8 - Are Global Supply Chains Vital to China’s Leaders?

Summary

This chapter examines the evolution of China’s outward-looking political-economy model that has defined the purpose of and receptivity to GSCs in recent decades. It first provides significant empirical evidence for the past contribution of Western-linked GSCs -- specially through forward participation -- to China’s economic growth, employment and earnings, expanding middle class, urbanization, and its development of technological capabilities. We then turn to limiting bottlenecks and emerging challenges, identifying three stylized responses among China’s leaders: “GSC preservers,” “GSC reformers,” and “GSC replacers.” The costs and risks of more extreme decoupling from Western GSCs may explain why radical inward-looking options may have been overpowered by their alternatives until recently. However, Covid-19 introduced starker dilemmas into an already charged geopolitical relationship. While the battle over the emerging GSC landscape will continue to be fought primarily within China, the Trump shocks have dealt a heavy political blow to “GSC preservers.” As the effects of Covid-19 are overlaid on geopolitical tensions, the odds that mutually beneficial outcomes -- including the survival of GSCs as we knew them -- can still reemerge out of the current conundrum, remain unclear.