Recently, Larry kudelo, director of the White House National Economic Council, publicly called on American enterprises to withdraw from China and said that in the later stage of the epidemic, measures will be taken to change the relationship of excessive dependence of the United States on China.

However, the latest Reuters survey shows that most American enterprises in China have no plans to evacuate China due to the epidemic.

Some companies, including apple, said they could not find a place outside China to meet demand.

This shows China‘s irreplaceable position in the global supply chain. So, how did China enter the global industrial chain? Under the epidemic situation, anti globalization voices emerge one after another, and what changes will take place in the global supply chain? How should we face these uncertain changes?

How did China get on board?

In 2018, the trade friction between China and the United States attracted worldwide attention. Why does the United States just "can‘t handle" China? This is because when the United States provoked trade frictions, its imaginary opponent was China, but it encountered a stronger opponent than China - the global supply chain.

What is global supply chain? In fact, global production, circulation and consumption have been connected together, forming a global division of labor system and a global market. This chain is not only integrated, but also longer and longer, connecting all links of production, "you have me, I have you", forming a "community of common destiny". The real reason why the global supply chain will not be interrupted by trade friction is that everyone has been on board and is sitting on a huge ship.

So, how did China get on this ship? It is necessary to review the origin of global supply chain. There are three main reasons for the emergence of global supply chains.

The first is the emergence of Internet technology.

The emergence of Internet technology has brought a new form of global division of labor, that is, there is a ship. The New York Times columnist Thomas Friedman wrote a book called "the world is flat", in which he wrote that a series of changes brought by Internet technology are like a square array of bulldozers, which will push the world flat. No matter where you are, large or small enterprises, as long as you can catch the train of globalization, you can show your style on the stage of the world.

In economic terms, the original trade is inter industry trade. The most typical example is that China produces shoes and the United States produces aircraft. We use shoes for other people‘s aircraft. Later, trade became intra industry trade, that is, whether shoes or aircraft, there will be labor-intensive links in the production process. These production links can be outsourced to countries with relatively cheap labor like China. In this way, the opportunities for China to participate in the international division of labor become endless. As long as we give a brick to stand on, we will quickly expand to both ends of the industrial chain. As a result, China soon became a "world factory".

The second is geopolitical factors.

At that time, the Berlin wall collapsed, the cold war ended, the confrontation between the two camps of the United States and the Soviet Union no longer existed, and the attitude of the United States towards China was mainly to win over. It‘s not enough when the ship comes. Someone has to give you a ticket. This is an "invited development". The most typical "invited development" is the "four Asian dragons" during the cold war, that is, South Korea, Singapore, Taiwan and Hong Kong of China. Why did the "four little dragons of Asia" develop fastest in that period?

One reason is that the United States has given them invitation tickets. The market in the United States is the largest in the world. If the United States invites you to sell things there, you are certainly more likely to get rich. The "four Asian dragons" are indeed very diligent and hard-working, but without this ticket, I‘m afraid it‘s useless to try any harder. Of course, then again, can we develop after receiving the invitation ticket? Not necessarily. At that time, the Philippines also had such an invitation ticket, but the Philippines did not develop.

So are there any countries that have achieved economic development without receiving invitation tickets? It seems hard to find. Some countries in the Middle East dug oil fields and made a fortune all at once. But can we say that they have achieved economic modernization? I‘m afraid I can‘t say that. After all, not every family has a mine. If there is no mine at home and you want to develop, the first pot of gold is likely to be earned in the overseas market. This is the importance of the US market to developing countries. It doesn‘t matter what you can export to the United States, but what and how much the United States imports from you.

China‘s situation is more special. It not only wants to get an invitation ticket to enter the U.S. market, but also wants to get a ticket to board the giant ship of the global economy. The reality of international politics is that under the circumstances at that time, China could not get around the United States if it wanted to get on the ship. The fastest growth rate of China‘s economy is in the years after China‘s accession to the WTO. During the negotiations on China‘s accession to the WTO, the negotiations with the United States are the most laborious and costly.

The third is the hollowing out of American manufacturing.

After all, there are many passengers who can get on board. Some take first class, some take second class, and some can only take third class under the deck. The hollowing out of American manufacturing means giving up its cabin, and China has the opportunity to upgrade.

In detail, the hollow trend of American manufacturing industry began with the rise of economic liberalism in the 1980s. The trend of economic liberalism has influenced the economic policies of western countries, so there is Thatcherism in Britain and Reagan revolution in the United States. This trend of thought has also brought an impact on the management of enterprises. Economic liberalism tells entrepreneurs that the goal of enterprises is to maximize the interests of shareholders. But what about the interests of employees, suppliers, consumers and communities? Sorry, I have to stand aside.

This is actually using the idea of doing finance as an enterprise - if you want to maximize the interests of shareholders, manufacturing enterprises have to peel off "non core assets". To put it bluntly, it is to sell what can be sold and outsource what can be outsourced. In this way, the enterprise becomes "asset light". Similarly, we still earn so much money, but with less assets, the financial statements will be much better, and the stock price of the company will rise. Of course, shareholders are happy.

For example, Jack Welch, CEO of General Electric (GE), who was regarded as a God in the business world, did so. From 1981 to 2001, Welch served as CEO of Ge. On the one hand, he sold businesses related to manufacturing - small household appliances, semiconductors, mobile communications, etc., and on the other hand, he actively acquired financial companies. In fact, Welch has transformed Ge into a financial enterprise. At that time, everyone said Welch was a legend. Later, they woke up: Flextronics, Jabil, TSMC, quanta and Foxconn all rose at this time.

The result is an outflow of manufacturing from the United States. In 1960, the manufacturing industry in the United States reached its peak, with 29% of American employees employed in manufacturing. Today, only 10% of American employees are employed. Most importantly, the hollowing out of manufacturing has damaged the technological innovation of the United States. The real strength of a country comes from its innovation ability, and innovation is a road stepped out in practice.

Most innovations are related to production. From innovation to production, it probably goes through four steps: laboratory R & D, prototype, small-scale mass production and large-scale mass production. Laboratory research and development is to make the Tao ideal clear. The prototype is to turn the truth into a visible object. Small-scale mass production is to test whether this thing can be made. Large-scale mass production is to see the real chapter and stand the test of the market. Because large enterprises in the United States are keen to peel off their core assets, merge and acquire other people‘s assets, and play the game of "great shift of heaven and earth" every day. Finally, although American enterprises have advantages in R & D, they lack manufacturers, so it is difficult for American invention and innovation to achieve large-scale mass production in their own country.

The United States‘ own mistakes led to the outflow of manufacturing from the United States, and China took this opportunity to upgrade the manufacturing industry.

Global competitiveness

What is China‘s position after understanding how the global supply chain is generated?

We know that some industries have a high level of technology and some industries have a low level of technology. For example, those who make aircraft must have a higher level of technology than those who make shoes. Who is more skilled in watches and rockets? Measuring the technical level of different industries is actually a very complex problem. If we can‘t find a direct answer, we can find the "proxy variable" through a circuitous method.

Three economists from Harvard University, Hausman, Huang and Roderick, put forward: can income level be used as a proxy variable for product technology level?

Although it is difficult to say the technical level of products, it is easier for us to see which country is more advanced. We can guess it by per capita GDP. When we travel, we can roughly judge the per capita GDP level of this country or city by walking on the street. For example, the per capita GDP of Malaysia is slightly higher than that of Thailand, while the per capita GDP of Bangalore is not as good as that of Chengdu.

Inspired by this idea, the three proposed that high-income countries tend to export products with higher technological content. Therefore, if the world export share of a product is more contributed by high-income countries, it is reasonable to think that this product has higher technological content.

It must be noted that this method is not perfect. For a single product, or only the comparison between two products, there is likely to be deviation. However, if this method is applied to more products, even if there are deviations in the comparison between a few products, on the whole, the ranking of income level and product technology level should be roughly the same. In this case, it is reasonable to observe the product technology level with the income level, which is also the main reason why this method is widely used in the current academic circles.

We observed a total of 163 sample countries from 2000 to 2017.

The first step is to calculate the technology intensity of products using trade data and per capita GDP data. We investigated a total of 5057 products. Then, we divided 5057 products into 4 groups according to the technology intensity from low to high. In other words, the lowest 25% of the product group is recorded as the first category of products, that is, the products with the lowest technology intensity. The second category of products is of medium and low technical level, the third category of products is of medium and high technical level, and the fourth category of products is of the highest technology intensity.

What kind of products does China export? If we observe the change trend of China‘s export proportion of four categories of products from 2000 to 2017, we will find that their importance is "3241": the third category of products is the main export force at present, accounting for 38% of China‘s total export; The second category and the fourth category are followed, accounting for 25% and 24% respectively; The proportion of the first category of products has been very low, only hovering around 10%. We can also see that the proportion of the third and fourth categories of products in China‘s exports has increased most significantly, with an increase of about 8% for each category of products; The proportion of the second category of products is relatively stable and has decreased slightly since 2010; The proportion of the first category of products decreased significantly, from more than 25% in 2000 to about 10%, and this process mainly occurred before the 2008 financial crisis.

What is the proportion of all kinds of products exported by China in the global market? The proportion of products in the second, third and fourth categories has been steadily increasing from 2000 to 2015, and tends to be stable after 2015. This trend is consistent with the changing trend of the proportion of China‘s exports in global exports. In 2015, the proportion of China‘s exports in global exports reached an all-time high of 13.8%. The proportion of the first category of products increased from 2000 to 2008 and remained basically stable after 2008.

This shows that since 2000, China‘s export structure has been optimized and its international competitiveness has been enhanced. At the same time, this structural optimization does not necessarily lead to the decline of the international competitiveness of low-end products. A basic evidence is that the export share of category I products in the global market has not decreased significantly, but remains quite stable. The decline in the export proportion of China‘s low-end manufactured goods has appeared as early as around 2008, which shows that at about that time point, China has preliminarily completed the optimization of export structure. There is no more room for expansion of category I products in the global market, and China‘s exports of category I products are likely to remain at the current level in the future.

The second step is to look at the competitive relationship between China and other emerging economies.

In recent years, the concepts of BRICs and Vista have been put forward one after another, and Malaysia, the Philippines and Thailand are also generally optimistic. Referring to these concepts, we selected 10 representative countries from emerging economies, namely: South Africa, Mexico, Brazil, Turkey, Thailand, Vietnam, India, Indonesia, Malaysia and the Philippines. We call them "em10 countries" (EM is the abbreviation of emerging market), that is, emerging market 10 countries.

We sum up the export scale of the second and third categories of products of em10, and then compare it with the export scale of similar products in China. The results show that before 2005, the export scale of China‘s second category products has been lower than that of em10 countries, then began to grow, and finally exceeded the sum of em10 countries; After the 2008 financial crisis, the gap between the two has become larger and larger; Before 2015, the sum of the export scale of the third category products of em10 was higher than that of China, but it was later surpassed by China, and China is still in the leading position. In other words, China has scale advantages in the export of category II and III products. Even if we take em10 countries as a whole, it is difficult for them to replace China in the foreseeable future.

So, how big is the gap between China and developed countries?

We also observed the export structure of OECD countries in four categories of products. OECD is the organization for economic cooperation and development. It is an international economic organization composed of 36 developed countries. Joining OECD is generally considered to be joining the club of developed countries.

We find that the export structure of OECD countries is quite stable, and the export proportion of category III and category IV products is the highest, accounting for about 37%. The export proportion of the second and first categories of products is relatively low, about 16% and 10% respectively. At present, the proportion of China‘s exports of category I and category III products has been basically the same as that of developed countries, but the proportion of category II products is high and the proportion of category IV products is low. Therefore, there are likely to be two changes in China‘s export structure in the future: the proportion of exports of category II products will continue to decline, with a decline of 8% ~ 10%; The proportion of exports of category IV products continued to rise, and the rising space was equivalent to the decline of category II products, about 10%.

This brings a severe challenge. If we compare the export scale of category IV products of the United States, Japan, Germany and China, the export scale of category IV products of China has been equivalent to that of the United States and Germany. This means that if China wants to continue to increase the proportion of exports of category IV products, it will inevitably squeeze the share of developed countries such as the United States, Japan and Germany. China‘s manufacturing industry will face greater and greater resistance to upgrading.