China Daily Weekly - 02.08.2019

ByWANGSHUO

T

he West has always had

doubts about the “16+1”

grouping of China and

Central and Eastern Euro-

pean (CEE) nations. While some

countries are worried, especially

about the rise of China’s geopoliti-

cal power, some CEE countries are

concerned that with the advance-

ment of the Belt and Road Initia-

tive, the “16+1” grouping may be

replaced or weakened.

But facts speak louder than

words. Greece officially joined the

16+1 grouping not long ago, making

it 17+1, showing that cooperation

between China and the CEE coun-

tries is by no means a temporary

phenomenon. It also shows that

concepts promoted by the 16+1 ini-

tiative are becoming more accept-

able globally.

The first concept is openness.

Some people say Greece is not a

CEE country, but this is wrong.

Geographically located in the

Balkan region, Greece belongs to

Central and Eastern Europe, and it

always hoped to join the grouping

that comprises Central and Eastern

Europe and China.

The real question is whether the

16+1 grouping is an ongoing proj-

ect. In my opinion, the emergence

of the 17+1 grouping shows that

China’s cooperation with Central

and Eastern Europe is as open as

other cooperation initiatives pro-

moted by China, such as the Asian

Infrastructure Investment Bank.

The second concept is transpar-

ency. The more China cooperates

with Central and Eastern Europe,

the more influential it becomes,

which has caused unease in some

countries.

Therefore, we should focus on

what China will do with this influ-

ence, rather than on whether China

has expanded its influence. China

has clearly pointed out that the

initiative does not involve military

and security fields, and it does not

intend to weaken the European

Union.

As part of the overall coopera-

tion between China and the EU, the

initiative welcomes the EU and its

member states to send observers,

linking development plans of the

EU with those of the initiative.

The third concept is inclusive-

ness. In fact, the CEE countries

differ greatly in economic develop-

ment, language and culture. Some

of them are EU member states,

while others are not. And some are

in the eurozone, while others are

not.

Greece’s entry into the initiative

is further evidence of this diversity

and inclusiveness.

Thefourthconceptismutualben-

efit. The quality of cooperation is

linked to actual achievements. This

is also an important basis for ensur-

ing the continuity of cooperation.

According to statistics from the

Ministry of Commerce, the trade

volume between China and the 16

CEE countries was $82.23 billion

in 2018, a year-on-year increase of

21 percent. Of this, China’s exports

were $59.19 billion, rising by 19.6

percent, and imports were $23.04

billion, soaring by 24.6 percent.

At the same time, Chinese com-

panies have invested more than

$10 billion in CEE countries, and 16

CEE countries have invested more

than $1.5 billion in China.

Today, the 16+1 grouping has been

updated to 17+1, and although the

scale of cooperation has changed,

the spirit of cooperation has not.

The author is a research professor

and deputy director of the Institute

for European Studies of the

China Institutes of Contemporary

International Relations. The views

do not necessarily reflect those of

China Daily.

Country’sparticipationhighlightshowChina-CEEcooperationisbynomeanstemporary

Greece’s16+1entryshowsinclusiveness

LIMIN/CHINADAILY

ByMATTHEWKIDDER

U

S President Donald

Trump has said that US

tariffs on Chinese goods

are causing companies to

move production out of China. But

the reality is that changing deep

supply relationships is much more

challenging than simply picking up

the phone and placing a purchase

order with a company in Vietnam

or elsewhere.

Moving production out of China

is complicated by the fact that most

products involve a chain or net-

work of suppliers. Those who buy

from a Chinese company are also

indirectly buying from the suppliers

of the Chinese exporter, and from

their suppliers’ suppliers. These

supplier linkages are called value

chains and the number of suppliers

along the value chain is called the

value chain “length”.

The World Bank and the Univer-

sity of International Business and

Economics have published a report

suggesting that foreign buyers pre-

fer to buy more from countries with

longer value chains. From a foreign

buyer’s perspective, countries with

longer value chains have deeper

supplier relationships and this can

allow these countries to produce a

wider variety of foreign designs.

China has the longest value

chains in the world and leads the

world in value chain length in 12

out of 16 manufacturing industries,

based on calculations of value chain

length from the Research Institute

for Global Value Chains. The depth

of the Chinese supply relationships

gives China production flexibility,

which cannot be easily replaced in

other countries.

On May 20, 173 companies, from

the footwear industry, wrote an

open letter to Trump urging him to

remove tariffs on China, and telling

him that production cannot easily

move out of China. They wrote that

shoe production takes “years of

planning required to make sourc-

ing decisions, and companies can-

not simply move factories to adjust

to these changes”.

The challenges of moving pro-

duction chains out of China are

shared by many industries besides

footwear and are the highest for

industries in which designs change

frequently or in industries that

have complicated products.

In some industries, such as foot-

wear, companies are constantly

releasing new designs into the mar-

ket. New designs often include new

types of intermediate products. So,

the deep supplier relationships in

China make it easier, for manufac-

turers, to change the intermediate

goods needed to produce a new

design.

There is a common miscon-

ception that China has a trade

advantage simply because of lower

wages. Such misconceptions fail

to recognize the manufacturing

strength that originally made China

a leader in global manufacturing —

the ability of Chinese companies to

copy foreign designs. The ability to

copy often receives bad press, when

framed in terms of intellectual

property disputes. But it is exactly

this ability that makes China an

attractive manufacturing location.

It is also the ability to produce for-

eign designs, using domestic supply

chains, that has allowed China to

retain foreign

knowledge

that enters the

country.

Such abilities, to

absorb foreign designs,

are lacking in most

developing countries, leav-

ing many businesses with no

clear alternatives to the Chinese

market. To compound the problem,

many developing countries have

pursued policies that actually limit

the lengths of their production

chains. Ironically, these were

policies that were histori-

callypromoted by the West.

Classical trade theory

prescribes that countries

should specialize in what

they are efficient at pro-

ducing. In many cases, the

result has been short supply

chains and the creation of

a glass ceiling in economic

development.

The TIPER oil refinery in

Tanzania is a good example

of this. The plant was shut

down in 1991 as a part of

the structural reforms of

the International Monetary

Fund, saying that the plant

was not competitive inter-

nationally. So, the rich inland oil

reserves are now pumped directly

to ships, to be sent abroad for fur-

ther refining.

There are more than 6,000

products that are derived from

petroleum and these range from

plastics, synthetic rubbers, inks,

perfumes and fertilizers to deter-

gents and pillows. The Tanzanian

economy lost a great amount of

capacity when domestic oil refining

was abandoned. In this case, the

supply chain was cut short and the

capacity for economic development

reduced.

China was once in a similar

phase of economic development.

But China subsidized weaker indus-

tries in the early years of develop-

ment and eventually a manufactur-

ing base was set up that is currently

unrivaled in the world today in

terms of value chain length.

Developing countries can follow

the Chinese example and develop

their value chain length by push-

ing raw materials as far down the

production line as possible. But

such structural reforms take many

years to develop and will not be

helpful to companies who are

caught in the current US-China

trade war.

As a result, many companies will

find themselves with no immediate

alternatives to Chinese products,

and those who exit will enter sub-

optimal production conditions,

thus leaving the US consumer and

US companies to carry a heavy cost

in the trade war.

The author is an assistant professor

at the UIBE Business School. The

author contributed this article to

China Watch, a think tank powered

by China Daily. The views do not

necessarily reflect those of China

Daily.

China’sproductionflexibility,depthofsupplyrelationshipsarenotfoundelsewhere

Valuechainsthatarehardtoreplace

CHINA DAILY GLOBAL WEEKLY August 2-8, 2019 COMMENT 21