Many companies are worried that the world is on the brink of a new supply chain Cold War, with tensions between China and the West at their highest in decades. This has led to calls for companies to reduce their reliance on China, but experts warn that cutting China off from the global supply chain would be incredibly difficult, if not impossible.
Eddie Yue Wai-man, CEO of the Hong Kong Monetary Authority, is one such expert. He recently warned that the complexity and interconnectedness of global supply chains means that cutting China off would be a “Herculean task.”
“It’s not just a matter of finding new suppliers,” Yue told the South Morning China Post. “It’s also about rebuilding the entire infrastructure that supports those supply chains. That would take years, if not decades.”
Yue’s comments come at a time when geopolitical tensions are threatening to disrupt global supply chains in a number of ways. For example, the US-China trade war has already caused tariffs on billions of dollars worth of goods, and the recent conflict in Ukraine has led to sanctions on Russia, a major supplier of energy and other commodities.
These tensions have raised concerns about the fragility of global supply chains, and the potential for disruptions to have a significant impact on the global economy. However, Yue believes that the interconnectedness of supply chains also makes them resilient.
Last month, China’s exports declined 14.5 per cent year on year, but it still remains the world’s biggest supplier of a wide variety of goods, ranging from electrical machinery and equipment to consumer electronics, reports SMCP.
“If one country is disrupted, there are usually other countries that can step in and fill the gap,” Yue said. “This is why I believe that it is unlikely that we will see a complete decoupling of the Chinese and Western economies.”
While Yue is confident that global supply chains will remain intact, he does acknowledge that the geopolitical landscape is changing. He believes that companies will need to be more agile and adaptable in order to manage the risks associated with this new environment.
“Companies need to have a plan in place for how they will deal with disruptions to their supply chains,” Yue said. “This may involve diversifying their suppliers, building up inventory, or investing in new technologies.”
The geopolitical tensions of the 21st century are putting a strain on global supply chains, but China’s interconnectedness makes it unlikely that we will see a complete decoupling of the Chinese and Western economies. Companies will need to be more agile and adaptable in order to manage the risks associated with this new environment, but the resilience of global supply chains should ensure that disruptions are kept to a minimum.
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