Where global supply chains are most feeling pinch from China’s manufacturing slowdown

March 10, 2020

 HONG KONG - Looking beyond the human tragedy of the coronavirus, the global banking group, Natixis, says the epidemic has exposed the downsides of depending too heavily on China to power global manufacturing - and predicts a continuation of the diversification trend by manufacturers to move away from China.

Pointing to China's current influence on supply chain management, Natixis says China reached 19% of market share in global exports in 2018, up from 8% in 2003.

It has also moved up the value chain by exporting more intermediate goods (32% of gross exports from 24% in 2003), although the bulk of exports are still final goods.

"Since January 23, manufacturing production has come to a stop in Hubei province and has suffered severe disruptions in many other parts of China," Natixis says.

"While activities are recovering, multinationals are realising the consequences of depending on a single country, namely China's manufacturing goods."

Natixis says that, in a previous research note, it had  looked at the costs of this dependency for Asia.

"We found that, globally, the electronic, machinery and textile sectors are most exposed to disruptions in China's manufacturing, with North Asian firms very vulnerable due to their extensive investment in China."

Natixis says it has now analysed bottlenecks in the global supply chain by analyzing the sources of bottlenecks.

"We found key differences in global bottlenecks: European Union (EU) dependency is primarily on consumer goods, as it is more regionally-integrated on the value chain, and this is especially true for France," Natixis says. 


"For South Korea and Japan, and to a lesser extent the US, the dependency is high for intermediates, especially electronics and machinery.


"At a granular level, we see that France's supply chain bottlenecks with China are higher than those of other EU member States on average.


"At the sectoral level, France's largest dependency is on baby carriages and toys, light fixtures and fittings, telecommunication equipment, auto-processing data, sound recorders, and parts of machines and household equipment.


"Japan's concentration risk is the highest among the economies studied, although South Korea is not too far behind. Thus, Japanese and Korean firms are the most impacted through the supply chain in the short-term.


"That means the trend of South Korean and Japanese firms diversifying from their China concentration risks will likely continue. The EU, too, will need to consider this as there are clearly too many eggs in the Chinese basket, although more skewed towards consumer goods.


"With France's exposure much greater than the EU average, we expect this urgency to be greatest for those firms in the most exposed sectors."  www.natixisresearch.com (ATI).