Some manufacturers are reconsidering their dependence on China in the face of growing security concerns and worries about potential military conflicts, according to The Wall Street Journal (subscription).
What’s going on: “Executives are plotting alternate supply chains or devising products that can be made elsewhere should China’s hundreds of thousands of factories become inaccessible. That prospect became more conceivable, they said, after the 2022 invasion of Ukraine prompted companies to sever ties with Russia, sometimes taking huge write-downs.”
- China’s government recently banned key Chinese firms from purchasing products made by U.S. semiconductor firm Micron Technology, saying the company posed a national security risk to China.
Why it’s important: “China’s access to raw materials and ability to produce components for finished goods remains unmatched, and its dense supplier networks have yet to be replicated elsewhere.”
What manufacturers are doing: Some manufacturers that rely heavily on China for revenue and inputs are using extra discretion when it comes to their data and intellectual property in that country.
- Manufacturers’ caution levels have risen since April, when China revised an espionage law that lets its authorities inspect the facilities and electronic equipment of any companies they suspect of spying.
- Some manufacturers are aiming to assemble new supply chains to circumvent China. These companies are “brac[ing] for higher prices and slower service than [they receive] in China” but “won’t be cut off by the threat of war or a trade embargo.”