China tries hard to sustain supply chain

Economist urges global cooperation to safeguard distribution network

A Japanese economist said China's efforts to sustain the global supply chain contribute and drive global economic growth. He emphasized that ensuring stability in the supply chain from China to the rest of the world is crucial for the smooth functioning of the worldwide economy.

During the first Trump administration, high punitive tariffs on China led Chinese companies to invest directly in Vietnam and Mexico, where they established local factories. This resulted in creating a new supply chain, routing goods from China through Vietnam and Mexico before reaching the United States, according to Hidetoshi Tashiro, chief economist at Infinity LLC, a Japanese consulting firm advising stock trading and real estate management.

This shift has significantly accelerated the industrialization of Vietnam and Mexico, driving economic growth and increasing national income.

"The United States, under the pretext of national security, has arbitrarily imposed restrictions and bans on exports and investments in China. Meanwhile, countries like Japan have followed suit by adopting the newly coined term 'economic security'. These actions are destructive to the global supply chain," Tashiro said.

While a new supply chain route to the US through Vietnam and Mexico is taking shape, the second Trump administration has announced that it will double its 10 percent additional tariff on Chinese imports and implement a 25 percent additional tariff on imports from Mexico.

Moreover, the administration has stated that it will take into account value-added taxes and non-tariff barriers when imposing "reciprocal tariffs", further intensifying cost pressures on the global supply chain to the US.

"In response, China may accelerate the signing of free trade agreements with countries outside the US, expand and strengthen the Regional Comprehensive Economic Partnership, and pursue membership in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership as part of a strategy to sustain a free trade system beyond the US," Tashiro said.

In the Government Work Report delivered on Wednesday at the annual session of the National People's Congress, Chinese Premier Li Qiang stated that China will work for the signing of the China-ASEAN Free Trade Area 3.0 Upgrade Protocol and speed up the process of joining the Digital Economy Partnership Agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Li also reaffirmed China's commitment to safeguarding the WTO-centered multilateral trading system, broadening converging interests with other countries, and promoting shared development.

The annual two sessions, a key event in China's political calendar, began on March 4. Discussions during the two sessions cover China's strategies for maintaining and advancing the free trade system, said Tashiro.

He believes that strategies to boost China's exports and outbound investment are also discussed alongside plans to attract more foreign exports and investment into China.

"To promote exports and investment from China to foreign countries, it is essential to create an environment in which private enterprises — the main drivers of economic activity in China — can increase their capital investment," he said.

Similarly, to encourage more foreign exports and investment into China, the country must create a more favorable business environment for foreign enterprises operating within its borders, said Tashiro.

He suggested that China allow foreign companies to invest in equity using funds obtained through domestic financing, making it easier for them to expand their business there.

Additionally, broadening market access for foreign capital in free trade zones would facilitate the integration of high-quality foreign services into China, ultimately driving high-quality economic growth, he said.

"Substantially easing regulations not only on foreign enterprises but also on private enterprises in China would significantly contribute to maintaining and expanding the global supply chain centered on China. We hope such decisions will be made during this year's two sessions," Tashiro said.