Uncoupling? Decoupling? Let's call the whole thing off...

**tomcat** · 16-07-2020, 06:55 AM

Think It’s Too Hard to Decouple From China? Think Again

It’ll take work for corporate America to set up new supply chains and develop new consumers, but then again, the Chinese market took work, too.

By Michael Schuman
July 15, 2020, 7:00 AM GMT+7

Thirty years ago, few imagined China would be such a big market for luxury goods. Photographer: China Photos/Getty Images
Michael Schuman is author of "Superpower Interrupted: The Chinese History of the World" and "The Miracle: The Epic Story of Asia's Quest for Wealth." He has previously written for TIME, the Wall Street Journal and several other publications.

China was supposed to be the promised land for American business — the lucrative, indispensable market of the future. But, as U.S.-China tensions escalate and calls grow louder for their two economies to decouple, CEOs across the U.S. are confronting a prospect that only a couple years ago would have seemed unthinkable: China may no longer be a reliable source of profits and production.

Sure, a nation with 1.4 billion increasingly wealthy shoppers and reliable supply chains isn’t so easily replaced. Companies will find it hard to hire skilled workers and replicate the networks of suppliers they enjoy in China. Many will hold onto their mainland factories to produce for the local market, regardless of global trade tensions.

But, a far greater degree of decoupling seems likely, even inevitable. It’ll take work to find alternatives to China — but then again, China took work, too.

Politicians on both sides of the Pacific are already taking steps to disentangle the world’s two largest economies, at least to some extent. The Trump administration, for instance, has curtailed American exports of certain technology to China, while Congress is moving to restrict Chinese access to U.S. capital markets.

Beijing has if anything been even more determined. Core elements of China’s foreign and economic policies — from the infrastructure-building Belt and Road Initiative to subsidy-rich, state-led industrial programs — are designed in part to reduce Western influence over the Chinese economy. There’s little reason to believe the trend will reverse.

No single market may be able to substitute for China’s. Homi Kharas, a senior fellow at the Brookings Institution, projected before the pandemic that by 2030, China would account for a remarkable 22% of the world’s middle-class consumption (on a purchasing power parity basis).

But companies can make up for a loss in Chinese demand. Together, for instance, India and Indonesia should generate 21% of middle-class consumption by 2030. And that’s not even counting other emerging regions. Kharas figured Africa, Latin America and the Middle East would contribute another 13%.

Though these markets may be smaller than China’s at the moment, they have huge potential. More than twice as many smartphones were shipped in China in 2019 as in India. Yet China’s smartphone market shrunk by 7% that year, while India’s grew by 8%.

A study by consulting firm Bain & Company and the World Economic Forum projects consumption in the 10-member Association of Southeast Asian Nations will double over the next decade to $4 trillion. In a sense, a more youthful Southeast Asia will replace consumers lost to China’s demographic-distorting one-child policy. By 2030, ASEAN will add 40 million working-age people while an aging China will lose 30 million, the WEF report forecasts.

The story is similar with supply chains. Some companies have already succeeded in finding alternatives to China. While Apple Inc. is still heavily dependent on Chinese factories to produce its iPhones, for instance, Samsung Electronics now makes more than half of its smartphones in Vietnam.

Similarly, sportswear company Adidas AG has significantly reduced the share of its footwear manufactured in China to 16% in 2019, down sharply from 39% in 2010. Meanwhile, the proportion produced in Vietnam and Indonesia jumped to 71% last year, from 53% in 2010. And most of the Adidas products made in China are aimed at Chinese consumers.

Vietnam had begun enticing manufacturers looking to diversify out of China well before the coronavirus pandemic hit. More recently, Indian officials have offered special incentives to over 1,000 U.S. companies to lure them from China. Other nations will surely follow as the need to create jobs post-pandemic grows ever more urgent.

For companies, starting anew outside China won’t be easy. Inexperienced factory managers and workers may require training to produce up to U.S. standards. Logistics networks will need to be built, local distribution improved and brand awareness enhanced. That will increase costs for companies, at least in the short term.

But U.S. companies have met this kind of challenge before — in China. We’ve forgotten that the China we know today is very much the result of such hard work by international executives. Thirty years ago, reliable infrastructure, top-shelf talent, well-ordered supply chains and fat-wallet consumers didn’t exist. A Hong Kong industrialist once told me that a factory he opened in southern China in 1982 was surrounded by rice paddies and had no regular telephone service; he tapped into the grid in nearby Hong Kong for electricity.

When General Motors Co.’ first Chinese joint-venture car plant opened in 1998, industry analysts doubted a market for its upscale Buicks even existed in a still-poor China. Of course, a market did exist — or could be created. And that’s the point. As in China, the rewards for venturing into Bangladesh, Vietnam or Ethiopia will likely be worth the risk. CEOs should gird themselves for the challenge.

**sabang** · 16-07-2020, 07:12 AM

Sure, it is possible to decouple from China- if you want to shave 5-10% off your GDP, and watch corporate profitability fall as unemployment rises. Smell the Butthurt. It's a Lose/ Lose scenario.

**panama hat** · 16-07-2020, 07:19 AM

Originally Posted by sabang

Sure, it is possible to decouple from China- if you want to shave 5-10% off your GDP, and watch corporate profitability fall as unemployment rises. Smell the Butthurt. It's a Lose/ Lose scenario.

Hardly a lose/lose scenario. If you take into account the immeasurable amount of IP loss to China via their operations there any shift in R&D and manufacturing is a good one.

China has been a convenient location for decades now but is losing in attractiveness due to high costs, China's oft-used anti-foreign actions, unacceptable regulations . . . let's not forget copying and general IP loss.

Companies are moving to Indon, VN, BD, Mexico, India etc...

Anyway, the article above refutes your lose/lose ideas

**bowie** · 16-07-2020, 07:49 AM

It is actually simple - China has a vast wealth of Labor - lots and lots of People.
America has a wealth of food - lots and lots of food.

People need to eat. Trade labor for food and adjust until a reasonable and maintainable balance is in place.

Euphemize and call it decoupling/uncoupling - the correct verb is balancing. These consumer superpowers are symbiotic and Need Each Other.

4 Countries That Produce the Most Food

1. China
Easily topping the list is China, which is the world's biggest producer, importer, and consumer of food. Much of China's land is too mountainous or too arid for farming, but the rich soils of the eastern and southern regions are extremely productive. China also has the world's largest food workforce, with some estimates as high as 315 million laborers. To put this number in perspective, the U.S. is the world's third most populous country with 329 million people, as of 2019.

China is the most prolific producer of an impressive list of foods: rice, wheat, potatoes, lettuce, onions, cabbage, green beans, broccoli, eggplant, spinach, carrots, cucumbers, tomatoes, pumpkins, pears, grapes, apples, peaches, plums, watermelons, sheep milk, chicken, pork, sheep, goat, peanuts, eggs, fish and honey.

3. The United States
No country produces food as efficiently as the U.S. Despite having a significantly smaller workforce than China, total U.S. agricultural product is almost as high. Food production is spread across much of the country, but the largest food-producing states include California, Iowa, Texas, Nebraska and Illinois.

American companies dominate the food export market. Second-place Netherlands exports 35% less than the U.S. and is closer to tenth-place China in terms of international products. The U.S. has been the world's largest exporter of food for a very long time thanks to an increasingly productive farming sector. In fact, the total food production in the U.S. has more than doubled in the post-war period.

**tomcat** · 16-07-2020, 08:08 AM

Originally Posted by bowie

It is actually simple

...unsurprisingly, it actually isn't...

**sabang** · 16-07-2020, 08:17 AM

Hardly a lose/lose scenario.

It's a lose/ lose PH- economics is not your forte', is it? Perhaps politics is. I suppose, if one takes the political decision that it is worth the considerable pain, so be it. But expect major squeals from the biz sector, quite possibly social unrest down the track, and every likelihood you will be turfed out at the next election. Worth it? you decide.

Mind you, I am making my point on the very same forum that told me "foreign investment doesn't matter" (after the coups). Hardly an Economic faculty.

**panama hat** · 16-07-2020, 08:48 AM

Originally Posted by sabang

Hardly an Economic faculty.

But what is, is that corporations will move to the most advantageous location and China has lost that distinction. Other countries will benefit and corporations will take a tax write-off. Everyone is happy enough to change their supply lines to make their new clients happy.

China will lose. Corporate Global will win.

**sabang** · 16-07-2020, 09:03 AM

China will lose. Corporate Global will win.

Oh, really. Remind me of that in a few years time.

**panama hat** · 16-07-2020, 09:15 AM

China will lose out - logic 101. Fewer foreign companies that directly employ their people. Downstream loses customers. Technology theft loss . . . etc etc etc

Of course China will lose out . . . how could it gain? You're suggesting China will not survive - of course it will, just a little bit poorer. Also, let's not forget that China's political system will only survive if the 1.3 billion people are happy with their leadership . . full tummy and money to spend. Democracy? Not so important as they've never experienced it.
People in democratic systems aren't happy with their representatives . . . they vote them out of office. The system continues.
People in totalitarian systems aren't happy with their leadership . . . they revolt and eventually the system collapses.

Logic 101

**tomcat** · 16-07-2020, 10:43 AM

Originally Posted by panama hat

they revolt and eventually the system collapses.

...there could be a fairly long and rocky road between revolt and system collapses...

**panama hat** · 16-07-2020, 11:34 AM

Originally Posted by tomcat

...there could be a fairly long and rocky road between revolt and system collapses...

Oh yes, absolutely . . . but all totalitarian systems collapse eventually. All of them.

**Iceman123** · 16-07-2020, 11:40 AM

^
Agreed, however as much as I think Trump is an embarrassment the law of averages meant he had to get at least one decision right.
His handling of China has demonstrated leadership and I agree with his stance.

China IMO is not a passive player, but indeed has designs on expansion through land grabs and economics. Appeasement as history has shown will only be seen as weakness.

**sabang** · 16-07-2020, 11:59 AM

Lets compare the economic progress of the average Chinese to the average American peasant over the last 25 years, shall we? And you think conditions are ripe for revolution in China PH?

**Iceman123** · 16-07-2020, 12:17 PM

^
There is no revolution on the horizon for China in the near future. They are chests out and emboldened at present.
Even the little salespeople on Alibaba are getting a bit uppity

**panama hat** · 16-07-2020, 12:20 PM

Originally Posted by Iceman123

His handling of China has demonstrated leadership and I agree with his stance.

I agree. Unfortunately it too someone like Trump to stand up to China.

Originally Posted by Iceman123

Appeasement as history has shown will only be seen as weakness.

Also agreed.

Originally Posted by sabang

Lets compare the economic progress of the average Chinese to the average American peasant over the last 25 years, shall we?

Sure - go for it, but compare apples to apples. It is a meaningless comparison, one country rises from zero and the other from 100. Meaningless

Originally Posted by sabang

And you think conditions are ripe for revolution in China PH?

Nope, never said it is. I actually said quite the opposite - once China's economy doesn't consistently grow (and include the vast rural community in its growth) at the CCP-declared rate and the gap between rural and urban continues to grow - then you will see problems crop up. The CCP will brutally suppress them but they will grow.

Again - EVERY totalitarian regime has collapsed eventually and China will eventually as well . . . but I hope not in my lifetime because chaos will ensue as only a totalitarian regime can keep 1.3 billion Chinese in check.

Catch-22

**PlanK** · 16-07-2020, 12:56 PM

Originally Posted by panama hat

I agree. Unfortunately it too someone like Trump to stand up to China.

I think that was accidental. Just Trump pandering to his xenophobic voter base.

**tomcat** · 16-07-2020, 01:04 PM

Originally Posted by Plan B

Just Trump pandering to his xenophobic voter base.

...agreed: tRump needs enemies to blame for his failures and miscalculations...unfortunately, so does the trailer park and who's currently a better enemy than the Yellow Peril...

Thread: Uncoupling? Decoupling? Let's call the whole thing off...

Thread Tools

Display

Uncoupling? Decoupling? Let's call the whole thing off...

Thread Information

Users Browsing this Thread

Posting Permissions