Hong Kong, 11 December 2020 – Allianz Trade published a Global Supply Chain Survey today, looking into how the Covid-19 pandemic has affect global supply chains and if it would push manufacturers to rethink their supply chain strategies. The results revealed that almost all responding companies reported a Covid-19 induced disruption to their supply chains and just above half of the respondents considered looking for new suppliers and moving their production sites. While the global press release covers the key findings and global messages of the Survey, this press release focuses on results related to China and also the prospect of the manufacturing powerhouse.
It’s not the end of the Chinese supplier!
China appeared in the top 3 for 18% of surveyed companies considering changing suppliers. First, this could show a will of “continuation” of current supply chain dynamics: many companies already have suppliers in China, and China thus remains an attractive choice for many companies. One other explanation is that companies continue searching for cost-effectiveness in times of great uncertainty and after an unprecedented shock; “improving margins” is cited as the most popular reason to look for a new supplier.
Which countries and sectors find China attractive to look for new suppliers?
Companies based in Germany, Italy and the UK mentioned China as their first choice significantly more than companies based in France. But the UK stands out when looking at China’s rank in respondents’ top 3: 30% of UK companies considering changing suppliers mentioned China in their top 3, which is significantly higher than in the US (12%), France (14%) and Italy (18%). Companies in the automotive sector mentioned China significantly more than companies in chemicals and IT, tech and telecoms.
Top choice for highly digitized companies
Highly digitized companies (report 7 out of a maximum of 8 types of digital activities ) are significantly more likely to look for suppliers in China (as a top choice) than companies that are relatively not digitized. This could be put in the context of the fast digitalization drive that China has been experiencing in the past years. Allianz Trade’ proprietary Enabling Digitalization Index ranked China at the 9th position out of 115 countries in 2019, and the 3rd in the Asia Pacific region (after Singapore and Japan).
Commenting on above findings, Françoise Huang, Senior Economist for Asia Pacific at Allianz Trade, says, “China remains an important offshore base for manufacturing with 21% of responding companies listing China in their top 3 countries where production sites are based, excluding their main country of location. Furthermore, companies who saw ‘little’ or ‘a fair amount’ of disruption inflicted by Covid-19 to their supply chains are more than three times more likely to consider China as a relocation destination than those who experienced a severe or significant disruption. Global companies could continue to consider establishing production sites in China, to provide for the country’s large and growing domestic demand, and as authorities continue to loosen regulatory restrictions in order to attract foreign direct investment.”
Trade outlook across Asia Pacific
Meanwhile, trade outlook for Asia Pacific is more positive than other regions in the world, thanks to, in no particular order, 1) the faster recovery of the Chinese economy following the Covid-19 crisis, 2) relatively more successful control of the epidemic in several exports-oriented economies (e.g. Taiwan and Vietnam), and 3) a surge in global demand for electronics. In particular, we expect yearly export gains worth of USD372bn for China in 2021. This means exports from China should be comfortably above the pre-crisis level in 2021, as is the case for those from Vietnam, Taiwan, Australia and South Korea. Conversely, the recovery in exports is lagging and unlikely to be complete by 2021 in Indonesia, India, the Philippines and Thailand, due to the slower restart of the economy and/or the reliance on exports of services (tourism).
Holger Schaefer, Regional CEO of Allianz Trade Asia Pacific, says, “Asia Pacific has been showing encouraging signs of recovery over the past few months, thanks largely to the momentum provided by China. Moreover, the signing of the Regional Comprehensive Economic Partnership (RCEP) last month is very good news for multilateralism and sends a signal of confidence for regional trade and supply chains in Asia Pacific. Our economic research estimated that RCEP can boost regional trade by USD90 billion per annum. At Allianz Trade we are fully dedicated to helping our customers to plan for their post-pandemic recovery from 2021 and beyond.”
It’s not the end of the Chinese supplier!
China appeared in the top 3 for 18% of surveyed companies considering changing suppliers. First, this could show a will of “continuation” of current supply chain dynamics: many companies already have suppliers in China, and China thus remains an attractive choice for many companies. One other explanation is that companies continue searching for cost-effectiveness in times of great uncertainty and after an unprecedented shock; “improving margins” is cited as the most popular reason to look for a new supplier.
Which countries and sectors find China attractive to look for new suppliers?
Companies based in Germany, Italy and the UK mentioned China as their first choice significantly more than companies based in France. But the UK stands out when looking at China’s rank in respondents’ top 3: 30% of UK companies considering changing suppliers mentioned China in their top 3, which is significantly higher than in the US (12%), France (14%) and Italy (18%). Companies in the automotive sector mentioned China significantly more than companies in chemicals and IT, tech and telecoms.
Top choice for highly digitized companies
Highly digitized companies (report 7 out of a maximum of 8 types of digital activities ) are significantly more likely to look for suppliers in China (as a top choice) than companies that are relatively not digitized. This could be put in the context of the fast digitalization drive that China has been experiencing in the past years. Allianz Trade’ proprietary Enabling Digitalization Index ranked China at the 9th position out of 115 countries in 2019, and the 3rd in the Asia Pacific region (after Singapore and Japan).
Commenting on above findings, Françoise Huang, Senior Economist for Asia Pacific at Allianz Trade, says, “China remains an important offshore base for manufacturing with 21% of responding companies listing China in their top 3 countries where production sites are based, excluding their main country of location. Furthermore, companies who saw ‘little’ or ‘a fair amount’ of disruption inflicted by Covid-19 to their supply chains are more than three times more likely to consider China as a relocation destination than those who experienced a severe or significant disruption. Global companies could continue to consider establishing production sites in China, to provide for the country’s large and growing domestic demand, and as authorities continue to loosen regulatory restrictions in order to attract foreign direct investment.”
Trade outlook across Asia Pacific
Meanwhile, trade outlook for Asia Pacific is more positive than other regions in the world, thanks to, in no particular order, 1) the faster recovery of the Chinese economy following the Covid-19 crisis, 2) relatively more successful control of the epidemic in several exports-oriented economies (e.g. Taiwan and Vietnam), and 3) a surge in global demand for electronics. In particular, we expect yearly export gains worth of USD372bn for China in 2021. This means exports from China should be comfortably above the pre-crisis level in 2021, as is the case for those from Vietnam, Taiwan, Australia and South Korea. Conversely, the recovery in exports is lagging and unlikely to be complete by 2021 in Indonesia, India, the Philippines and Thailand, due to the slower restart of the economy and/or the reliance on exports of services (tourism).
Holger Schaefer, Regional CEO of Allianz Trade Asia Pacific, says, “Asia Pacific has been showing encouraging signs of recovery over the past few months, thanks largely to the momentum provided by China. Moreover, the signing of the Regional Comprehensive Economic Partnership (RCEP) last month is very good news for multilateralism and sends a signal of confidence for regional trade and supply chains in Asia Pacific. Our economic research estimated that RCEP can boost regional trade by USD90 billion per annum. At Allianz Trade we are fully dedicated to helping our customers to plan for their post-pandemic recovery from 2021 and beyond.”