Coronavirus catalyzes decoupling from China in supply chains

Companies look to avoid China for preventing future supply chain disruptions in wake of Wuhan coronavirus

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Workers assemble cars at the Dongfeng Honda Automobile Co., Ltd factory in Wuhan.

Workers assemble cars at the Dongfeng Honda Automobile Co., Ltd factory in Wuhan. (AP photo)

TAIPEI (Taiwan News) — De-Sinicization in global supply chains, driven by the coronavirus (COVID-19) pandemic, is happening fast, according to Taiwan's economic experts.

The health crisis has further exposed the vulnerability of global supply chains, which are heavily clustered in China and have derailed due to the outbreak. Recent events will serve as a catalyst for businesses to facilitate shifting operations from China, a trend already set off by the protracted U.S.-China trade conflict, wrote CNA, citing a Central Bank report.

Steve Lai (賴樹鑫), executive director of the Supply Management Institute in Taiwan (SMIT), said that China already lost its appeal as a manufacturing center even before the epidemic because of rising costs and stricter environmental codes.

Countries including Germany and Japan that had placed heavy bets on China found themselves struggling to adopt rigorous containment measures against the country at the onset of the outbreak. China is a major market for German automobiles, while Japan is intertwined with China in areas that range from manufacturing to retail, Lai pointed out.

While giving up a market with as robust domestic demand as China's is inconceivable, at least a partial decoupling from the world's second-largest economy out of a need for risk diversification is foreseeable, said Lai.

Last month, Japan earmarked US$2.2 billion to help its corporations shift production from China, either through repatriation or relocation to Southeast Asia. White House National Economic Council Director Larry Kudlow also called for government aid to bring American companies out of China by paying moving costs for them, wrote Forbes.

Wang Jiann-chyuan (王健全), vice president of the Chung-Hua Institution Economic Research, a government-sponsored think tank, reckoned that the ability to produce strategic commodities will be at the top of the agenda of governments post-coronavirus. Goods such as surgical masks, hazmat suits, and key components will be areas of priority, said Wang.