Focus topics


Securing supply chains remains challenging in 2022

Dieser Inhalt ist Lizenznehmern unserer Vollversion vorbehalten.

The Chinese government will not back down from its zero-covid strategy

  • China’s strict Zero-Covid strategy has led to the shutdown of several ports and factories. For example, BYD, VW and Toyota factories in Xi’an, Tianjin, and Ningbo were closed. Due to the emergence of Omicron and the lack of mRNA vaccination in China, regional lockdowns and factory closures are likely to increase in 2022 (the potential rollout of Walvax, a Chinese mRNA vaccination, will likely not affect China’s Covid-strategy in 2022). ​
  • Given the Winter Olympics and the Party Congress, an easing of China’s Covid restrictions is not to be expected this year. Companies need to factor increased shipping costs and times into their supply chain planning caused by port congestion or closure, as well as disruptions to manufacturing of intermediate products in China. ​

Geopolitical tensions will become increasingly important in supply chain management

  • Technological competition as a dominant structural driver of US-EU-China relations will not disappear anytime soon. The Biden administration continues restricting outflow of US tech to China. Already, 40% of German companies in China are reporting to feel damage from US-China decoupling (AHK survey).  ​
  • Further, the EU and US look to tighten the screws around Chinese core interest issues in 2022, such as Xinjiang, Hong Kong and Taiwan. The EU will deliberate on a planned supply chain due diligence law in 2022 and Germany has passed a Supply Chain Act that will enter into force in 2023. ​
  • In response, China has used retaliatory trade tools and consumer boycotts to put pressure on European / US companies. As Xi seeks a third term, a more assertive foreign policy to project strength for the domestic audience can be expected. Cases such as H&M or Intel, who faced Chinese media backlash over Xinjiang, are likely to be seen more often.​
  • Firms thus walk a tight rope between complying with EU / US laws, while avoiding the ire of Chinese regulators, making it imperative to systematically include geopolitical developments into supply chain management.  ​

Especially companies reliant on critical raw materials or electronic products facing tough decisions

  • China represents around 52% of the total value of EU imports of foreign dependent products. Meaning, China is currently indispensable for the supply chains of most MNCs. Especially critical raw materials, such as ferro-alloys, silicon and rare earths, but also electronics products are heavily dependent on China.​
  • Considering the added complexity from increasingly ubiquitous trade restrictions, companies need to assess whether a strong dependency on China still suits their risk calculus and whether building up redundancies in the supply chain to increase resilience might be worth considering.​

Related

    Social credit law already affects companies
    Will the digital yuan become an international model?
    Foreign investors welcome in China’s ports
    Xi focuses favors national security over growth