`The World`s Factory`: Can China sustain its Status amid the COVID-19 Turmoil?
| Case Code: ECON097
Case Length: 12 Pages
Period: 1976- 2021
Pub Date: 2021
Teaching Note: Available
| Price: Rs.400
Organization : -
Industry : -
Countries : India
Themes: Macroeconomic Environment, Economic Slowdown, Digital Disruption, Logistics & Supply Chain
Abstract Case Intro 1 Case Intro 2 Excerpts
Journey of China As The World’s Manufacturing Hub
China’s manufacturing history dated as far back as A.D. 220. From the Han Dynasty (206 B.C. - A.D. 220) until the Ming (A.D. 1371-1433), goods, culture, and religion flowed between Central Asia, the Middle East, and China via the various overland routes of the Silk Road. In the early 1900s, Shanghai was called the “Paris of the Orient” based on its role as a center of trade and finance. But after Mao Zedong led the communists to victory in 1949, China established a planned economic system, withdrawing from global markets, which the communists deemed capitalist and imperialist. Foreign assets were nationalized and companies left the country..
The Secret Recipe of China
China offered many advantages in terms of supply chains. Over the decades, complex networks had evolved, incorporating suppliers, manufacturers, distributors, and government agencies – all working together to transform raw materials into products and then transport the finished goods where they needed to go. Because of its well-developed supply chains, many foreign manufacturers found it more efficient to handle all their production in China. US companies like Apple Inc. took advantage of China’s supply chain efficiencies to keep costs low and margins high. Foxconn Technology Group, a Taiwan-based manufacturer of electronics, had multiple suppliers and manufacturers of components that were at nearby locations..
Will china be able to sustain its supremacy?
Following a very strong performance in 2017, China’s manufacturing industry appeared to have reached an inflection point in 2018. The on-going internal industrial transformation (including financial de-leveraging, industrial de-stocking, and corresponding industrial upgrades) and also external trade friction pressures had resulted in China’s economic growth rate slowing down in the first half of 2018. With the government’s push for its manufacturing industry to move higher up the value-chain, it was facing more direct and fierce competition within the middle-and high-end industry. At the same time, part of its low-end, labour-intensive manufacturing was being transferred to lower cost countries. The ‘Made in India’ and ‘Made in America’ policy drives formed competitive relationships with ‘Made in China’ in both low-end and high-end manufacturing..
The impact of covid-19 on china’s manufacturing industry – a perfect storm?
Along with the challenges just mentioned, China was hit with the coronavirus outbreak (COVID-19) in December, which had since spread across the world and was officially declared a pandemic in March. Combating the virus had affected vast chunks of China’s economy. China was experiencing a trade deficit. Things were looking worse ahead for China, as many of the country’s big export markets were on the brink of going into their own respective recessions as they plunged headlong into battling the outbreak. In such an economically interconnected world, where the financial health of the US and Europe were important for the survival of myriad Chinese businesses, China’s quarterly reports were expected to be down..
The Next Chapter In China’s Manufacturing Saga
China had been facing a boycott across the world due to the alleged notion that it had hidden the dangers of COVID-19 from the world. The COVID-19 pandemic created a fall in the economy of every country, and all the countries were striving to balance their declining economies by 2022. The US government legislation banned Chinese companies from raising funds from US investors. Also, Japan asked every Japanese company to shift its operations from China and come back to Japan or choose any other country to set up its operational units. India had also started boycotting China due to a conflict between the Indian Army and the Chinese Army since mid-2020. Russia, Indonesia, Australia, and many other countries were planning to boycott Chinese products and services..
Exhibit I: Manufacturing, Value Added (% of GDP)
Exhibit II: Average Yearly Wages in the Manufacturing Sector in China from 2008 to 2018 (in Yuan)
Exhibit III: Impact of COVID-19 on China’s Manufacturing Industry
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