Supply chain disruptions and logistics backlogs caused by strict COVID-19 lockdowns in major Chinese cities have affected the operations of Taiwanese companies there, which could weigh on export orders in the coming months, the Ministry of Economic Affairs said on Wednesday. Although some Taiwanese businesses in China are preparing to reopen factories, returning to full capacity would take time, as travel in some cities remains restricted, while only a few people have been cleared to work and resources are limited, the ministry said.
The Chinese government’s rigorous “zero COVID-19” policy to curb the spread of the highly transmissible Omicron variant of SARS-CoV-2 with rolling lockdowns in key economic hubs, such as Shanghai and Kunshan, has almost paralyzed global industrial supply chains ranging from auto parts to electronics components and consumer products. An American Chamber of Commerce survey this month showed that 82 percent of US businesses in China said they had slowed or reduced production due to a lack of workers and supplies amid the lockdowns, while 86 percent said supply chain disruptions had affected their operations.
On Friday, Voice of America’s Chinese-language service reported that Shanghai’s lockdown has affected more than 3,000 South Korean companies that rely on China for parts. South Korean president-elect Yoon Suk-yeol’s transition committee is considering policies to offer more assistance to companies seeking to move their operations home. South Korean economic and trade experts quoted in the report said that supply chain flexibility would become the core of the new government’s economic security policy, and that South Korea’s economy would inevitably decouple, to a certain degree, from China.
Like Taiwan, South Korea’s economy is highly dependent on exports and the Chinese market. While a complete break from China in terms of trade might be a far-fetched idea, greater decoupling is in line with South Korea’s economic needs: Seoul would welcome a diversified supply chain, considering changes in China’s business environment, and hostilities between Beijing and Washington.
Shanghai’s lockdown and its consequences are only a manifestation of global supply chain problems. The COVID-19 pandemic has exposed a major flaw of globalization: that it is risky for dozens of countries to concentrate production in a single nation. While cross-border trade would remain important to the global economy, and China still has a major role to play as a consumer and producer of goods, the pandemic has reminded governments of the importance of risk diversification. World Bank president David Malpass earlier this month said that countries are working to diversify their supply chains and reduce their dependence on China, which is “probably good for everyone.”
Low cost is not necessarily a factor for supply chain realignment, but countries with key technologies are more likely to attract investment. In other words, global supply chains would be differentiated by quality and technology. An obvious example is that of Taiwanese server makers, who have over the past two to three years moved production of high-end models home, while producing low-end models in China or elsewhere.
Moreover, countries increasingly want to be part of value systems shared by like-minded nations, and the world economy will likely develop into blocks centered on major powers such as the US and China. Against this backdrop, the world would see supply chain realignment characterized less by concern over production costs, and more by risk controls, the assurance of critical technology and shared values.
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