Why Supply Chains Are Not Moving Out Of China In One Chart

Chart showing the share of the global manufacturing base for selected countries

THE CHART ABOVE, from the Conference Board in the United States, crosses our desk and throws some light on why there is little evidence of supply chains moving out of China on any scale.

Simply put, the chart shows that there is no ready alternative that offers the scale and scope of China’s manufacturing base. In developing economies, such as those of Southeast Asia (for which ASEAN is a proxy in the chart), the capacity for multinationals to source inputs, labour and transport is a fraction of China’s. Even the United States and the EU combined barely match it, and in both those markets, labour costs are higher.

Moving production out of China will not happen quickly for other reasons, too. Supply chains are misnamed in that they are networks more than linear chains. They take years to put together and have extensive interdependencies. Companies will not willingly dismantle them quickly, even if they duplicate capacity elsewhere to improve resilience.

Further, dual circulation and the shift of China’s economy to being consumption-driven will mean that more of what is sold in China will be made in China. One small example: German car manufacturer BMW has just announced that it will start production of its X5 mid-size luxury SUV in Shenyang for sale in the Chinese market, rather than import the vehicles from its Spartanburg plant in the United States.

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Filed under Economy, Industry, Trade

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