One in five British importers have moved their supply chains away from China amid geopolitical tensions, with more considering the move, a survey has found.
The Institute of Directors (IoD) found that its members are willing to pay short-term costs for more stability, and felt the UK “should adopt a more cautious approach to China,” it said in a report published on Tuesday.
The IoD surveyed its members, which are predominantly small and medium businesses across the UK, in May on how geopolitical tension has affected their supply chains.
Of the 1,026 respondents, 73 percent involved cross-border trade.
Emma Rowland, IoD trade policy adviser, said in a press release: “It is clear businesses are sensing geopolitical shaped clouds on the horizon, particularly whilst China’s standing with the US, Russia, and Taiwan remains uncertain.
“The pandemic, coupled with the invasion of Ukraine, has exposed vulnerabilities in international supply chains and an overreliance on countries perceived to be high-risk to the UK,” she said.
The so-called golden era of Sino–British relationship began to show signs of souring around 2019 when Hong Kong police used violence on pro-democracy protesters in the former British colony.
Since 2020, the Chinese regime’s initial cover up and subsequent handling of COVID-19, the resulting disruption to global supply chains, the Chinese Communist Party’s (CCP’s) aggressive gestures against Taiwan, and its espionage and influence activities around the globe have further shocked the world into reconsidering business and other ties with the regime.
During the COVID-19 pandemic, many manufacturers, including the automotive sector, had their production disrupted because of a global shortage of semiconductors. Other business have also been affected by the disruption of supply chains.
One of the survey respondents, a large car manufacturer that has diversified its supply chain away from China, said COVID-19-related city or port shutdowns and disrupted shipping schedules had put a “significant increase” on their costs.
Intellectual Property
A small electrical engineering firm which has switched to a “localised supply chain” reported “significant benefits” and said the move has giving its consumers more certainty about their orders.Another reason businesses wanted to move away from China, the report said, was to protect their data and intellectual property (IP).
“Whilst our business was small and developing we needed to source components wherever we could and China was a good source of low volume manufacture as this is mostly done on hand build benches,” a small manufacturer said. “Now that we are growing we are concerned that if we transition to larger scale assembly line manufacture our IP will be stolen once there is recognition of the volumes involved.”
A small electrical engineering company said it felt it was necessary to move away to secure the confidentiality of its deep tech assets.
The report also cited three large and medium businesses which said they were wary of the CCP’s human rights record in Xinjiang and its hostility towards Taiwan, the United States, and others.
“Ultimately, firms are pursuing long-term stability in their supply chains, so they can provide certainty to their own end customers. They want to know they can rely on their international business partners long-term and not be hampered by sudden disruptions,” Ms. Rowland said, adding that “many businesses also feel uncomfortable trading with regimes that do not conform to western democratic ideals.”
But most businesses also said they felt a complete decoupling from China is “economically impractical, at least for now.”
The decades of globalisation meant that the production process of many products are scattered around the world, with much of the manufacturing located in China and other developing countries.
The complexity of modern electronics, such as semiconductors which no country has a complete supply chain for, has made de-globalisation more unlikely.
Besides the Chinese regime, IoD members also reported concerns over Russia, India, North Korea, Brazil, and Middle Eastern nations, which the report said is “rather reminiscent of the 1980s, with phrases like ‘EastWest divide’ and ‘political polarisation’ cropping up.”
Some business also cited “a rise in government interventionist policies” such as the U.S. Inflation Reduction Act, “as a threat to globalisation, which in turn is a threat to business growth,” the report said.
