As China employs every ounce of energy to battle the coronavirus, there have been calls outside the country for foreign businesses to decouple from China or reduce supply chain ties. These calls are not helpful.
The coronavirus has indeed sent a shiver into the hubs and nodes connecting China's vast supply chain network. It's the only country in the world to have every single industrial category in the United Nations industrial classification system. That means that when China's manufacturing sneezes, global value chains shake.
As it is so intertwined in the global value chains, the country understands its deep responsibility to ensure supply chain stability. Doing so is in the vital interests of both the Chinese and world economies.
China's policymakers are prioritizing resuming production at companies that are key links in global value chains. They are prioritizing the kick-starting of production at "leading enterprises." Resuming work at leading enterprises will lead to the resumption of production all along the supply chain.
We see production restarting across the country. For example, gears are up and running again at leading enterprises such as Ford's joint venture in China's southwest megacity of Chongqing. BMW's production plant is back in action in the northeastern industrial hub of Shenyang. The automaker's three-billion-euro investment in a new factory is going ahead as planned. Production is ramping up at global laptop-making giant Wistron's plant in Jiangsu Province. Officials there mapped out detailed supply chains to assist Wistron in receiving the critical components it needed from its suppliers.
COVID-19 has disrupted supply chains in the short term, but it hasn't changed the long-term attractiveness of the Chinese market. It also doesn't change the long-term competitiveness of Chinese supply chains. Manufacturing in China means access to distinct industrial clusters that are hard to find anywhere else in the world. Clustering translates not just into single factory efficiency, but significant efficiency gains for an entire industry. These manufacturing clusters are also supported by an advanced logistics network and high-skill talent.
BCG, for example, says that manufacturing in China remains cost-competitive in a wide range of industries. The consulting firm cites higher productivity growth, investments in state-of-the-art technology, declining industrial energy costs and new production capacities in China's interior.
Overall, the highly integrated value chains of China make them difficult to replace. The coronavirus will not change the structural advantages of this exceptionally competitive network or the enormous market these supply chains serve.
The virus did land a blow to global supply chains. But, China through its unified, coordinated and targeted approach, will deliver the knock-out punch.