Analysts Say About Need for New Chinese Strategy on Global Trade

The United States is currently implementing efforts to divert international supply chains from China to other countries, which has already become a topic of active discussion in the expert community.

Many analysts and manufacturers believe that Washington’s mentioned activities are important in the context of countering the fragmentation of world trade, which is already being observed and is likely to intensify in the foreseeable future.

Liu Yuanchun, a well-known adviser to the Chinese government, in his article for the media of this Asian country, argues that the United States strategy to divert international supply chains, the implementation of which continues even after the coronavirus pandemic, when such efforts became something like an objective necessity conditioned by the circumstances of reality, has positive results. According to the expert, against the background of the specified actions of Washington, Beijing should conduct an in-depth analysis of the geopolitical situation and economic strategies.

Liu Yuanchun admits the possibility that at some point China will be forced to undergo a kind of transformation as a participant in the system of international relations. The expert, who is also the head of the Shanghai University of Finance and Economics, says that subsidies provided under laws such as the United States’ Infrastructure Investment and Jobs Act, Inflation Reduction Act, and Chips and Science Act, will have an impact on exports from the Asian country. In this context, it means the supply of products from China to the United States and the European Union.

Liu Yuanchun says that Beijing’s competition with Tokyo, Seoul, and Berlin has already escalated. According to the expert, this state of affairs is especially relevant for such areas as new energy, shipbuilding, and vehicle manufacturing. Liu Yuanchun admits the possibility that China will be forced to go through some intensive adjustments with Germany, Japan, and South Korea. It is worth noting that the mentioned countries have recorded a trade deficit with Beijing.

Liu Yuanchun also talks about the need to take more active advantage of the opportunities of emerging markets. It is worth noting that the corresponding trend within the framework of Beijing’s trade and economic concept has already been formed, but, according to the expert, the degree of its intensity should be increased.

Currently, Chinese exporters are stepping up cooperation with Mexico and Southeast Asian countries. These actions are related to the search for new customers. Also, Chinese exporters continue to show significant interest in accessing the United States market, which is a space of opportunity from the point of view of commercial prospects.

Last year, the volume of trade between China and Mexico amounted to $100.2 billion. This figure is 6% higher than the result for 2022.

Liu Yuanchun’s warning is relevant in the context of the tightening rhetoric of politicians in Washington towards Beijing. The system of statements based on the theses about the need for various kinds of restrictive norms against China is being scaled up in the run-up to the presidential elections of the United States.

US President Joe Biden has already released a statement stating his strong intention to introduce measures related to the import of electric vehicles from China. In this case, it is noted that this decision is due to the interests of national security. Washington is also actively discussing industrial overcapacity and the use of third countries to bypass trade restrictions in the context of making changes to its doctrine of interaction with Beijing.

The United States continues its campaign to restrain China’s access to advanced chips and equipment for the production of related products. This week, the relevant export control standards will be tightened.

At the same time, political contacts between Washington and Beijing continue during a period of apparent degradation of the relationship. US Treasury Secretary Janet Yellen intends to visit Guangzhou soon to discuss industrial overcapacity in China and intellectual property protection with American businessmen. She will also come to Beijing for talks with officials.

Currently, there is an opinion in the expert community that progress on economic issues can be achieved following the results of Janet Yellen’s visit. At the same time, officials have not yet commented on the prospects for negotiations.

Norman Cheng, founder of Strategic Sports, a helmet manufacturer with factories in China, Southeast Asia, and Europe, says that the global economic system is currently undergoing a transition period. He noted that this process concerns all aspects of his business. Norman Cheng is convinced that in the future a so-called fragmented world will be formed in which an individual approach will be applied to each market. According to him, suppliers need to find different ways to adapt for each factory, even if significant costs are required in this case.

Norman Cheng says that due to the reduction in overseas orders, plants in China should consider what strategies will determine their activities in the future. In the corresponding context, it implies supplies to the Asian and European markets and a potential focus on the domestic market. He also expects factories in Vietnam and Portugal to become profitable and mature over the next five to ten years.

The media quoted a senior executive director of a manufacturing plant operating in China and other neighboring countries as saying that the nature of factories was changing amid the transformation of supply chains. She noted that Indian production players benefit from the government’s Make in India initiative. Also in this context, it was mentioned that many multinational brands are optimistic about the growth prospects of the mentioned country’s market.

The senior executive director of the manufacturing plant used the right of anonymity, noting the sensitivity of the issue under discussion. She also stated that in Vietnam, factories are gradually maturing in the making of products of the medium and low-cost price segments. According to her, many high-end production facilities are based in China due to the complexity of technological processes.

A report by the international insurance company Allianz Trade, published in March, notes that the strengthening of the protectionism policy by the United States will cause losses for economic systems that will be involved in a trade war. In this context, it was noted that the mentioned problem would be particularly sensitive for those countries that have a high level of dependence on global supply chains.

The authors of the mentioned report underlined that the escalation of tensions in the space of trade and economic relations will be a factor of significant damage to such segments of the Chinese industrial system as textile, electronic, and computer. At the same time, there is a risk that the United States, as part of the implementation of such a negative scenario, will face problems in the transport equipment sector.

Brian Wong, a fellow at the University of Hong Kong’s Center on Contemporary China and the World, says that a potential new trade war between Beijing and Washington is likely to be more impactful and destructive compared to the situation that was observed during the period when Donald Trump was president of the United States.

As we have reported earlier, Chinese Authorities Signal Possibility of Starting Trading Government Bonds.