As China is reshaping its supply chain, foreign entities need to be more “Chinese Made”

Chinese policymakers require more localization for a more stable and secure supply chain in the post-pandemic recovery and in the face of geopolitics with uncertainties in economic globalization.

Assessment

  • Based on the 14th Five-Year-Plan, China wants to build a “modernized supply chain”, which is more innovative, more value-adding but also more secure and stable.

  • Leading the change, Xi has been urging that China builds its own reliable supply chain for key areas affecting China’s national security, such as relevant electrical equipment critical for energy security. For this, “Chinese Made” (国产), which means locally manufactured products, are an important part of the pursued solution. The ultimate policy goal is to ensure that the Chinese economy – in the most extreme case – can function well, or “self-circulate”, with its so-called “domestic circulation”.

  • The exact definition of “Chinese Made” varies by industries and thus depends on the relevant industrial regulators. Nonetheless, foreign companies’ products can be generally considered “Chinese Made” if produced in China.

  • In October, the Ministry of Finance for instance stipulated that public procurement procedures that are formally open to foreign companies shall treat locally produced goods of Chinese and foreign firms equal. The latter are further explicitly entitled to raise issues to the local Finance authorities.

  • Moreover, foreign companies are also seen as part of a more innovative and value-adding supply chain for China. For instance, the Ministry of Commerce’s (MOFCOM) 14th Five-Year-Plan for Utilizing Foreign Investment stipulates that MOFCOM should guide foreign companies to utilize their advantages in the global supply chain to help modernize China’s supply chain.

Implications

  • With the current trend of localization, it seems inevitable that supply-critical foreign companies must make themselves more “Chinese Made”. Till now foreign companies have not been formally excluded from being recognized as Chinese Made, however, the detailed industrial plans by the specific regulators should be examined.

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