Thoughts on Dealing with the Loss of Industrial Chain
The loss of foreign companies has become the focus of attention. Fortunately, China's fundamentals have not changed and its charm remains unchanged. The relocation of companies is not as serious as foreign media exaggerate. For example, in 2022, the investment of German companies in China will reach a record 11.5 billion euros. However, the loss of foreign companies is indeed happening, especially in the fields of electronics and semiconductors. We must recognize the reality and solve the problem. The most important thing is that we still have many opportunities to reduce the loss.
Recognize the loss of foreign companies
How to deal with the impact of this wave of foreign relocation, we must first recognize the nature of this round of foreign company migration.
First, "In fact, I don't want to leave, but I actually want to stay." This should be the true thinking of most international companies. In fact, most international companies are willing to continue to expand and strengthen the Chinese market in terms of psychology and action. Still a minority. After all, China is more efficient, the Chinese market is huge, the dividends of Chinese engineers are unrivaled in the world, China's capital is abundant, and China's demand is active. The relocation of enterprises is not a wish, but a last resort under non-market pressure from the outside world.
The first is the political pressure to de-centralize, mainly from the US government. Although other Western countries have followed the United States, their attitude is far less firm than that of the United States, and they are even bucking the trend and increasing their positions in China.
The second is the sequelae of cutting off the international supply chain during the epidemic. The West has long wanted to go to Sinochem, but no one really dares to cut off China's supply chain and really dares to leave China. But this unbelievable scene became a reality for a short time during the epidemic, giving the West an impossible opportunity to practice. The West has found that the global supply chain is in chaos. It does not seem to be the end of the world. The brutal epidemic has also increased people's tolerance for chaos. Therefore, de-sinification has become an issue that cannot be manipulated. This is the de-sinification after the epidemic.
Finally, the cost in China has indeed risen. In the past few years, some companies have simply chosen to leave because of the rise in labor costs and land costs in China, and because of their small market share in China.
In the end, with the joint efforts of the three, the floodgate of de-centralization was opened. Due to the increasingly tense Sino-US relations, the Heritage Foundation, a well-known American think tank, believes that China and the United States have entered a state of cold war. This may be sensational, but at least in the short term, Sino-US relations will not improve greatly. It is an irreversible state for a long time.
Second, although the relocation of enterprises is a stick to beat mandarin ducks, and although most enterprises are unwilling to leave, a few enterprises that are determined to leave still go very resolutely.
Under the dual pressure of political sanctions and tariffs, a small number of companies whose business is difficult to sustain have no choice but to leave despite all their reluctance. Although there is a big gap between Southeast Asia and Mexico compared with China, the infrastructure is not good, the power supply is insufficient, and the laborers are troublesome, but the gap in infrastructure and human quality is not unchangeable. The inability to repair the railway has been a long-term laughing stock in India, but in recent years Modi has invested 680 billion US dollars in the construction of the railway, using elevated roads and underground passages to bypass the private land problem that has plagued railway construction for a long time. Vietnam has built a large amount of thermal power generation, and it is estimated that the compound annual growth rate of power generation will reach 5.7% from now to 2030. Moreover, these places are abundant in manpower, and it is not difficult to tame labor.
Therefore, poor conditions are not an unsolvable problem. Looking back at the early days of China’s reform and opening up, there are still a lot of problems while construction solves them. If because of these shortcomings, it is taken for granted that foreign companies will not relocate, or even dare to say that there is no threat to Sinochem. It has been several years since foreign companies have left. Companies like Apple have built factories in Southeast Asia for several consecutive years. If these places are not suitable for development, they would have given up. But the reality is that not only are foreign companies continuing to transfer, but they are also ordering their domestic supply chain companies to go along with them. Domestic supply chain companies have to go because they are worried about being replaced by other competitors.
Thirdly, foreign companies have left but did not give up. Most of them "relocated and stayed at the front line, so that we can meet each other in the future." The relocation of large factories generally adopts the China +1 model. No matter how much is transferred, the production capacity to serve the Chinese market must still be sufficient. Of course, some companies with a small market share in China will completely withdraw from China. Foreign companies that are willing to keep their hands in the country will also keep a part of their domestic supply chain. This kind of operation leaves more room for these companies to maneuver. In the future, they only need to expand their scale when they return to China, instead of starting from scratch.
Analysis and Thinking
The impact of the transfer of foreign companies on our technological upgrading, employment and local economy is all-round. Especially when large-scale terminals are evacuated, tens of thousands of employees are often laid off. Such a large-scale evacuation caused the economy of some parks to collapse instantly. Therefore, we must attach great importance to telling new stories about China, proactively connect with foreign companies, find new cooperation models under the new situation, and prevent the worst from happening. According to the previous analysis, foreign companies left China amidst conflicts, leaving room for us to make efforts, and there are still opportunities to save some links.
First, if the relocation of foreign companies cannot be changed, at least try to reduce the scale of the relocation, and try to keep the processes that can stay in the country and still have cost advantages in the country; if the relocation scale cannot be reduced, at least try not to do a liquidation relocation No matter the factory or the R&D department, at least keep a shell to wait for the environment to change, so as to facilitate future return; if you have to completely relocate, at least try to relocate but do not exclude Chinese companies from continuing to do the supply chain.
Second, we are in a policy competition with Europe and the United States. The United States has unabashedly implemented a large-scale discriminatory subsidy policy for the manufacturing industry. We must also take action, and we must use a subsidy policy that occupies the moral high ground. One is to take advantage of China's clean energy advantages, eliminate resource-intensive and high-pollution enterprises with high energy consumption, encourage enterprises to use clean energy, subsidize all enterprises willing to stay in China, reduce carbon emissions, and highlight product carbon labels (the carbon emissions) value; the second is to use advanced manufacturing to fight against low-cost manufacturing, encourage enterprises to increase automation and intelligence, optimize the supply chain turnover system, improve customs clearance efficiency, reduce costs, and strive for the comprehensive cost of foreign companies in China to be lower than other regions in the world .
Third, despite the rapid relocation, we should immediately start to guide the repatriation of foreign companies. China has come out of the epidemic in an all-round way, the flow of people and logistics has resumed unimpeded, and the economy has begun to recover. It is more attractive to companies that have left, especially those that are not doing well abroad. Rewards and subsidies are given to companies that are willing to return, and they are unwilling to return as a whole, so as to strive for the return of some orders, or the intermittent return of orders. In short, fight for as much as you can, and don't give up any opportunities.
Fourth, some domestic supply chain companies have to follow foreign companies, otherwise their market share will be lost. We must understand the difficulties of these enterprises, create the necessary convenience, and allow Chinese enterprises to go global. As long as these companies are not kicked out of the global supply chain, their growth will still be made in China.
Fifth, under the framework of the Belt and Road Initiative, take advantage of the convenience of geographical proximity to speed up the process of regional integration with Vietnam and other Southeast Asian countries, facilitate the flow of factors, allow factors to flow according to their efficiency, and reduce unnecessary physical flows.
Sixth, this crisis has brought enormous pressure to local governments at all levels. Pressure is the driving force, which brings us an opportunity to change our work style and improve our service level. Make good use of this crisis, improve government efficiency, optimize industrial layout, transform the business environment, and guide more resource elements to flow to advanced manufacturing, making China more attractive to the world.
Summarize
The loss of foreign companies has already occurred, and the negative effects are gradually emerging. The confrontation between China and the United States is gradually protracted, and this process will most likely last for many years. Therefore, we must attach great importance to it and cannot imagine that it will end automatically. We must take the initiative to connect with foreign companies, listen to their needs, and do everything possible to retain and restore their hearts. We ourselves must not be discouraged. Large-scale foreign companies mainly adopt the layout model of China +1, and have not completely moved out of China. We must tell a new story about China under the new situation, and amplify the role of the Chinese market in order to resist external storms. I believe that through this storm, we will further improve the business environment and industrial structure in the predicament, and Chinese manufacturing will also take the lead in entering the era of intelligence and low carbonization, with higher efficiency and higher production capacity. Value to participate in global competition. By that time, China will definitely be the destination that international companies are rushing to return to.
Reposted from: International Electronic Commerce, automatically translated by Google
View details
