China’s Pursuit of Modernization Bolsters Global Supply Chains
China’s Pursuit of Modernization Bolsters Global Supply Chains

China’s Pursuit of Modernization Bolsters Global Supply Chains

Economists and corporate executives believe that China’s ongoing efforts to establish a modern industrial system will play a pivotal role in safeguarding global supply chains from potential disruptions. This commitment ensures the continued stability of the global economy, especially amid the numerous challenges and uncertainties it faces.

The specter of industrial decoupling, with its significant implications for global economic recovery, underscores the importance of China’s appeal to multinational corporations. China offers a comprehensive supply chain support system, a robust logistics infrastructure, a vast market, and favorable government policies that foster innovation.

The concept of a “modern industrial system” has gained prominence in China, with top leadership highlighting it as a fundamental priority for the country’s economic development and modernization.

Chinese President Xi Jinping has emphasized that a modern industrial system forms the material and technological backbone of a modern nation. He has stressed the centrality of the real economy to support China in achieving its Second Centenary Goal, which envisions China as a modern socialist country characterized by prosperity, strength, democracy, cultural advancement, harmony, and beauty by 2049, coinciding with the centenary of the People’s Republic of China.

Xi, who also serves as the General Secretary of the Communist Party of China Central Committee and the Director of the Central Commission for Financial and Economic Affairs, articulated these goals during the first meeting of the commission under the 20th CPC Central Committee in May.

The Political Bureau of the CPC Central Committee further affirmed the imperative to advance the modernization of the industrial system, nurture and strengthen strategic emerging industries, and develop additional pillar industries during a meeting in late July.

Hans-Paul Burkner, Global Chair Emeritus of Boston Consulting Group, believes that China’s push for industrial modernization will enable the nation to ascend the value chain, transforming its economy into one that is “more innovative, talent-driven, consumption-oriented, and environmentally conscious.” This transformation will solidify China’s crucial role in global supply chains, even in the face of challenges like geopolitical tensions and discussions about relocating production to developed countries.

Craig Allen, President of the US-China Business Council, regards China as an enticing destination for supply chain integration. The sheer scale of China motivates US-based companies, and its ecosystem benefits from substantial investments in infrastructure and talent.

Isabel Ge Mahe, Vice President and Managing Director of Apple Greater China, underscores the indispensable role played by Chinese suppliers in Apple’s global supply chain over the past three decades. Despite reports of considering shifting some iPhone production to India, Apple is committed to promoting China’s transition to intelligent manufacturing. Last year, Apple launched the $50 million Supplier Employee Development Fund to provide training in automation and advanced manufacturing to employees of its suppliers.

Even in the semiconductor industry, where the US government has pursued decoupling, US chip companies continue to focus on the Chinese market. Intel Corp CEO Patrick Gelsinger has emphasized the crucial role China plays in Intel’s business strategy. Intel and the Nanshan district government in Shenzhen launched the Intel Greater Bay Area Innovation Center in late July, focusing on technologies like artificial intelligence and chip applications.

China’s preeminence in global manufacturing is underscored by the fact that it retained its position as the world’s largest manufacturing country for the 13th consecutive year in 2022, accounting for nearly 30 percent of the world’s total manufacturing output, according to the Ministry of Industry and Information Technology. More than 570 Chinese industrial companies are listed among the world’s top 2,500 companies concerning R&D investment, enhancing their ability to support global supply chains.

As China ascends the value chain, it has evolved into an exporter of intermediate goods used by manufacturers worldwide, enhancing the connectivity and competitiveness of global supply chains, according to a report by HSBC. In Asia, imports of intermediate goods from the Chinese mainland constitute nearly 20 percent of all component imports on average. Additionally, exporters in the Association of Southeast Asian Nations increasingly rely on components from the Chinese mainland.

Nonetheless, China faces challenges in critical technologies such as semiconductors, necessitating further efforts to transition to greener, smarter, and higher-end manufacturing processes.

Renowned economist Jeffrey Sachs, Director of the Center for Sustainable Development at Columbia University, highlights China’s leading role in critical technology innovations, which bodes well for the country’s manufacturing industry.

China’s dominance is evident in its representation on the Global Lighthouse Network list, a project launched by the World Economic Forum in collaboration with McKinsey & Co to track advanced manufacturing plants known as lighthouse factories that employ cutting-edge digital technologies. China hosts 50 such lighthouse factories, more than any other country, accounting for over one-third of the world’s total.

Huang Qunhui, head of the Chinese Academy of Social Sciences’ Institute of Economics, underscores the need to focus on foundational materials, manufacturing processes, software, and other areas to enhance China’s industrial capabilities.

Denis Depoux, Global Managing Director of Roland Berger, commends the quality and depth of China’s industrial clusters, its flexibility, and its ability to quickly mobilize a large workforce and launch new products in consumer electronics.

Andreas Mueller, CEO of Swiss industrial company Georg Fischer, emphasizes the need to translate discussions about diversifying supply chains into concrete actions. GF’s investment in factories in Yangzhou and Shenyang exemplifies its commitment to China.

“We feel very at home in China,” Mueller said.


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