China: De-risking, not decoupling

Despite Western Rhetoric: China's manufacturing might remain unmatched

Narrative is desrisking rather than decouplin

The United States, United Kingdom, and European Union continue to talk about reducing their reliance on China, but the reality is quite different.

China has a wide-ranging influence that spans from basic goods to sophisticated industrial equipment.

China's Manufacturing Prowess

China has become a global leader in production thanks to its advanced manufacturing capabilities. It has shown its ability to overcome technological challenges, and its large-scale manufacturing and solid supply chains lay the foundation for future technological innovations.

Challenges of Diversifying Supply Chains

A report from RBC Wealth Management states that the complex nature of global supply chains, along with China's huge industrial sector and manufacturing skills, makes it unappealing and impractical for many multinational corporations to sever ties with China in the near future.

Limitations of On-Shoring and Friend-Shoring

Attempts to bring production closer to home in the West, often called “on-shoring” and “friend-shoring,” are not ready to meet these demands. Mexico offers a low-cost option for the US, but it can only produce less than 15% of what China can.

Central American countries have problems such as socio-political conflicts, crime, and a lack of qualified workers and infrastructure, which make them unfit for this role.

In the EU, Turkey seems like a potential alternative, but its economic instability creates doubts about its ability to provide a stable and consistent supply environment. East European countries that are not part of the EU are also not suitable places to set up as friend-shoring hubs.

China's Trade Dominance to Continue

As it is, trade relations with China will continue. A slowdown in China's economic growth could lead to a reduction in trade, but this is likely to be a long-term process.

Moral of the story

China's manufacturing dominance remains unchallenged, despite Western rhetoric to the contrary.

It is unlikely that we will see a significant shift away from China as a supplier in the near future.