[Epoch Times October 18, 2021](English Epoch Times columnist James Gorrie/Compiled by Ji Chengxi) These days, there seems to be an endless stream of negative news about China’s economy. The ongoing Evergrande default and the imminent shadow debt crisis have caused enough headaches for the CCP. And now, the world suddenly finds that it is in the midst of the most serious supply chain crisis in modern history.
“Outstanding” scenery is no longer
Naturally, the whole world has not forgotten that the Chinese Communist regime is the root cause of this crisis; the Beijing government’s despicable role during the pandemic and its indifference towards countries severely affected by the Chinese Communist virus (commonly known as the new coronavirus) manner.
In view of the aforementioned and other crises, China’s appeal to foreign manufacturers has become much less attractive than before. Therefore, “nearshoring” (nearshoring) has become a major global trend, and China’s economy will also be affected as a result. In short, “near shore outsourcing” refers to the company moving its production lines to countries closer to the main market.
This is no wonder.
China is no longer the country it used to be. Of course, China is not alone in the vicissitudes of life, but as far as manufacturing is concerned, China’s business and political atmosphere is rapidly deteriorating. For example, labor shortages and resource scarcity caused by the pandemic continue to interfere with basic trade elements such as China’s production and supply chain.
In response to the deteriorating situation, Guangdong Province, China’s largest manufacturing region, lowered the barriers to foreign investment in order to attract more multinational production lines. To what extent this type of policy can slow the coastal tide is still unknown, but it shows that the Beijing government knows the direction of the wind.
Rising costs and falling profits
Once upon a time, an American or European company could significantly increase its profits by simply transferring its manufacturing operations to China instead of other countries. Such days are gone forever. The previous huge profits were due to the fact that the CCP helped tens of thousands of foreign companies to take advantage of China’s cheap slave labor.
Today, even if China’s labor costs are not the highest in the surrounding areas, they are already higher than most countries. In Vietnam, labor costs are more competitive than China, and efforts are also being made to expand manufacturing capabilities. Mexico’s labor costs are also relatively low, and it also allows American manufacturers to avoid the costs and risks of overseas shipping.
This is a big problem because transportation costs are soaring. A year ago, the cost of shipping a container from China to the United States was US$2,000. Today, the price is at least $12,000, or even higher. Recently, freight from China has increased tenfold. In addition, rising fuel costs and product scarcity issues may exacerbate this trend.
Some economists predict that the supply chain problem will be a relatively short-lived situation, which may last for one or two years. But whether the supply chain will recover in a manner similar to that before the pandemic is still questionable.
Long-term damage to the Chinese economy
No matter how high the GDP report is, all these factors add up to push China’s economy into a loss-making state. For example, China’s savings rate is as high as 34%, which proves that Chinese consumers are unwilling to spend money. National savings this year is more than in 2020, and the total savings rate exceeds 45%.
So where is the real economic growth point? In fact, it is far less propagated than the CCP. More importantly, China’s real estate development industry is heavily indebted, and its collapse is not a sign of health, but a sign of economic recession.
The reality is that “near shore outsourcing” may have a deeper and more destructive impact on the Chinese economy, because it involves a long-term trend. The company will not leave a manufacturing base like China on a whim or due to short-term wind. Moving manufacturing operations from one country to another is an expensive process and requires years of planning. They believe that the fundamental deterioration of local objective conditions will have a long-term negative impact on the company’s future earnings and even its viability. Only after reaching such a conclusion, they will decide to transfer the production line.
The ebb and flow of the situation
From the positive side of the “near shore outsourcing” tide, countries such as Vietnam, Poland, Turkey, and Mexico are benefiting from China’s losses. This also means lower labor costs, faster delivery time, and minimal transportation risks and costs.
Obviously, Vietnam is winning manufacturing business for the Asia-Pacific market, and Turkey is gradually becoming the preferred manufacturing base for the Middle East and North Africa markets. Poland is becoming a new manufacturing base for European companies and will serve the European market. The facts have also proved that Mexico is a manufacturing base favored by the United States and other manufacturers.
The current situation is getting clearer. The adoption of nearshore outsourcing by European, Asian and American companies will have an impact on the Chinese economy in the short and medium to long term. Because the CCP will face a sharp slowdown in GDP and a severe tide of unemployment. After all, when manufacturers leave a country, manufacturing jobs and money often disappear.
“Near Shore Outsourcing”: Is the CCP Doomsday Coming?
The bankruptcy of Evergrande and other policy failures have caused increasingly serious civil unrest in China. The relocation of foreign companies and the resulting unemployment crisis are likely to worsen the situation. The pressure of investment losses, and the other problems mentioned above, may also trigger a severe recession or even a Great Depression in China.
These two major crises do not bode well for the Chinese economy and the CCP. Don’t forget that economic growth and full employment are the two pillars of the legitimacy of the CCP’s rule-these are also its commitments to 1.4 billion citizens after the Tiananmen Square massacre in 1989.
If the problems of economic stagnation and long-term unemployment cannot be resolved, will there be a considerable number of Chinese people who believe that the CCP has been unable to maintain the legitimacy of its rule of China?
This is very possible. However, it remains to be seen how long it will take for people to come to such a conclusion and whether it will actually happen.
But one thing is certain, the trend of “near shore outsourcing” cannot be reversed. As the world‘s manufacturers flee China, taking away their jobs and money, their speed and quantity are increasing dramatically. With the development of this trend, the CCP may soon discover that the problems it is about to face are much bigger than it is currently.
About the Author:
James R. Gorrie is the author of “The China Crisis” (“The China Crisis”, published by Wiley in 2013) and writes on his personal blog TheBananaRepublican.com. He lives in Southern California.
Original: Can China’s Economy Survive the Nearshoring Trend? Published in the “English Epoch Times“
This article only represents the author’s own views and does not necessarily reflect the position of The Epoch Times.
Editor in charge: Gao Jing#
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