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China’s integration into GVCs

Author  :  ZHAO YUAN     Source  :    Chinese Social Sciences Today     2022-02-05

COVID-19 has hit trade and Global Value Chains (GVCs) hard. Discussing challenges to be confronted as GVCs develop in the future, and how China can better integrate into GVCs, several experts shared their perspectives.

Shortened GVCs

Integration into GVCs is a hot topic given the stresses and strain put on GVCs by the impacts of COVID-19. “Business models built around short-term efficiency via being ‘lean’ and ‘just in time’ hit the buffers. This was because GVCs became less resilient and responsive to sudden changes and fluctuations in demands on different components in the value chain, which had ripple effects, slowing and snapping GVCs,” said Chris Rowley, a professor emeritus from Bayes Business School at the City, University of London.

Rolf Langhammer, a professor from the Kiel Institute of World Economics in Germany, shared his insights into general development trends for GVCs. “The length of GVCs will decline in the future. Instead, raising local content in total value added is the target, either by domestic companies or by inflows of foreign investment. This is what China, the EU, and the US, as the three main actors want. They call it either ‘dual circulation’ (China), or ‘more resilience and compliance with ecological sustainability and protection of labor rights’ (EU) or ‘buy American products produced in America’ (US). For Chinese companies participating in GVCs, it means that they will have to accept incoming ‘due diligence’ laws in the EU and the US in order to remain qualified as sources of intermediate goods. China itself will induce foreign companies producing or selling in China to comply with public regulations.”

“In response, some firms in Japan and the US have either ‘reshored’ GVCs, or use multiple locations, either in Asia or within China itself, to limit a single source ‘all the eggs in one basket’ problem. While this may come with some ‘economy of scale’ costs, there will be some ‘economy of scope’ and building GVC resilience benefits for China,” said Rowley.

Digitalized GVCs

“Digitalization of GVCs can be useful if they provide more transparent, quicker, real-time information and data to reduce ‘stickiness’ in orders and dispatch. However, this will only help to a certain extent, as most GVCs will still involve and require the physical transportation of goods in containers by land, sea, and air,” said Rowley.

Langhammer contends that digitalization of GVCs, through blockchain technologies and cyber-currencies, will proceed. Yet here, the essential question is: Who controls the technology and its standards? Furthermore, we cannot exclude the fact that further digitalization could be hampered due to political risks.

Editor: Yu Hui

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