31 July 2010

China Syndrome

Published:: 05 May 2009
Byline:: Peter Bartram

When the economy begins to recover one problemthat could hinder progress is protectionism, which could slow themove towards global supply chains.

When all around is gloom, even a flickering candle can take on the appearance of a torchlight procession. So the news that the China Federation of Logistics & Purchasing’s (CFLP) confidence index rose in February to 49, from45.3 in January, looked at least like amodest beacon. But before we all get carried away let’s remember that any score under 50means the economy is shrinking.

Even so, when the world economic recovery starts it’s quite likely that it will be in China or one of the other former Asian“tiger economies”. The key word here being“when”. On that, pundits are proving George Bernard Shaw’s dictumthat if all economists were laid end to end they wouldn’t reach a conclusion.

One factor that could slow a recovery is a drift towards trade protectionism. This ought to be of special concern to logistics professionals because if protectionismbecomes a strong reality it will choke international trade. And that, in turn, will slow themove towards global supply chains.

As it happens, theManufacturing Strategy Review, published by the UK’s Department for Business Enterprise and Regulatory Reform(BERR) last autumn, picked out what it called the growth in global value chains as one of the key trends to watch. The Review was published before the international financial systemhad slipped into full melt-downmode, so it could, perhaps, be forgiven for seeming somewhat upbeat.

Nevertheless, the trends it identified could develop if economies are able to return to strong growth. It’s worth noting that in the past 20 years, global supply chains have becomemore pervasive andmore complex. And the process hasn’t stopped yet.

Now even small companies can find themselves managing inward supply chains – where they buy rawmaterials, components or sub-assemblies from other parts of the world – and outward supply chains, through which they dispatch the finished products to global customers.

Making sense of all this in the future will, above all, require a world economy where international trade continues to flourish.

And thatmeans the big players pushing for freer trade rather than protectionism. So it was worrying that president Barack Obama’s $787bn stimulus package contained a“buy American”provision, which stipulated that public works and building projects funded with themoney should use only US-madematerials.Many governments and business groups (including some economists in the US) pointed out that this could encourage protectionismelsewhere.

If this turns out to be the case, it could be worrying for all countries that rely on strong flows of international trade, including Britain. China, which has been one of the largest exporters to the United States and Europe, is also deeply concerned about the trend.

When Chen Deming, China’s commerceminister, turned up to do a four-nation European tour shortly after the Obama announcement, he pointedly contrasted China’s and America’s approach to the crisis. Even though Obama’s stimulus package contained a“buy American” provision, China was planning to“buy European” goods, Chen said. “Only through openingmarkets can we solve the problem,”he noted.

China probably hasmore to lose froma tightening of international trade than any other nation. Indeed, it is already losing. There are reports of thousands of toy and shoe factories closing with millions of workers being sent away fromthe towns and back to their villages.

The current Doha Round of international trade talks are deadlocked after seven years of negotiations. The world economic crisis could make itmore or less difficult to free up international trade, depending onmember nations’approach to protectionism.

Not surprisingly, the US wields a lot of weight in these talks. But China’s influence is growing – and Chen hasmade it clear that “China will stand against protectionismand remain committed to openmarkets in trade and investment.”

Which brings us back to the CFLP’s confidence index. If the February upturn is sustained through the spring, perhaps China’s huge economy – now the third largest in theworld, but soon to become the secondwhen it overtakes Japan – could start to generate the growth that can stimulateworld trade.

But even if the recovery remains on hold, the rise of China is bound to increase its influence on the international value chain. European logistics managers could doworse than use any spare time they have in the present downturn to do some hard thinking aboutwhat that couldmean for them.

Executive Jobs
Job Title	Job Location	Job Position
3PL Commercial manager ...	London	Permanent
Assistant Category Manager ...	Wiltshire	Part Time
AVP Software Relationship Management ...	London	Permanent
Category Director- Property ...	London	Permanent
Category Manager ...	Yorkshire	Permanent
Category Manager ...	London	Permanent
More Jobs