There have been growing concerns over massive exodus of global industrial chains from China and its adverse impact on the economy during the coronavirus crisis.
CCP has been taking advantage of globalization in the past few decades to build comprehensive supply chains across different industry sectors via cheap labor costs and lack of proper regulations on various business activities. Although economics experts and financial institutions have tried to deliver positive messages with a promising outlook on the overall economy, the situation does not seem to move in the same direction.
Tonghai Port in Nantong, Jiangsu Province, China. (Photo: Xu Congjun/VCG via Getty Images)
There are signs that the trade war in 2019 between U.S and China, the two largest economies in the world, has caused decline of exports and significantly impacted Chinese economy. Some US companies have already started moving away from Chinese market back then upon President Donald Trump’s call for supply chain relocation to support US economy.
On the other hand, the Defense Production Act in place to facilitate US manufacturing processes to meet demand from coronavirus has further deteriorated the Chinese manufacturing industry and the overall economic condition. The Trump Administration has also banned the federal retirement funds investments to any Chinese equities as the investments are deemed to be “risky and unjustified” and the officials have expressed “grave concerns with the planned investment on grounds of both investment risk and national security.” These actions may trigger potential collapse of the Chinese economy in the wave of drastic decline of market demand and foreign investments in the near future.
CCP has consistently put in enormous effort through its propaganda channels to brand itself in a “successful situation of dealing with the pandemic”, while its poor quality masks, PPEs, testing kits and other products have clearly damaged its reputation. CCP’s incompetence and lack of transparency has also caused increasing global tensions and other countries are having a second thought on their economic relationships with China.
Despite Minister of Commerce Mr. Shan Zhong’s earlier comment that any sensible investors would not quit the Chinese market even during the current economic turmoil, it will be interesting to see whether the real smart investors, who are actively monitoring and reassessing the business situation, will stay on the territory of CCP’s ruling.