Chexit, in parts: Reshoring, friend-shoring and billions of dollars in sops

Source– The post is based on the article “Chexit, in parts: Reshoring, friend-shoring and billions of dollars in sops” published in the Business Standard on 21th January 2023.

Syllabus: GS3- Economy

Relevance– Issues related to global economy

News– The article explains the shift of numerous factories and supply-chain dependence away from China.

China is facing weakening growth, following a decade-long, progressive slowdown

What are the steps taken by East Asian countries to relocate their business away from China?

Japan is paying its firms to move their factories from China. It has also introduced a new economic security law covering 14 sectors deemed to be part of societal infrastructure.

South Korea and Taiwan have comparable programmes that target mainly China.

So, Asia’s three most industrialised countries are offering incentives to move their companies out of China and back to their home base.

What are the recent examples of companies relocating their business away from China?

Some 250 Japanese companies are reported to have left China in recent years. The trend is accelerating. It is not limited to Japanese companies.

According to one report, 135 companies moved out of China just last year and relocated plants making semiconductors, motor vehicles, appliances, and clothing. Sony has partly re-located its smartphone production to Thailand.

South Korean companies too have been not just re-shoring but “friend-shoring” as well. Samsung has opted for Vietnam. Malaysia has benefited from 32 projects relocated from China.

What is the reason behind relocating firms from China?

China’s aggressive behaviour is compelling the firms to look for alternate options. A visa ban has hit both Japan and South Korea. South Korea’s Lotte retail chain, Sweden’s Ericsson, and Australian wine-makers have been impacted by Chinese policies.

Global firms see heightened political risk. They are worried about discrimination, rising production costs, stricter environmental rules, and of course disrupted supplies.

Are global firms abandoning China as a production base or as a market?

Foreign direct investment into China actually increased in 2022. Germany’s BASF, for instance, is relocating into China.

The Financial Times report shows how interlocked the Apple production network is with the Chinese ecosystem. Countries like the US and India that have tried to restrict imports from China have only seen their China trade deficits grow.

What is the scenario of India?

India’s current policy thrust like production-linked incentives, capital subsidies is very much in line with the East Asian.

India ranked seventh on a 2021 UN list for foreign investment. But, it is not the default alternative to China for most global companies.

India must integrate more with East Asia by getting into regional trade arrangements, lowering its tariff walls, and improving the quality of its workforce.