New Connections

ByFang Aiqing July 14, 2020

A recently published book argues that China's supply chain is "overflowing" to Vietnam.

A growing number of manufacturing industries from home and abroad are moving their factories to Southeast Asia, and especially Vietnam, to avoid risks caused by Sino-US trade disputes and the COVID-19 pandemic.

As doubt grows as to whether or not Vietnam will replace China as the "factory of the world", Shi Zhan, a professor at China Foreign Affairs University in Beijing, has given his answer based on field research: "Not likely."

Shi sees this as the "overflow" of Chinese supply chains rather than the relocation of industries, and has pointed out the consequences of increasing incompatibility between the operational logics of the private sector and government policies.

He details these ideas in his new book, Yichu (The Overflow), published in January.

In 2019, Shi and his team went to some of Vietnam's major industrial cities, namely Hanoi, Haiphong and Ho Chi Minh City, to visit industrial zones, guilds, law firms and enterprises.

Before and after the trip, they also visited the Yangtze River Delta and Pearl River Delta regions-areas with the highest concentration of manufacturing in China-to learn more about supply chains' interconnections.

This research can be seen as an extension of his earlier book, The Hub, published in 2018, in which he says China's manufacturing sector has seen a transition in the world trade order's structure over the past few decades. It's playing an important role in connecting innovative and high-end service industries in developed countries with raw-materials industries in developing countries.

This change has led to an imbalance of the economic order around the world and within some countries. This imbalance may result in trade friction or, hopefully, governance reforms, Shi says.

The world trade structure has changed significantly over the past 30 years, Huang Qifan, vice-chairman of the China Center for International Economic Exchanges and former mayor of Chongqing, said in a 2019 lecture at Fudan University.

Finished goods accounted for 70 percent of international trade in the 1980s and '90s.

In 2010, around 60 percent was in intermediate goods, such as parts and raw materials. The number had increased to more than 70 percent by the end of 2018.

And the proportion of trade in services versus goods has increased, Huang says.

In this context, China's manufacturing supply chains are not only large scale but also specialized and flexible, and competitive in cost control.

It's likely that factories will relocate some of the more labor-intensive production rather than supply chains to Vietnam. And the Sino-US trade war is accelerating the transfer, Shi says, adding that the cost of land and utilities in Vietnam can be even higher than in China.

Statistics from the General Administration of Customs show that while the value of China's imports from and exports to the United States dropped by 10.7 percent in 2019, the value with countries that belong to the Association of Southeast Asian Nations increased by 14.1 percent.

Vietnam achieved an export surplus of $4 billion in the first half of this year, and its export turnover with the US reached over $30 billion, a 10.3 percent increase compared with the first half of 2019, while the country's imports from China were worth nearly $35 billion, a 2.2 percent decrease, according to the Vietnamese government's website.

China has been Vietnam's largest trading partner since 2004. Bilateral trade exceeded $100 billion in 2018 and 2019, according to official statistics.

Shi points out in his new book that Chinese managers are important links between Chinese supply chains and Vietnamese production that Chinese scholars often overlook.

"Chinese managers" refers to people from China who have been moving to Vietnam with their factories since the 1990s.

The group is estimated to include hundreds of thousands of people, says Wang Jianli, who works at the Chinese Academy of Social Sciences and is a member of Shi's team.

Unlike immigrant businesspeople from coastal areas in China like Guangdong, Fujian and Zhejiang provinces, as well as the Guangxi Zhuang Autonomous Region, Chinese managers are often specialized workers or mid-level administrative and technical management personnel from inland China.

With tacit knowledge about the local people-how they see the world, the ways they deal with things, what they need and how to interact with them-this group is able to find ways to improve production and build social connections in Vietnam.

However, some have moved back to China or started their own businesses in Vietnam. They're intermediaries of manufacturing transfers and cross-cultural understanding, Wang writes in an essay.

"China's private sector and civil society impressed me a lot during my research on the overflow of supply chains," Shi says.

He adds that while the private sector is calling for more effective and efficient regulations, government bodies should be subjected to more vigorous reform.

Most goods are produced piece by piece in several countries, meaning that the current global economic-governance system based on sovereign states is somewhat out of date.

Shi predicts companies from different countries that encounter shared problems will likely join hands to create a new "merchant order" to adapt to new challenges.

Shi is a scholar of diplomacy and history who sees China's comparative advantages in manufacturing as a lens to view China's relations with the world.

He insists this knowledge will be crucial for China to play a more constructive international role.

"Only by knowing about how history has unfolded can we get a clue as to where we are going. And the study of history helps us recognize who we are and how to plot the future," he says.


(Source: China Daily)


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