China Supply Chain Confidence Remains High

Op/Ed by Chris Devonshire-Ellis

Very few express intentions to pull China out of global supply chains as indicated by China-Britain Business Council’s latest survey findings.

The China-Britain Business Council (CBBC) have issued a report entitled “Impact of COVID-19 on British Business in China,” which surveyed 262 British investors in China in the week from February 26 to March 3, 2020. The survey findings reveal that although 60 percent of respondents have negative expectations for the next three months, most British businesses remain committed to China. It also reveals the extent of disruption to normal business caused by the virus – two-fifths reported cash flow challenges during the crisis, while majority of importers experienced problems with freight deliveries. Only a handful of firms reported any legal or customs-related issues.

Of those surveyed, just 3 percent planned to make permanent changes to their supply chains and move away from China, while 30 percent are reviewing their supply chains and will in future ‘mix’ China with other alternatives.

Interestingly, it was importers based in China who reported the most problems – 62 percent stated they had faced delays, while just 27 percent of China based exporters reported problems. This was presumably due to China delivery problems as the country locked down, while exporters, as we noted elsewhere have seen orders maintained for the same reason – a lack of China domestic demand.

Import bottlenecks remain an issue; however, this is expected to ease.

The report, while of course a survey of British businesses in China, tracks behavioral trends – meaning similar responses would almost certainly be found from other business nationalities operating in China. It is not unreasonable to suggest surveys of US or other European businesses would find close similarities. It also echoes what we at Dezan Shira & Associates have been saying – there is no mass exodus of foreign-invested traders, supply chain intermediaries, or manufacturing businesses from China.

That however flies in the face of what the Seattle-based China Law Blog has been suggesting, with its US lawyer Dan Harris saying that “In China manufacturing right now, things are only going to get worse and as they do so a vicious circle will form and as more foreign companies will leave.”

In other posts, he suggests that Mexico, Turkey, and Colombia among others will be alternative destinations. Sorry Dan, but that’s nonsense, and Seattle-based fake news. With Harris publicly opting not to visit China by taking the moral ground “Until the CCP stops seizing people for having said things it does not like” his is a somewhat quixotic position – commenting on issues from a second and often third-hand perspective. Maybe Dan would actually see how things are in China if he actually visited? China Law Blog in particular has become very anti-China in the past year or so – obliging us to correct some of their more outlandish statements from our real, on-the-ground knowledge and near 30-year expertise.

That is why the CBBC report is useful. The medium- to long-term position of 262 British investors polled last week in China remains positive, exactly as we see things on the ground too.

Leaving China doesn’t appear to be a popular choice – just 3 percent of respondents suggested they would leave the China supply chain altogether. As I pointed out in the article China’s COVID-19 Recovery – What Lies Ahead for Foreign Investors, it is far better to adapt an existing business, even if that means reducing its size or changing its operations, than to close it.

An additional survey by the British Chamber of Commerce in Shanghai, taken between February 18-21, this year, found that:

Half of Shanghai-based UK businesses expected their 2020 China revenue to drop by more than 10 percent as a direct result of the COVID-19 outbreak, and more than one quarter of them expect a decrease of more than 20 percent;
Companies are most affected by reduced demand for their products and services (61 percent), global travel disruptions (58 percent), and business uncertainty (55 percent).
The predominant concerns for businesses for the next six months are continued travel restrictions (69 percent) and reduced China domestic consumer demand (63 percent).

As for the one-third of surveyed British businesses in China suggesting they would look at mixing their China supply chain with others – this is very old news. We set up a China alternative office servicing foreign investors in Vietnam in 2007, and the first issue of our popular Vietnam Briefing magazine was titled “Global Manufacturing Moving to Vietnam“. It was published 12 years ago!

We’ve expanded on that recently too – the article Fed Up with COVID-19? Here are the Asian Manufacturing Alternatives, summarizes the sourcing and production options in India, Indonesia, Philippines, Singapore, Thailand, and Vietnam and contains links to a whopping thirteen complimentary country and investment protocol downloads.

China has always been a long-term play for foreign investors, which is perhaps something the likes of which China Law Blog don’t understand – they don’t have a presence in the country. They are distracting in their ability to underestimate both the market conditions in China and the resilience of foreign investors into the country. For pretty much everyone else except Dan Harris and China Law Blog, they are in China for the long-term. As most foreign investors, we expect, will continue to be.

A copy of the CBBC report can be downloaded, free of charge, here.