How China’s economic problems affect production around the world
The coronavirus pandemic has brought huge changes to the world, as well as forced to think about changing the familiar processes. COVID-19 showed how vulnerable even superpowers are, and how easy it is to paralyze any segment in any country. The pandemic also revealed the problems of China’s economy and the level of the world’s dependence on local production capacity. In this regard, it is worth considering the feasibility of locating enterprises in China.
According to data from various corporations, due to the outbreak of the disease in China at the beginning of the year, supplies from the country were significantly reduced and were carried out with great difficulty. As a result, all logistics and, with it, operational processes were disrupted, which affected revenues and increased losses. This was the case in many countries and companies, regardless of their field of activity. It turned out that many industries work closely with Chinese manufacturers and depend on them more than they thought before.
Therefore, now that the world economy is recovering, business is intensifying, companies have an important goal – to increase the sustainability of processes and make production as independent of external factors as possible. And it is necessary to start with the search of regions, which will be suitable for the construction of factories, in order to transfer some capacities from China.
Of course, one should not expect that production volumes in China will decrease soon – the process of leaving the local market will take many years. However, the fact that a number of companies are already seriously considering options for closing their facilities in China is a confirmed fact.
Despite the crisis, China is attractive for business. It is relatively easy to open a business here, the cost of production is lower than in the EU or the US. Besides, the process of production transfer may last for several years. And these processes will not immediately affect the Chinese economy, especially since there is a great domestic demand, which meets a huge number of plants and factories.
Some countries may take some of their capacity away primarily on the basis of security factors. Recently, Beijing has been exerting political pressure, which is clearly manifested in the trade conflict with the United States. Confrontation of the powers influences the processes in the world market, other states have to make concessions so that mutual sanctions do not affect them as well. Therefore, there is a possibility that some of the production capacities will be transferred, even if it is not quite profitable from the economic point of view.
China feels tension both on the domestic market and on the external one. This year the government has not set targets for GDP growth, and last year’s economic growth was about 6%, which is a record low for 20 years.
