well for any sovereign government.
The Evergrande crisis has already underlined Beijing’s tightrope walk in dealing with the imminent economic collapse. And now, a power crisis would further encourage the MNCs and foreign companies to decouple from China and shift their bases to better alternatives like India. The Quad Group is also working out a strategy to rein in China’s lion share in global supply chains. For a larger share of the 21st century, the international companies rode on China’s exponential economic boom for making hefty profits and achieving market growth. However, as the Chinese economy reaches its pinnacle and stares at an inevitable collapse in the eye, the companies and countries associated with China will have to bite the dust at the end of the day.