Working Together to Keep Global Industrial and Supply Chains Secure and Stable

By Ren Hongbin

On May 18, the China Council for the Promotion of International Trade (CCPIT) held the conference to mark its 70th anniversary and the Global Trade and Investment Promotion Summit. In his address to the conference and the summit, President Xi Jinping reviewed the international situation, proposed China’s solutions to defeat COVID-19, reinvigorate trade and investment, unleash the power of innovation, and improve global governance. He reiterated the imperative to keep global industrial and supply chains secure and stable. Peace, development, cooperation and win-win partnership must be upheld to build a community with a shared future for mankind, foster a new paradigm of cooperation on global industrial and supply chains featuring interdependence, and bring stability and positive energy to international relations at such turbulent times.

I. Global industrial and supply chains are being restructured.

Since the 1990s, economic globalization has developed in depth. The global division of labor has expanded from among different industries to within industries, and then to within enterprises, thus forming global production, circulation and service chains and closely connected value chains. The interconnected industrial and supply chains lead to global industrial clusters and systems featuring balance and maximized benefits. After the international financial crisis in 2008, developed countries began to re-industrialize and introduced tax incentives and subsidies to re-shore manufacturing, which has changed the original system of international division of labor to a certain extent. Since 2018, economic and trade frictions between China and the US have intensified. The US has imposed tariffs on Chinese goods on a large scale, imposed export restrictions, “cut off the supply” of key components and products, and even frequently provoked economic and trade frictions with its allies such as the European Union and Japan. What the US does has hindered severely the normal operation of multinational corporations. Without sufficient flexibility, many industrial chains have been impacted. After the outbreak of COVID-19, the flow of people and logistics around the world has been blocked, the production and supply of raw materials has been unstable, the operation of global production and supply chains has been hindered, and a large number of medical, semiconductor and other products end up in the hands of a small number of countries. Key supply chains in some areas show fragility. Since the Ukraine crisis, the prices of energy, food, raw materials and other commodities have risen rapidly, causing shocks to international industrial and supply chains.

As the world is experiencing the combined impacts of unprecedented changes and the pandemic, great power competition and turbulence, the security and stability of global industrial and supply chains has received increasing attention. It is generally believed that the trend is gaining momentum towards localization of industrial chains, diversification of supply chains and regionalization of industrial division of labor. The US, Japan, and Europe have stepped up efforts to re-shore manufacturing, trying to lay out the industrial chain with them at the center. In the face of the uncertainty and instability brought by the pandemic, multinational corporations make great efforts to reduce dependence on procurement, build necessary backup systems and diverse supply schemes for areas with high risk of supply disruption, and reduce the risk of “disconnection” at the expense of efficiency and cost. Free trade areas (FTAs) have built intra-regional contact and dialogue mechanisms and made more institutional arrangements for production and trade within FTAs. As a result, trade and investment within FTAs has expanded rapidly, making the global industrial chain more regionalized.

Right now, changes of the world, of our times and of history are unfolding in ways like never before, with anti-globalization, unilateralism and protectionism on the rise. However, peace and development as the theme of the era has not changed, neither does the general direction of economic globalization and the historical mission of the international community to seek win-win cooperation in the same boat. The global industrial and supply chains are the inevitable result shaped by a host of multiple elements such as factor costs, industrial supporting facilities, and infrastructure among each economy. Going forward, it will continue to be the basis for enterprises to allocate resources and grow on the global scale and an important path for developing countries to achieve industrialization. With the widening gap between capital return and labor return, the advantages of developing countries have weakened, but their desire to achieve development through participation in global industrial and supply chains has not changed. Non-economic factors, such as geopolitics, emergencies, and ideology have a greater impact on the layout of the industrial chain. However, economic factors remain the central consideration. Anyone who attempts to shorten and sever the industrial chain will incur costs for all economies.

II. China has made important contribution to stabilize global industrial and supply chains. 

China has been deeply integrated into the world economy, with increasingly prominent advantages in scale, supporting systems and some fields. The integrity, resilience and flexibility of China’s industrial and supply chains have withstood the test of the pandemic. China has not only achieved the sustained and steady development of its own economy, but also made an important contribution to stabilizing the global industrial and supply chains, becoming the “ballast stone” and “stabilizer” of the global industrial and supply chains.

China plays an important role in the global industrial and supply chains. With the most complete industrial categories and supporting facilities, it is the only country in the world that has all 41 major industrial categories, 207 medium industrial categories and 666 industrial subcategories, according to the UN industrial classifications. In addition to traditional industries such as textiles, clothing, shoes, hats, toys, and bags, China is moving up in the global division of labor in terms of the middle and high-end industries such as electronics and machinery. It has maintained a leading position in new energy such as high-speed rail and photovoltaic. China is the second largest consumer market in the world, with more than 1.4 billion people and more than 400 million middle-income groups. The consumption structure continues to upgrade, and the imports in the next 10 years are expected to exceed US$22 trillion. China has entered the ranking of innovative countries in the world, moving to the 12th place on the global innovation index. China has made great progress in intelligent manufacturing, artificial intelligence and digital economy, image recognition and speech recognition. China takes the lead in realizing large-scale applications of 5G mobile communication technology, forming new comparative advantages and moving up to the middle and high-end of the global industrial chain. Global market-driven, efficiency-driven and resource-driven capital is more optimistic about China. In the first five months of this year, paid-in foreign investment increased by 17.3% year-on-year, in which the high-tech industry grew by 42.7%.

China fulfills its responsibilities as a major country in maintaining the security and stability of global industrial and supply chains. China leads the world in both economic development and pandemic response. In 2021, the Chinese economy grew 8.1%, and its GDP exceeded RMB 100 trillion for two years in a row. For many years, China’s contribution to world economic growth has been about 30%. Its trade in goods has ranked first in the world for five consecutive years. “Belt and Road” economic and trade cooperation has continued to deepen and made solid progress. Till the end of 2021, the annual trade volume with countries along the route expanded from US $1.04 trillion to US $1.8 trillion, direct investment totaled US $161.3 billion, and newly signed project contracts totaled about US $1.08 trillion. “Small yet smart” agricultural, medical and poverty reduction projects have been delivered. All these have injected strong momentum into global open cooperation and the recovery of the world economy. The China-Europe Railway Express has operated more than 1,000 trains per month for 26 consecutive months, providing anti-COVID supplies, consumer goods and industrial products, acting as the “main artery” of global industrial and supply chains.

Facts have proved that China has embarked on the right path and achieved good results in co-ordinating pandemic response and economic and social development. As the largest engine of world economic growth and the hub of global industrial and supply chains, China ensures no disruption in the “Chinese section” of global industrial and supply chains, and makes best efforts to ensure global supply. As “the world’s factory”, China has stabilized foreign trade and foreign investment and continued to open up with high standards. In so doing, it not only maintains the stable and smooth operation of global industrial and supply chains, but also injected confidence and vitality into the recovery of the world economy. In the face of risks and challenges at home and abroad, China will certainly maintain stable and sustained development, providing strong momentum and injecting more Chinese strength into the stability and recovery of the world economy.

III. Joint efforts are needed to keep global industrial and supply chains secure and stable.

Global industrial and supply chains are shaped by multiple factors and spread across the world. They are highly internationalized, with strong transmission effects. To maintain the stable and smooth operation of global industrial and supply chains is the cornerstone for coping with the complicated and severe international situation, a core competitiveness to achieve sustainable economic and social development, and a joint responsibility for the international community. 

Working together to defeat the pandemic is an urgent task to keep global industrial and supply chains secure and stable. The evolution of the pandemic and the continuous mutation of the virus has caused economic and social activities to be “suspended” and “restarted” many times. Global industrial and supply chains have come under tremendous pressure and suffered serious damage, which has exerted a profound impact on the world economy. Over the past two years, the international community has made joint efforts and important progress in combating COVID-19. The problems of disruptions and cutting off in global industrial and supply chains have been alleviated. However, painstaking efforts are still needed to defeat the pandemic and restore the smooth operation of global industrial and supply chains. Facts have shown once again that in the rough waves of the global crisis, countries are not riding separately in more than 190 small boats, but in a big ship with a common destiny. Strengthening confidence and working together is the only right way forward. COVID-19 will not be the last public health crisis. It is necessary to strengthen global public health governance and build a community of health for all, so as to lay the foundation for stable and smooth global industrial and supply chains and sustained and healthy development of the world economy.

Deepening international economic and trade exchanges is an important way to keep global industrial and supply chains secure and stable. International economic and trade exchanges are not only necessary for countries to leverage complementarity and exchange for what they need, but also an important engine for world economic growth and human progress. Countries should support the WTO-centered multilateral trading regime, strengthen macroeconomic policy coordination, and explore new drivers of economic growth, new ways of life, and new means of personnel exchange in the context of regular pandemic response. Countries should also uphold free and fair trade, increase the production and supply of commodities and key parts, enhance the supply capacity of important commodities, promote the smooth flow of international logistics, and advance trade and investment liberalization and facilitation. It is necessary to implement the Global Development Initiative, dovetail with the 2030 Sustainable Development Goals, promote high-quality Belt and Road cooperation, and deliver the Regional Comprehensive Economic Partnership Agreement. The positive role of existing cooperation mechanisms must be brought into full play to deepen regional economic recovery and growth, maintain the stability of industrial and supply chains, make the “pie” of international economic and trade cooperation bigger, and promote stronger, greener and healthier global development.

Expanding cooperation on scientific and technological innovation provides solid support for the security and stability of  global industrial and supply chains. At present, a new round of scientific and technological revolution and industrial transformation is in full swing. Information technology, biotechnology and manufacturing technology are in the ascendant. Countries should work together to tap the potential for innovation and growth, jointly strengthen the protection of intellectual property rights, and create universally accepted and effective rules in emerging sectors such as artificial intelligence and the digital economy to create an open, fair, equitable and non-discriminatory environment for scientific and technological development. Exchanges and cooperation on innovation should be deepened to promote the deep integration of science and technology with the economy, increase the sharing of innovation results, and remove all barriers that hamper the flow of innovation factors such as knowledge, technology, and talents, so as to let innovation flourish. To promote the integration of the innovation chain and industrial and supply chains, the key is to establish the dominant position of enterprises as main players of innovation. It is important to build more platforms for exchange and cooperation in scientific and technological innovation, support enterprises in carrying out technological cooperation independently, actively integrate into the global scientific and technological innovation network, and effectively translate scientific and technological achievements into real productive forces. Only in this way can scientific and technological innovation benefit more countries and people.

Stronger global economic governance provides effective safeguards for the security and stability of global industrial and supply chains. In today’s world, the future and destiny of all countries are closely linked, with their interests interconnected like never before. The attempts to build exclusive blocs and groups, launch a new cold war, decouple, cut off supply, and impose sanctions will only lead the world into division and confrontation. The industrial and supply chains must be a global public good and should never be politicized and weaponized as a tool. The vision of global governance featuring extensive consultation, joint contribution and shared benefits must be upheld, true multilateralism practiced, and the international system with the United Nations at the core firmly safeguarded. International law must be observed in a uniform way and double standards and exceptionalism rejected, so as to make economic globalization more open, inclusive, balanced and beneficial for all. The role of multilateral platforms such as the G20 and Asia-Pacific Economic Cooperation and international economic and financial institutions such as the International Monetary Fund must be brought into full play to develop international consensus and norms for safeguarding the security of global industrial and supply chains and eliminating the interference of non-economic factors. And this will help to build a mutually beneficial and win-win cooperation system on global industrial and supply chains.

The CCPIT will put into full practice the spirit of President Xi Jinping’s important speech at the conference and the summit, and give full play to its unique advantages of connecting government and enterprises, bridging China and the world, and connecting supply and demand. The CCPIT will strengthen its service network for businesses, expand the international circle of friends, follow the trend of global industrial and supply chain restructuring, build an industrial cooperation platform for connecting production, supply and demand, coordinating the upper, middle and down streams, integrating industrial, innovation and supply chains, enhance the capacity of exhibitions to gather the industrial chain, promote industry-university-research cooperation, and facilitate cross-border industrial and supply chains with local roots and deep integration. In this way, the CCPIT will make new and greater contributions to the stable and smooth operation of global industrial and supply chains, to an open world economy, and to a community with a shared future for mankind.

Ren Hongbin is Chairman of the China Council for the Promotion of International Trade.