# Shifting Business Strategies: The Emergence of 'China Evac'
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Chapter 1: Understanding 'China Evac'
The term 'China evac' or 'China evacuation' has gained traction within my professional circles lately. Contrary to how it may sound, this concept is less about an immediate escape akin to the fall of Saigon in 1975. Instead, it refers to companies relocating their operations and supply chains to more stable and friendly territories, leading to a noticeable outflow of capital from China.
Recent government lockdowns and the geopolitical tensions stemming from the Ukraine conflict have thrust this topic into public discourse. However, the notion of 'China evac' has lingered in the minds of business leaders and think tanks for quite some time. In reality, the situation resembles the fable of the slowly boiled frog, indicating a gradual realization of risks.
The China under Xi Jinping is vastly different from the one that joined the WTO two decades ago. The state has developed a unique approach, wielding direct and indirect funding to steer industries, reminiscent of the growth models seen in Taiwan, South Korea, and Japan. However, China's persistent investments serve both military and economic purposes, a strategy known as military-civil fusion.
Moreover, forced technology transfers and unprecedented levels of industrial espionage have allowed China to dominate certain technological fields, which it plans to leverage for diplomatic and military advantage.
Section 1.1: Why Now?
To grasp the factors motivating discussions about 'China evac,' one must revisit the initial incentives that attracted investments to China.
#### Subsection 1.1.1: Stability and Control
The Chinese government has historically maintained strict control, silencing dissenting voices when necessary. The regime's grip on labor unions and willingness to use force has raised concerns about the dark side of stability, especially highlighted by events like the Hong Kong protests and issues in Xinjiang. Many brands are now faced with the dilemma of choosing between the Chinese market and their Western stakeholders. The pressure to consider a 'China evac' is mounting.
#### Subsection 1.1.2: Market Size Realities
While the vastness of the Chinese market initially attracted many, its benefits vary across sectors. Brands such as KFC and luxury goods manufacturers have thrived, yet fast-moving consumer goods (FMCG) and technology companies have seen local competitors emerge, pushing them aside. The decreasing middle-class purchasing power in China, compared to the West, complicates the situation further.
Section 1.2: Regulatory and Macro-Economic Factors
China effectively utilizes non-tariff barriers to penalize foreign businesses, compelling them to invest in the local market. The COVID-19 pandemic exposed the vulnerabilities of global supply chains, with China at their core. The geopolitical landscape has shifted, prompting companies and governments to reassess their relationships with China, particularly in light of ongoing tensions.
Chapter 2: Challenges of Departing China
The rise of China has led to severe consequences for multinational companies that have neglected to diversify their operations. This short-sighted strategy has left many reliant on Chinese manufacturing for critical products, making a 'China evac' increasingly complex.
- Approximately 20% of American vehicles incorporate Chinese components.
- A significant portion of the world's vitamin C and pharmaceutical precursors is sourced from China.
- Around 90% of rare earth metals, essential for modern technology, are produced in China.
While companies could potentially relocate manufacturing, rebuilding expertise and knowledge in other regions would be a monumental challenge.
The first video titled "Mass Evacuation in China! Super Typhoon Yagi hit Hainan Island, wind 223 km/h. Vietnam is next?" illustrates the urgent situation faced in China, emphasizing the need for businesses to reconsider their dependencies.
The second video titled "Evacuation in China Failed! Rivers overflowed and the dam broke, Zhengzhou underwater," showcases the risks associated with remaining in a vulnerable region, further reinforcing the case for evaluating a 'China evac.'
Policy Implications of a 'China Evac'
#### Dealing with Internal Challenges
The intertwining of China's state influence with the elite in various countries poses significant hurdles for businesses contemplating a mass exit. Nations like the UK and Australia have made tentative steps toward addressing this, but a realignment of incentives toward long-term stakeholder value is crucial.
#### Understanding Limitations
Policymakers must discern what actions are feasible, albeit painful, versus those that remain unattainable in the near term. Certain processes may require decades to reshore effectively.
#### Building Resilient Strategies
A coordinated effort for a 'China evac' will elicit a strong response from the Chinese government. Countries must learn from the experiences of nations like Norway and Australia, which have faced repercussions for their policies.
#### Long-Term Planning
To ensure sustainable supply chains and economic stability, long-term planning is essential. The prevailing trend of short-term financial gains in Western economies often conflicts with the broader goals of economic resilience.
Originally published at http://renaissancechambara.jp on May 28, 2022.