Commentary on Political Economy

Sunday, 29 November 2020

 

Companies cut reliance on China post-Covid

Westpac Institutional Bank chief Anthony Miller: ‘A lot of businesses took actions to stabilise their operations out of urgent necessity, but in the process, many have brought in changes that promise future benefit.’ Picture: James Croucher
Westpac Institutional Bank chief Anthony Miller: ‘A lot of businesses took actions to stabilise their operations out of urgent necessity, but in the process, many have brought in changes that promise future benefit.’ Picture: James Croucher

A large majority of firms across the Asia-Pacific region are actively looking to reduce their supply-chain reliance on China, a Westpac report has found.

The latest Asia-Pacific CEO survey conducted by the bank’s institutional arm found a number of large corporations in the region had or are planning to bring manufacturing back to domestic operations in order to minimise sourcing risks.

Surveying 113 chief executives, the report found two-thirds of firms experienced significant supply disruptions during the coronavirus pandemic, and more than half have decided to manufacture onshore.

“Over half (57 per cent) of firms in the survey have begun to onshore supply and/or manufacturing, in order to secure their supply, and more (63 per cent) expect to continue in this direction in the future,” the Westpac survey said.

“Many CEOs are likely to see such measures as helping to reduce supply dependence on China.”

The reduction in supply risk coincides with a dramatic ­breakdown in trade relations between Australia and China, which has hit major exporters within sectors such as agriculture and resources.

Last Friday the souring relationship lurched into the spotlight again when Chinese authorities slapped Australian winemakers with import tariffs of up to 200 per cent.

The Chinese government claims Australian winemakers have been illegally dumping wine into the Chinese market, lowering prices.

The fallout has already had a material impact on Australia’s largest wine producer, Treasury Wine Estates, which on Friday saw its share price tumble by about 11.25 per cent to $9.25 before the ­company went into a trading halt.

Westpac executive Anthony Miller said the increasing shift to onshore manufacturing presented an opportunity to “reinvigorate” the economy’s domestic manufacturing sector.

“We’re going to see a focus on smart manufacturing, which will create jobs — particularly high skilled opportunities — and it’s going to see us build capability in areas where we can be very competitive on an international scale.”

The Westpac report also highlighted that a number of firms remained resilient during the pandemic and were able to adapt to changing demand and operating conditions.

According to the survey, 69 per cent of CEOs said they had become more resilient as a leader, while 72 per cent of respondents said organisational decision-making had become quicker.

Mr Miller noted prompt responses by senior management had accelerated digitisation strategies, particularly in the realm of technology designed for coping with a remote workforce.

“A lot of businesses took actions to stabilise their operations out of urgent necessity, but in the process, many have brought in changes that promise future benefits — some unanticipated — in terms of efficiency and team cohesion,” Mr Miller said.

Westpac’s report surveyed chief executives from 113 companies located in Australia, China, Japan, Singapore, Indonesia and New Zealand.

The survey was conducted in July and August.

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