The China Conundrum – are we headed for a supply chain meltdown?

https://diginomica.com/2019/01/25/the-china-conundrum-are-we-headed-for-a-supply-chain-meltdown/

by Sequenza • 7 years ago

107 100 7 years ago

That’s why global CEOs and business leaders need to deal with the China Conundrum now.

They are. They are:

- 37 percent have moved production out of China in the past 12 months, while 33 percent plan to move in the next 6-12 months.

https://money.usnews.com/investing/news/articles/2019-01-17/...

- Apple Is Moving Some High-End iPhone Production to India

https://www.fool.com/investing/2018/12/27/apple-is-moving-so...

- China’s Xi Jinping 'most dangerous' to free societies, says George Soros

https://www.bbc.com/news/business-46996116

asdf333• 7 years ago

Who wants their business being held hostage by some trade spat?

vkou• 7 years ago

People who want access to a 1.2 billion person market, 350 million of which are living close to a first-world lifestyles.

Where are these factories moving? Poorer countries in Asia. Vietnam, Thailand, etc. It's purely a cost-saving measure, due to the rising wages in China.

Despite much wailing and gnashing of teeth about the trade war, those jobs aren't coming back to the US. If neo-liberal economics, and nationalism continues to be a popular in the United States (I predict they will be), its only a matter of time until we'll be talking about a trade war against <The new China>.

i_am_nomad• 7 years ago

Wow - that first statistic is terrifying, I had no idea things were turning so fast.

zazen• 7 years ago

@evenequator is not using the statistic he quotes correctly. From the article:

A recent UBS China survey of 200 manufacturing companies with significant export business or supply to exporters revealed the trade war has had a negative impact on 63 percent of those businesses.
A quarter of those affected have cut jobs, 37 percent have moved production out of China in the past 12 months, while 33 percent plan to move in the next 6-12 months.

So it's 37% of 63% of a sample of 200 particularly strongly affected businesses, not at all 37% of global CEOs/businesses as GP was leading us to believe.

seanmcdirmid2• 7 years ago

They moved production to India (and Brazil likewise) because THOSE countries have huge import duties, not because of a rebalancing away from China.

nyolfen• 7 years ago

i don't see why one precludes the other

paradoxparalax17• 7 years ago

Yes, Sir. This is the thing. One datapoint here and there doesn't make a Theory...And there are many variables...

shops open and go bankrupt everyday everywhere...

reasonablemann• 7 years ago

Love this Tim Cook quote about why they aren't in the US:

The U.S. labor market "began to stop having as many vocational kind of skills"

If the incentives were there, you'd have those football fields full of tool and die makers Tim.

bsder• 7 years ago

Yeah, I get really tired of this crap from US CEOs.

The fact that the skills aren't there is because your company doesn't pay for them.

Even worse, it's an outright lie and people like Cook know it because they put their money behind it. Haas Automation has an entire line IN THE US producing CNC machines that get shipped to China solely for Apple. Gee, if China was so much better at those skills, why don't you buy the machines there from Chinese suppliers? Hmmmmmm?

paradoxparalax17• 7 years ago

"began to stop"

This one is indeed lovely. Ceos....

paradoxparalax17• 7 years ago

"They are. They are:"

Me too. Napoleon said that a retreat in time is a victory.

So I got out to the woods eat berries off-grid and off-borders.

And I think most people agree with Soros.me too.

ramraj07• 7 years ago

Apples move to India could be to avoid the high luxury tax they have to pay now to import iPhones there

karmakaze2• 7 years ago

In fact, the U.S. and other countries are barring the use of Chinese-built 5G equipment from Huawei and ZTE thanks to allegations...

This doesn't seem like it should be legal either but the article has no issue with it, rather touts it as being good. I'm sure if the US lost economically due to allegations it would be a different story altogether.

creato2• 7 years ago

I'm sure if the US lost economically due to allegations it would be a different story altogether.

Are you joking? China has many more restrictions on foreign competition in far less sensitive areas than their communications networks.

Setting that aside, it seems reasonable for any country to decide for any reason what they allow to be used in such core infrastructure. Any country that can afford not to depend on someone they might not completely trust now or decades in the future is foolish to do so.

karmakaze2• 7 years ago

My comment was about the reporting and not the actions of the US or China. Reporters should speak straight. If it’s about competition say so and not muddled with unverified threats.

headsupftw• 7 years ago

I don't really follow your thinking. When you said "Any country that can afford not to depend on someone they might not completely trust now or decades in the future is foolish to do so." I believe by "any country" you were referring to the U.S. But when you said "China has many more restrictions on foreign competition in far less sensitive areas than their communications networks.", you seemed to completely ignore your rhetoric that "any country" (say China?) would be foolish to not put restrictions on foreign competition if they don't trust them. I guess you like to have your cake and eat it too.

forkLding• 7 years ago

I believe the article is wrong. It uses Foxconn as an example despite the fact that Foxconn is a Taiwanese company that suffers all the conditions that the author mentions: Chinese spying, Chinese sanctions against Taiwan and vice versa, etc. for years. China and Taiwan are even still technically at war. However, Foxconn has been in China since 1988 and is very big in China.

In my mind the real killer has been increasing costs, China's manufacturing decline has been showing signs since 2016, and is more related to increased labour costs and increased pollution regulations. The trade war is just another final nail in the coffin. The "China conundrum" or manufacturing moving out of China has been happening for a while, its just people haven't paid much attention to it until now. The decline would have happened even without the trade war.

janekm• 7 years ago

I'm also very sceptical that Foxconn would be setting up that factory for any reason other than avoiding Indian tariffs on mobile phones. India is not really the first place one would think of to build a supply chain.

paradoxparalax17• 7 years ago

"The decline would have ..."

this decline is to grow 5% a year next 50 years?

Or is the Nuclear Armagedom?

Or is to delay a few years the chinese pretty girl landing on the dark side of the moon?

The last video was not fake, I mean, the one on the dark side of the moon.

And as long as I know the massive miles and miles long Infrastructure Integration with Pakistan, India and Russia on Railways,

Oil pipelines and wherever and whatever is going very strong, thank you for your concern.

(If there is any update and it was cancelled ,and my info is old, please correct me) (I'm hidden in the woods eat berries off-grid)

So Russia is the one who has The Proton rockets and the Avangard (NATO denomination is Snow Flake) Heads in this rockets so the Chinese are not stupid , right.

stupidcar• 7 years ago

I think what we're seeing is the culmination of a breakdown in the decades old neoliberal political consensus that Chinese nationalism could be gradually dispelled through a policy of opening up Western economies to integration with China's. In practice, at the highest level, the Chinese government has kept the market subservient to nationalist goals, and remains stubbornly autocratic, repressive and hegemonistic.

The populist leanings of the Trump administration perhaps may make them more receptive to this argument, because they understand these kind of nationalist and hegemonistic instincts better than neoliberal technocrats, but I think this has been a dawning realisation throughout Western policymakers over the past decade. Even the Obama administration, which was strongly neoliberal, worked hard to isolate China economically through the TPP. Trump's disdain for trade deals killed that, but his confrontation of China is really just a noisier continuation of a pre-existing US foreign policy.

Big business might have put a restraint on Western policymakers' wishes to oppose China if they'd had more success in penetrating the Chinese market. But here the Chinese government has been too defensive, and Western business leaders have realised that they simply won't be allowed to be dominate in China in any meaningful way. Meanwhile, they have watched their infrastructure get attacked and their IP stolen, and have decided enough is enough.

rrggrr3• 7 years ago

We are in process moving a product line from China to Canada as result of the 25% tariff. Fact is, the product was migrating to North America anyway as prices from China increased, and product innovation has not kept pace. It difficult to fully state how the lack of foreign competition, protection, and subsidy has created inefficiencies and other problems across large sections of Chinese goods. Youtube bloggers ADVChina and serpentza are good places to start in understanding the scope of difficulty.

I have one former Chinese partner in China, now far too successful to care anymore, who described it to me this way... You have farmers and one generation down from farmers managing the largest and arguably most complex political-economic situation in the world. The expertise is simply not there at the highest provincial and central levels, where its desperately needed. The political will isn't there to rebalance.

The meltdown won't just be the supply chain. China's military will impact the nature and breadth of the decline.

k__• 7 years ago

"China's military will impact the nature and breadth of the decline."

care to elaborate?

mooreds2• 7 years ago

I am not OP, but suspect he is referencing South China Sea and Taiwan actions. If the PLA is more aggressive, companies will leave more quickly, and the opposite is true.

If you are in a conflict zone, exporting to other countries isn't the way to get rich; selling to the armies is.

jorblumesea2• 7 years ago

As China's military becomes closer and closer to Western standards, supply chain integration and Western business in China will dry up in response. Western companies will not want to do business with direct competition and even if they did, the US govt wouldn't let them.

If doing business in China means funneling new tech to the PLA that could result in theoretical American deaths, then we don't do business in China anymore.

A historical precedent would be the soviet union, where we wouldn't even let ball bearing be exported to Soviet block countries. You can already see this with the current chip wars.

rrggrr3• 7 years ago

A disorderly rebalancing of their economy, which increasingly looks likely, will require the military to repress dissent domestically (at great expense). It will also require that same military to assist the state in repatriating and collecting on financial assets and debt that have been sent abroad. I'm still summarizing, but you likely get the point.

schuke2• 7 years ago

Not just farmers, but farmers who were stripped of the most basic moral and literal education during the worst destruction of culture and morality mankind has ever seen, at lease by some measures.

pishpash• 7 years ago

First of all, most Chinese farmers, like all farmers the world over, never had an education during most of history, and most were still decent, moral human beings. Second of all, poor people do shit rich people don't have to do in order to survive. It was not until wealth inequality increased and traditional social safety nets deteriorated that morality declined. Could a better education have ameliorated this? Certainly, but not in the way you say and not directly, but it would have created earlier conditions for political change and for the protection of individual rights, things that are still happening, but at a slower pace. This generation is still vastly better educated than the last.

baybal26• 7 years ago

My previous employer tried the same in 2015 with both BC and Washington with Oregon. We scrapped the plan after 6 month of the pilot plant keeping failing.

Finding cadres was really tough even for the simplest things. Finding a guy who can program a particular brand of chipshooters took 2.5 months. We found a single guy in all BC/Washington/Oregon area, and he demanded 100k+ for something that I can teach a highschooler to do. In Shenzhen, I'm 100% sure that I will get few solid applicants on day one for just any machinery brand.

Simple assembly line workers. 50k+ undergrad students were horrid workers, with terrible discipline. 70k+ masters students, just a bit better. People with years of work experience and 80k+ expectations finally did that, but they were still spending more time wiring simple electric bikes than Chinese highschoolers do. At that stage, we decided to stop.

kokokokoko2• 7 years ago

Can I inquire how you recruited and what your minimum requirements were?

It seems like you said something a highschool students could do but then you discuss masters degrees.

I've personally found that a lot of employers still hire like it's 2009 during the great recession. Sometimes these days you have to be more creative. Like hire an additional manager at $80k and then hire workers at $40k and have that manager be more hands on.

When an economy is expanding, it is statistically impossible to fill all positions with experienced workers because there are now more jobs than there were before but the same amount of experienced workers. The opposite is true during recession when the economy shrinks. In that case there are a surplus of experienced workers because the amount of jobs have reduced.

Please don't take that as criticism, I just wanted to shed some insight into hiring based upon the rate of growth in an economy.

sithadmin2• 7 years ago

Finding a guy who can program a particular brand of chipshooters took 2.5 months. We found a single guy in all BC/Washington/Oregon area, and he demanded 100k+ for something that I can teach a highschooler to do.

So why did you waste 10 weeks searching for a candidate, when you could have so easily trained an entry-level employee?

It seems like your firm either failed to engage suffiently talented recruiters, or possibly failed to set the compensation offered appropriately.

detaro• 7 years ago

That sounds like the perfect case for an apprenticeship or cooperative study model and training the people you need, not hiring people with university degrees for something they've never done?

sanxiyn2• 7 years ago

By 2015, Samsung already moved more than half of smartphone manufacturing from China to Vietnam. All others are late to the party.

mooreds2• 7 years ago

What's after Vietnam?--is my question.

alex_anglin• 7 years ago

African countries. Many see parts of Africa as ‘Chinas China.’

sanxiyn2• 7 years ago

India. That's why Samsung built "world's largest mobile factory" in Noida. Factory started operation in 2018.

latchkey2• 7 years ago

Cambodia... I was just in Sihanouk last week and the entire city is under massive development by the Chinese. You have 4-5 star hotels built with potholed dirt roads out front. Giant apartment buildings are going up in marshland. There is also a massive port built there where China can now move goods through. There is zero care for the environment and the entire city is a mess. Tons of gambling, prostitution and drugs... it is literally like the wild wild west there. All in the last couple of years. [1] [2]

Vietnam doesn't work so well with the Chinese because of their history and because the US has already been giving Vietnam a bunch of free boats [3] [4] and money.

[1] https://www.theguardian.com/cities/2018/jul/31/no-cambodia-l...

[2] https://www.washingtonpost.com/world/asia_pacific/this-cambo...

[3] https://thedefensepost.com/2018/03/29/us-gives-vietnam-6-pat...

[4] https://www.reuters.com/article/us-vietnam-usa/u-s-delivers-...

resouer3• 7 years ago

China’s goal, simply put, is to replace the U.S. as the world’s leading superpower, and they’re using illegal methods to get there. China’s state-sponsored actors are the most active perpetrators of state-sponsored espionage against us.

The goal is absolutely true, thanks for pointing out, as China has to raise its huge population.

But ... illegal? WTF ... China has been ranked as the 2nd country after US by Nature Index [1] for years, which presents research outputs by institution and country. Is it illegal??

I believe there're tons of engineers in HN. I do think that if a private enterprise in China can inject a spy program on the chip without being discovered by the most developed countries in the world for years, that should be the concern.

But the question is, why do a country with such ability still want to spy United States? That ability should be more advanced than the current US technology for decades ...

[1] https://www.natureindex.com/annual-tables/2018/country/all

ridgeguy• 7 years ago

But the question is, why do a country with such ability still want to spy United States? That ability should be more advanced than the current US technology for decades ...

Mainly because it's cheaper to let somebody else do the research and find the problems.

If you were interested in stealth aircraft technology, you might be glad to read about another country's research into Schiff base salts for paint. Or somebody else's modeling for multistatic radar aircraft detection.

It costs tons to do these sorts of things. If by spying, you could just eliminate half of the tech dev blind alleys, you've saved a lot of money and maybe time as well.

resouer3• 7 years ago

My point is, developing such spy tech, cost tons tons more, which is almost impossible. This is not some kind of movie, it’s about software and chip!

ajross• 7 years ago

In the late 1970s and 1980s, Americans fretted a lot about something called “The China Syndrome.” The idea was that in the case of a nuclear reactor meltdown, the fiery radioactive core would burn a hole through the earth and come out somewhere north of Peking

Good grief, no. It was a colorful metaphor in the industry for explaining the self-sustaining problem with meltdowns: the fuel was very dense and would naturally flow and pool together, remaining a cohesive blob even as it escaped its containiment. Other runaway reactions naturally disperse and explode, meltdowns don't. So the failure mode analysis needs to worry about what happens long after it leaves the building and hits bedrock.

It was also the title of a pretty good movie, FWIW.

baybal26• 7 years ago

Lets dispel those claims

1. China has attracted many billions of dollars in investment and outright purchases from Western companies

Not Western, the West and US in particular never were the no.1 investors in China. China was at all times bad at soliciting foreign money. Claiming foreign capital as a reason for China's past growth is like claiming that electric trains are running on gasoline. Most of that growth was from internal sources. That's beyond any dispute.

2. Tariffs and Trade Wars – President Trump and President Xi Jinping have pushed their trade war to the brink of disaster.

China and USA can mutually embargo each other tomorrow, and it will be a just a needle prick for both. USA and China have really little economic interdependence, completely contrary to the popular opinion. Though China will fare a little bit better, as it trades in more elastic goods, and will find markets to replace the US faster.

3. In terms of psychological advantage, US has the upper hand (my rephrasing)

And that, the only thing that's true. Despite all of above being relatively insignificant, the US side managed to make it sound like the end of the world was coming, and even convince many people in China of that. In fact, the prime majority of recent deflationary wave in China was due to people who were closing down and panic selling businesses that were perfectly fine.

4. “These China-U.S. tensions are real, and it’s a long-term problem I don’t want to deal with. I want to find other suppliers in other countries and even completely move to another country for manufacturing. It’s just not worth the long-term risk anymore.”

The prime majority of China's problems are fully internal, and completely orthogonal to the trade disputes. If something will sink China, it will be its own baggage of troubles.

paradoxparalax17• 7 years ago

My TAke on this all is that, yes, Mister Xi is bad...

But Hackernews is probably being spread with "Guided-Stampede" , you know, It is like a stampede when all the bison run following the one before him without knowing where is heading...........

Happened in the old wester movies with the cows. If you shoot a rifle at the bovines, for example.

Or if you let a napkin fall in the ground, sometimes, and this is true.

But this Stampede is "guided" , is not spontaneous, It must be whatsapp or facebook Religious groups "Reinforced Opinion Formation" Spammed messages, if you know what I mean, Reinforced , yes.

The kinds of The Brexit, Hungary, Yellow Jacket, Brazil, you know whoever......

This is to make people believe Chinas economy is collapsing????????? !!!!!!!!!!!

Did I miss Any headline here, really???????

intertextuality• 7 years ago

Yes, I believe you missed the headline on purpose.

This style of English and syntax is very similar to what I've seen pop up on, well, any article that mentions China in a non-positive light.

These comments always try to discredit the article (or attempt to use whataboutism with the US), and coincidentally, often read like badly machine-translated English.

paradoxparalax17• 7 years ago

What? can you link a serious headline talking about "collapse" of chinese economy please?

Are you on the planet Earth???

Logic. Please. Keep The Logic.

I said "collapse"

Where is the collapse headline? ? ?

naiveai• 7 years ago

The goal is not to convince people "China's economy is collapsing 25 question marks". The goal varies from article to article. This article is only trying to convince people that some companies are moving away from China for various reasons and trying to explain the reasons why. Whether you think it's correct is a different story.

paradoxparalax17• 7 years ago

This article is perfectly OK, and this headline "Conundrum" is perfectly OK. I was talking generally about some of the comments made , really, they sound like people has fever and are in Delirium state.

So it cannot be a coincidence when many people have the same coincidental completely mistaken perception, "It" All Has a Commom Source. Humans are smarter then this...

They are being lead into that......

The China Conundrum – are we headed for a supply chain meltdown?

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