On May 14, 2024, foreign trade containers were stacked in the container yard of Qingdao Port in Qingdao, China.
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China remains an “important supplier” to the world and efforts to fully decouple remain “difficult, if not impossible” Allianz Trading’s trade reports explain.
Despite talk of decoupling from China and eliminating risks, European businesses remain optimistic about China’s prospects – nearly 40% of businesses in Germany and Spain and more than 30% of businesses in France expect their supply chain footprint in China to increase.
The report shows that only 27% of the US companies surveyed plan to expand in China.
“European companies are clearly less worried than their US counterparts,” said the report, led by Ana Boata, head of economic research at Allianz Trading.
The Allianz Trade Survey surveyed more than 3,000 companies in China, France, Germany, Italy, Poland, Spain, the UK and the US to understand their outlook for global trade in 2024.
The trade survey showed that more than one-third of respondents planned to expand their footprint in China, while only 11% said they would reduce their footprint.
“China remains the world’s most important supplier and complete decoupling from China will be difficult, if not impossible,” the Allianz Trade report said.
Meanwhile, in China, companies are increasingly optimistic about exporting to other countries.
China is the second largest exporter of goods to the United States after Mexico, and more than one-tenth of exporters expect export growth to exceed 10%.
That’s higher than most other countries’ forecasts for export growth of 2% to 5%, the report showed.
“Chinese exporters were more optimistic than (other countries) in the survey,” said Francois Huang, senior economist for Asia Pacific at Allianz Trading.
“Last year was a bad year for exports overall, with global trade declining. So we think respondents in the survey were particularly optimistic,” Huang told CNBC’s “Squawk Box Asia” on Thursday.
Diversity is inevitable
While companies may not completely decouple their supply chains from China, diversification is still possible.
“Companies looking to diversify their supply chains are looking to other parts of the Asia-Pacific region, with a focus on ASEAN,” Huang told CNBC, referring to the 10-member Southeast Asian trade bloc.
The report shows that exporters may be more optimistic about 2024, but are also more worried about the geopolitical landscape and risks related to shortages of inputs, labor and financing.
Some 73% of respondents said risks related to politics and protectionism were their top concerns. The report said that exporters are still worried about supply chain disruptions, “31% of respondents ranked transportation risks as the top three risks, and 28% of respondents ranked the risk of input shortages as the top risk.”
About 48% of U.S. exporters who produce in China or have suppliers in China said they would consider diversification efforts in Asia-Pacific and Latin American countries.
“Relocation and nearshoring within the same region appear to be the preferred trends,” the report said, adding that only 5% of respondents believe the reshoring trend will reverse within the next two years, while nearly 30% expect reshoring The trend will increase.
The Russia-Ukraine war remains the biggest geopolitical risk that companies expect to hinder supply chains, while the trade war between the United States and China is the biggest threat to companies with long supply chains and more than 50% of production overseas.
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