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RSTV – Big Picture: Confronting World’s Dependence on China

Introduction: China’s Importance

The Coronavirus pandemic is forcing global companies to diversify their manufacturing base away from China to other emerging and frontier markets. This pivot became particularly urgent since the outbreak of COVID-19 wreaked havoc on China-based supply chains, exposing the world’s over dependence on China. The supply shock has hit corporate revenues hard due to lost output, sparking a recession.

The Dependence Concern

USA, today, is dependent on China for ninety three percent of its API imports (Active Pharmaceutical Ingredients) and that is a lifeline. In India, a pharmaceutical hub, is dependent on China for more than 60 percent of its API supplies.

India, further, depends on China in a variety of sectors including health care, food security, telecom and other variety of sectors like minerals.

Strong-arming can’t be tolerated forever

China is not a market economy. Setting aside this fact, it was a grave mistake that was committed in 2001 admitting China in to WTO. It just doesn’t play by the rules.

Economic consideration can no longer be the sole consideration for determining where industrial units will be located now.  From Australia to America, leaders are now openly expressing reservations about their excess dependence on China.

Ripe time to rise up

It is an opportune time for countries to brace themselves to take on China given that China will be bogged down economically, too. The IMF estimates that China will grow at around 1.2 percent this year, although Oxford Economics suggested they will grow at around 4.2 percent, which is an exaggerated estimate given their PMI (purchasing managers index) has sharply fallen in April, 2020. 

If we are to see the general estimated Unemployment rate of 6-7%, though relatively higher, researchers estimate about twenty four percent unemployment. That translates to about 70 million unemployed in China. The possible outcome could be social instability and even a Communist Party instability

A tall order

Even as China’s GDP falls and unemployment rises, an undeniable consequence of lockdown and the restrictions on social movements, supply chains and others, its food beverage industry, retail sector and the tourism sector have also fallen substantially.

China itself is trying to revive some of those supply chains but it appears to be of too much heavy lifting to do. China should in fact be content with resolving the domestic issues at hand, rather than responding to the likes Australia-US. This seems to be the diplomatic path which China would like to tread.

Yet, the discomforting questions about the origins of the COVID 19, investigations in to the institutions that might have caused the pandemic or a possible initiation of dialogue on compensation reparations, are all yet to play out. China had also demanded wartime reparations from Japan (in the 1930s). So, now this becomes a political issue for China. 

China is definitely going to overcome this pandemic, but it is not going to be the same China when it emerges. The inflation numbers and other statistics make it very clear that China is going to be hugely raising its savings rate. This means China’s ability (the e-commerce companies) to be the powerful hegemon that they were, will not be that powerful anymore, and the purchasing power of the Chinese is definitely going to be reduced.

Too big to ignore

A problem that comes along is that China is too big a part of the world economy to be ignored in the race to develop alternatives. India, for instance, is in a very strong position in terms of what it can offer. India, Vietnam, Indonesia etc could come together to create a regional architecture

If countries want to move out from the Chinese sphere, then the import bill for most countries will rise substantially. China, has had taken the advantage of the fact that it was providing goods at a cheaper price. On top of that, the fact that we are entering the stiffest recession in the last hundred years makes it a very costly affair.

Collaborate, not isolate

Every country is going into protectionism. Globalization is on the Retreat. Countries are raising their ability to manufacture within their borders at all costs and this is going to be a trend.

There is a need for like-minded nations to collaborate. In addition, there should be an easing of regulations if they want to see the world move away from China.

China has always been a rule maker and rule breaker of sort, always feigning ignorance towards international obligations. USA is no better. USA has started to talk about protectionism and isolation for its own reasons. So, there’s no reason why the rest of the world should look upto these bigwigs to create a working international structure that is going to be beneficial for everybody. 

Will India and ASEAN come closer?

India and ASEAN will be both a YES and a NO. NO, because some of the ASEAN countries are dependent on China. China is willing to set its own narrative on almost all issues and wants to get a pat on the back.

Immediate resolution of the South China Sea issue would give an indication of how far the countries are willing to take on China and it will take quite bit more for un-Chinaisation of the world manufacturing set up to happen but definitely there is going to be and is already visible. A lot of local production is happening around.  How far that will impact the economy of the world is to be seen.

Road ahead

UN Security Council is ineffective.  G20 has become a talk shop. Nobody wants to snap relations with China. Nobody wants to contain China, but China has to become a responsible member. Thus, the way out perhaps is that like-minded countries like Quad plus France, Germany, Vietnam, New Zealand, Indonesia and possibly one or two other countries which have a common agenda, which are democracies can get together and start asking questions.

So, even if  these countries start asking questions that took a form a nucleus for the others to join, China will not be able to ignore it. We cannot give a free run to China. India has to come out quickly with some policy announcements. We need to see at the highest level, a clear policy about what do we do in terms of post lockdown situation in terms of production resumption as well as on the new industries.

We have had some leeway in terms of skill India,  digital India and other campaigns.

June 2024