China, Covid and the supply chain

In this latest podcast episode, we turn to China and look at how Covid and supply chain issues have affected the world's largest manufacturing economy and exporter of goods. 

We look at how the situation with Russia and Ukraine could impact long term supply of products from China and if all these issues are affecting the way people do business there.

Your host, Rebecca Harding from Saltwhistle Communications talks to Yee Hong Chan from Nexia TS with offices based in China and Singapore.

Transcript

Introduction

Rebecca Harding
Thank you for joining us for this Nexia Turnaround Restructuring and Insolvency podcast series, we will be exploring global issues that affect the world economy. I'm your host, Rebecca Harding and I'll be joined by a selection of experts from around the world, in firms that are all part of the Nexia International Network, and all of whom are leaders in turnaround, restructuring and insolvency. Nexia International is a leading global network of independent accounting and consulting firms. All of the experts appearing on this show can be contacted by the Nexia International website. Thank you.

In this podcast we turn to China, we look at how Covid and supply chain issues and more recently the situation with Russia and Ukraine have affected the world’s largest manufacturing economy and how have these issues for China, impacted business? We are joined by Yee Hong Chan who is Director of Financial Advisory Insolvency and Restructuring at Nexia TS and they have offices in China, Singapore, and Malaysia.

Rebecca Harding
Right, hello, and welcome. How are you?

Yee Hong Chan
I'm fine. Thank you, Rebecca. How about you?

Rebecca Harding
I'm great. Thank you. So how has COVID affected the supply chain in China? Tell me about it, what's it like where you are?

Yee Hong Chan
Oh COVID is on everybody's mind. Well, based on what we've seen so far over the last two years, China has quite quickly returned to work as the world's manufacturing plant after a very quick and short lockdown, but its economy has almost bounced back to pre-pandemic growth. But as we all know, recently, or rather, we know that China is still maintaining its zero COVID policy and because of the recent variant Omicron, it continues to give some periodic lockdowns whenever there are new cases reported and this has caused some periodic disruptions to production and shipment of goods overseas were also delayed due to port closures but on the whole, I think China's getting a grip of the situation.

Rebecca Harding
Right. So I mean, we had another interview where we're talking about businesses moving into Vietnam, because they were cheaper and they were getting better supply. Is that something that you've seen? And also to India as well?

Yee Hong Chan
Yeah yeah, we see that if you visit the apparel shops like Uniqlo, and some of these, you probably see that those T-shirts are manufactured in Vietnam. Yeah, that's happening, and we can know why that happens. Because generally the labour cost is cheaper compared to China. So that's happening but in terms of other production, especially where involves a rather long production line, those businesses are still very much intact, they're still in place. In fact, some have moved out and are beginning to move back.

Rebecca Harding
Right. So they're coming back to China, that's really interesting, does that sort of depend on the sector as well, which sectors they're in?

Yee Hong Chan
Oh, especially the automobile sector, you realise that if you were to manufacture a car, for example, in China, you probably can find all your parts, just in one city and if you were to move to another country where your parts are not complete, you probably can expect delays to complete a whole product. So you get everything done in China, over a matter of weeks, as compared to months, if you had to source for parts when you don't have them.

Rebecca Harding
Yeah, that makes a lot of sense but what's the impact of the current situation with Russia, how's that impacting China at the moment and businesses in China

Yee Hong Chan
The war is just into his 15th day or so there isn't very much of disruption to China at this point in time. Well in terms of oil, we know that Russia exports, is one of the major supplies of oil in this world but between China and Russia, they have agreements and Russia sends oil to China by road and by pipeline. So the conflict doesn't quite affect China at this point, so everything seems to be okay but in terms of commodity, I think the prices are expected to go up, because things like wheat and barley and stuff like that, I mean, China, get them from Russia and Ukraine, and with the conflict now going on, we can expect some disruption to supply as well as the cost of these products. And well for other things like materials to make computer chips, again, I think we can expect disruption to supply because both Russia and Ukraine both supply special metals and guesses for the manufacture of chips in China. So when you don't get that coming on time or the price start to go up, well that is going to cause disruption issues but so far, nothing has hit us very much in China as we see it now.

Rebecca Harding 
Oh, right. So I mean, obviously you've got a very different social structure in China. How much does the government help businesses when they're struggling there? You know with COVID or with issues that are coming out from Ukraine. How much does the government help?

Yee Hong Chan
I think that hasn't quite happened. If there were any problems in the economy, it is already happening, where government slowly has been implementing policies and as we all know, the country has been tightening its property sector, it's on my sector and stuff so well, when that happens, the government would control any fallout and to China's liabilities, everything. So well, there might be some fallout, but that will, it should be controlled in a controlled measure.

Rebecca Harding 
Right. So we've got other influences as well at play here, aren't there. So you've got climate change issues, we've got foreign investments and those sorts of issues as well with China. So do you feel that with companies that have been moving out and with COVID, have these been affecting people's decisions as to whether to do business in China?

Yee Hong Chan
China in a COP meeting has said that they will reduce carbon emissions but that it's going to take some time and because it's going to take some time well, while the government would encourage more green form of manufacturing, but that's not going to happen anytime soon. So I think businesses may not have to be too much concerned at this point in time, and they can continue to operate in China. So I do not think there's going to be any immediate push for companies to get out of China because of that.

Rebecca Harding
But do you think that with other countries having different attitudes towards climate change and some countries are pushing the climate change agenda faster, do you think that will mean that China will lose businesses because they will want China to move faster on it?

Yee Hong Chan
Well, I think that this is at two levels. One is the government level, the other is the commercial level, while the politicians may push an agenda, but I guess, at the end of the day, businessmen chasing profits, then political issues. So and I think the government has so far been amenable to what the needs on the ground are in terms of business. So businesses are still very much encouraged by government policies to operate in China, so we do not see the same degree of emphasis for businesses to operate in China, as to meet requirements by the foreign governments in terms of climate change requirements.

Rebecca Harding 
That's really interesting. Thank you. So what's your advice to businesses that may be struggling at the moment or had a struggle with supply chain issues and also looking to the future, you know, with this situation in Ukraine, what's your advice to businesses that are in China at the moment?

Yee Hong Chan
Well, at the moment, I don't think there is much of a problem. For businesses operating in China, the only thing that may be overplayed is maybe, at the inter government level, where there have been government suggesting that companies should not do business with China and sorts of this but otherwise, companies can continue to operate in China. And if the companies in the business are looking for reliability in terms of the quality and predictability in delivery time of the products, China continues to be a good place to operate. And the only thing businesses may have to pay more attention to would be the government policies for businesses. So and if ever there's any good any adverse policies that there's likely to be result of political pressures and businesses will do themselves good if they continue to pay attention to changes in government policies for businesses. I think that would help them chart their direction of business in China. 

Rebecca Harding 
That's great. Well, thank you so much Yee Hong It's been really interesting and having never been to China, I think it maybe high on my list of places to visit fairly soon, to have a look for myself. Well, you take care of yourself. Alright, thanks.

Yee Hong Chan
Oh, you too have a good day.

Rebecca Harding
Thank you so much for joining us. This podcast was brought to you by the Nexia Turnaround Restructuring and Insolvency business group. The group was formed to bring together financial, legal and operational expertise from across the Nexia network, to support global clients and international business at times of operational challenges and financial distress.