China Challenges - Andrew Baxter

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For years  chatter has persisted about China’s growth threatening to take them to  the top of the world order. More recently however, China has been facing  some challenges affecting the size of their economy and just what type  of economy they may be set to become.

The Last 15 Years in China

Host Andrew Baxter equates  China’s last 15 years to something similar to an internal industrial  revolution. A shift away from a historically agriculture based economy  to a major manufacturing and technological centre of the world has seen  the Chinese economy boom. Though the agriculture and primary production  remains strong in China, Chinese citizens have moved into more urban  areas in their droves with such major industry coming into the country.  Cheap labour has historically been a major drawcard for competitive  businesses looking to manufacture their goods more cheaply.

China   also has not adopted a floating exchange rate, keeping it fixed for the most part which allows for some great stability which enables them to   take on tasks that other countries can not. Another competitive edge has  come from the fact that China has been a developing nation throughout this period, not falling under much scrutiny for its carbon emissions   over the years.

The Shift Away From China

As  China has become larger and larger, some of what used to be so   attractive about it for business appears to have perhaps fallen by the   wayside. Host Andrew Baxter notes  that there has been a recent trend of major US companies moving their  operations out of China for a range of different reasons. Once upon a  time the UK was the manufacturing capital of the world, attracting lots  of foreign business due to a surplus of natural resources combined with  cheap labour. As things changed however and conditions in the UK for  cheap manufacturing began to dim, we saw a shift to other nations where  those conditions remained available. This may be similar to what we are  seeing now with China, with many businesses moving out of China and into  neighbouring developing nations in Asia.

China’c  continued 0 Covid infection policy may have contributed to this, with regular lockdowns in the manufacturing centre of the world causing a lot  of supply chain disruptions around the world. Even Apple, which once  produced the bulk of their products in China, have moved production out  of the country.

The Biggest Risks for Manufacturing in China

As  a complex and multifaceted issue, there are an array of different risks  in play for those that are looking to take their manufacturing business  into China. Host Andrew Baxter sees  2 major ones – government policy and the potential for corporate  espionage. The government policy in particular is a major one at the  moment. The risk of having your operations shut down due to government  policy around that no Covid policy can really cause mayhem for a  business and if that is avoidable in other countries, it would certainly  be quite attractive. Although they may have to pay a little more, major  companies are accepting the slightly higher costs in other countries  for the sake of assurance that their supply chains won’t be shut down at  any given moment.

Where Can We Find Opportunities?

As is the case when any major issue arises – there are opportunities that present themselves. Host Andrew Baxter notes that the largest threats to businesses  around the world at the moment is the difficulty associated with   transporting goods across seas and instability stemming from the work   force and government policy. US manufacturers have the opportunity to   trade very heavily with Canada and Mexico in large amounts under NAFTA   which ensures some pretty attractive conditions. As a US company, moving  operations into Mexico where labour is cheaper, goods can be   transported by road or rail, and where time zones are even the same may lead to some big US names moving into Mexico as a long-term strategic   move. As a primary producer of agricultural goods, major companies   moving manufacturing operations may bring some opportunity about for up and coming Mexican companies.

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