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China

COVID-19 doesn’t spell the end of supply chains

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Tesla China-made Model 3 vehicles are seen during a delivery event at its factory in Shanghai, China, 7 January 2020. (Photo: REUTERS/Aly Song).

Author: Ken Heydon, LSE

Well before the COVID-19 pandemic, global value chains (GVCs) were losing their impetus as drivers of world growth. Between 2012 and 2015, GVCs were already playing a lesser role in stimulating trade than they had in earlier cycles. Concerns about the environmental footprint of globally-fragmented production were one thing. But rising protectionism was the principal reason.

This became more apparent with the onset of US punitive trade action against China under the Trump administration. Among many examples, penalty tariffs against China led Japanese firms Toshiba and Komatsu to shift the assembly part of their supply chain (at considerable cost) from China to Thailand, Mexico and, in a form of onshoring, to Japan itself.

COVID-19 has transformed and accelerated these trends, triggered by factory closures, transport restrictions and mounting national security concerns. The impact in some cases may be temporary, like the export restrictions impeding and distorting the supply chain for surgical facemasks. But elsewhere the effects will be far-reaching and persistent.

Over 200 of Fortune global 500 firms have a presence in Wuhan. Disruption to China-centred supply chains has seen plant closures affecting firms as diverse as Apple, Hyundai and Airbus. The UN Conference on Trade and Development (UNCTAD) expects global foreign direct investment — a key facilitator of globally fragmented production — to fall by 30–40 per cent in 2020–21.

To be clear, this does not spell the end of globalisation nor global supply chains. David Ricardo’s foundational insight that a country will export the product in which — on the basis of domestic opportunity cost — it has a comparative advantage and import the product in which it has a comparative disadvantage has proved remarkably robust.

One important application of this principle is the vertical specialisation of the GVCs, or specifically the location of skill-intensive production in high-wage countries and the movement of labour-intensive stages to low-wage countries. This enables goods to be produced where cost is lowest.

As former UK Treasury minister Jim O’Neill said recently, as long as firms seek to satisfy customers with the highest quality products at the lowest possible prices, globalisation will remain a fact of economic life.

A global shock also does not mean that supply chains in all sectors are being affected identically. OECD research on recovery rates after the 2008–09 global financial crisis suggests that supply chains in mining and quarrying are much less prone to external shocks than are those in, for instance, motor vehicle production. This is because they have a relatively higher services component, typically less prone to cyclical movements than manufacturing, and are composed of a less diverse bundle of technologically complex products.

Although in the aftermath of COVID-19, the global fragmentation of production will continue and some supply chains will be relatively less disrupted, it won’t be business as usual — and certainly not in the Asia Pacific region.

Over time — and probably only at the margin — there will be attempts to reduce dependence on GVCs through onshoring based on 3D printing and accelerated automation of labour-intensive activities. More immediately, the GVC itself will be radically reconfigured with the introduction of digital supply networks based on functional silos linked via the use of big data analytics to better anticipate and deal with disruption.

This could enhance efficiency, but other likely changes may not. There will be moves to shorten and regionalise supply chains, strengthening links to the distorting preferences of regional trade agreements. COVID-19-driven ‘sovereignty’ policies compelling firms to relocate their data within national borders — as already happens in China and India — could reduce future gains from digitalisation. And accelerated moves, backed by government funding, to reduce dependence on China will come at a cost.

The desire of countries to reduce supply chain dependence on China will be profoundly affected by changes taking place within China itself. Part of the dynamic of China’s rise is the goal of capturing more value-added within the supply chain. This was seen when Chinese smartphone manufacturers shifted production towards more sophisticated components, with Xiaomi launching its first processor and Huawei its own chip and memory. Still, Chinese firms developing in-house competencies will also seek benefit from global fragmentation by…

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China

Trends and Future Prospects of Bilateral Direct Investment between China and Germany

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China and Germany experienced a decline in direct investment in 2023 due to global economic uncertainty and policy changes. Despite this, China remains an attractive destination for German FDI. Key industries like automotive and advanced manufacturing continue to draw investors, although FDI outflows from Germany to China decreased by 30% in the first three quarters of 2023. Despite this, the actual use of foreign capital from Germany to China increased by 21% in the same period according to MOFCOM. The Deutsche Bundesbank’s FDI data and MOFCOM’s actual use of foreign capital provide different perspectives on the investment trends between the two countries.


Direct investment between China and Germany declined in 2023, due to a range of factors from global economic uncertainty to policy changes. However, China remains an important destination for German foreign direct investment (FDI), and key industries in both countries continue to excite investors. We look at the latest direct investment data between Germany and China to analyze the latest trends and discuss key factors that could shape future business and commercial ties.

Direct investment between China and Germany has undergone profound changes over the past decade. An increasingly complex investment environment for companies in both countries has led to falling two-way FDI figures in the first three quarters of 2023, in stark contrast to positive trends seen in 2022.

At the same time, industries with high growth potential, such as automotive and advanced manufacturing, continue to attract German companies to China, and high levels of reinvested earnings suggest established firms are doubling down on their commitments in the Chinese market. In Germany, the potential for electric vehicle (EV) sales is buoying otherwise low investment among Chinese companies.

According to data from Deutsche Bundesbank, Germany’s central bank, total FDI outflows from Germany to China fell in the first three quarters of 2023, declining by 30 percent to a total of EUR 7.98 billion.

This is a marked reversal of trends from 2022, when FDI flows from Germany to China reached a record EUR 11.4 billion, up 14.7 percent year-on-year.

However, according to China’s Ministry of Commerce (MOFCOM), the actual use of foreign capital from Germany to China increased by 21 percent year-on-year in the first eight months of 2023. The Deutsche Bundesbank’s FDI data, which follows standards set by the IMF, the OECD, and the European Central Bank (ECB), includes a broader scope of transactions within its direct investment data, including, broadly, direct investment positions, direct investment income flows, and direct investment financial flows.

Meanwhile, the actual use of foreign capital recorded by MOFCOM includes contracted foreign capital that has been concluded, including the registered and working capital paid by foreign investors, as well as the transaction consideration paid for the transferred equity of domestic investors.

This article is republished from China Briefing. Read the rest of the original article.

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

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Manila blasts China’s ‘unprovoked aggression’ in latest South China Sea incident

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China’s coast guard on Saturday fired a water cannon at a Philippine supply boat in disputed waters in the South China Sea, causing “significant damages to the vessel” and injuring its crew, the Philippine coast guard said.

Manila was attempting to resupply troops stationed on a ship at the Second Thomas Shoal, known locally as Ayungin Shoal, when the Chinese coast guard and maritime militia “harassed, blocked, deployed water cannons, and executed dangerous maneuvers against the routine RoRe (rotation and resupply) mission,” said the Philippine National Task Force for the West Philippine Sea.

The West Philippine Sea is the part of the South China Sea that Manila claims as its jurisdiction.

The Chinese coast guard also set up “a floating barrier” to block access to shoal where Manila ran aground an old warship, BRP Sierra Madre, to serve as a military outpost.

The Philippine task force condemned China’s “unprovoked aggression, coercion, and dangerous maneuvers.”

Philippines’ RoRe missions have been regularly blocked by China’s coast guard, but this is the first time a barrier was set up near the shoal. 

The Philippine coast guard nevertheless claimed that the mission on Saturday was accomplished.

Potential consequences

The Second Thomas Shoal lies within the country’s exclusive economic zone where Manila holds sovereign rights. 

China, however, claims historic rights over most of the South China Sea, including the Spratly archipelago, which the shoal forms a part of.

A Chinese foreign ministry’s spokesperson on Saturday said the Philippine supply vessel “intruded” into the waters near the shoal, called Ren’ai Jiao in Chinese, “without permission from the Chinese government.”

“China coast guard took necessary measures at sea in accordance with law to safeguard China’s rights, firmly obstructed the Philippines’ vessels, and foiled the Philippines’ attempt,” the ministry said.

“If the Philippines insists on going its own way, China will continue to adopt resolute measures,” the spokesperson said, warning that Manila “should be prepared to bear all potential consequences.”

Chinese Maritime Militia vessels near the Second Thomas Shoal in the South China Sea, March 5, 2024. (Adrian Portugal/Reuters)

U.S. Ambassador to the Philippines MaryKay Carlson wrote on social media platform X that her country “stands with the Philippines” against China’s maneuvers.

Beijing’s “interference with the Philippines’ freedom of navigation violates international law and threatens a free and open Indo-Pacific,” she wrote.

Australian Ambassador to the Philippines Hae Kyong Yu also said that Canberra shares the Philippines’ “serious concerns about dangerous conduct by China’s vessels adjacent to Second Thomas Shoal.” 

“This is part of a pattern of deeply concerning behavior,” Yu wrote on X.

Edited by Jim Snyder.

Read the rest of this article here >>> Manila blasts China’s ‘unprovoked aggression’ in latest South China Sea incident

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Foreigners in China: 2024 Living and Working Guidelines

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China’s Ministry of Commerce released updated guidelines for foreign businesspersons living and working in China in 2024. The guidelines cover accommodations, visas, work permits, and emergency protocols. It also outlines responsibilities regarding social security premiums and individual income tax obligations. prompt registration for temporary accommodation is required upon arrival.


The updated 2024 guidelines for foreign businesspersons living and working in China, released by the country’s Ministry of Commerce, outline essential procedures and considerations covering accommodations, visas, work permits, and emergency protocols.

On January 25, 2024, China’s Ministry of Commerce (MOFCOM) released the latest version of the Guidelines for Foreign Businessmen to Live and Work in China (hereinafter referred to as the “guidelines”).

The document is divided into four main sections, labeled as:

Furthermore, the guidelines elucidate the regulatory framework governing foreign businessperson’s responsibilities concerning social security premiums and individual income tax obligations.

This article provides a comprehensive overview of the guidelines, delving into their significance and implications for foreign businesspersons in China.

Upon arrival in China, prompt registration for temporary accommodation is required.

If staying in a hotel, registration can be facilitated by the hotel staff upon presentation of a valid passport or international travel documents.

This article is republished from China Briefing. Read the rest of the original article.

China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.

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