CHATTANOOGA, Tenn. — A leading authority on supply chain, geopolitical tensions and financial risks in China says that country’s zero-COVID-19 policy exposed an already fractured global supply chain.
Leland Miller, CEO of China Beige Book, which compiles independent Chinese economic data, urges companies to diversify and disentangle themselves from the world’s second-largest manufacturer and exporter of goods.
“What really broke the dam on this is COVID-zero because you had all these problems,” Miller said during his keynote address at F3: Future of Freight Festival on Wednesday. “I think a lot of companies thought they could deal with the geopolitical tensions; they thought that this was a much longer fuse than they had. But COVID-zero showed that if the economy could be shut down and supply chains be shut down, then every company that has a China presence could have a serious problem.”
China’s policy involved extensive testing, strict lockdowns and quarantining in an effort to limit COVID cases.
Companies should be evaluating their vulnerabilities amid ongoing geopolitical tensions with China and Taiwan, according to Miller.
“My message to CEOs would be take your blinders off and be honest with yourself: ‘What are our vulnerabilities going forward? And are we doing enough to disentangle ourselves from China considering the threats that we see in the future?” he said.
In speaking with policymakers in Washington, Miller said there’s a desire to address ongoing political tensions to a certain degree regarding exports but he sees the U.S. government becoming more involved toward the end of the decade if tensions continue to deteriorate between the U.S. and China.
“I think there’s gonna be a continued evolution of the corporate mindset in terms of what we can afford and what we can risk getting from China,” Miller said. “What are our vulnerabilities? I think we’re at the very beginning of that stage right now. But I think that we still have a much more difficult path in the years ahead.”
China’s pandemic policy, implemented by President Xi Jinping, exposed a fragile supply chain, and manufacturers are making significant investments in Vietnam, India and North America, mainly Mexico, to produce goods.
“For a few years, we were talking about export control on technology. Now there is technical decoupling going on, whether it’s semiconductors and things related to sort of the fourth Industrial Revolution of advanced technology and anything related to 5G, AI, quantum, biotech, robotics,” he said.
As the Chinese government continues to grapple with an aging population and a declining birth rate, investment firms that offer solutions like taking care of the elderly, generating more babies and offering services around incentivizing childbirth may be welcomed with open arms, Miller said.
FreightWaves CEO Craig Fuller asked Miller if he was more bullish on the U.S. economy versus China’s over the next decade.
“Am I worried about the U.S. economy? Sure,” Miller said. “But, I’m worried about China’s economy a lot more.”
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