Asia Blockchain Review recently had the privilege to catch up with Miss Chang Shu, Chief Asia Economist, at Bloomberg Economics. This is part 2 of the interview with a distinct focus on China.

Miss Chang at Bloomberg explains that suspended factory production in many parts of the world is inflicting a supply shock on China’s economy. Computer, electronics, and transport equipment sectors could face severe disruptions due to shortages of components.

The Shock Is Quite Pronounced

According to Bloomberg, the supply shock is not as severe as the demand shock that’s also hitting the economy. Nor is it as big as it would have been in the past, given imported components are less significant as a share of output than they were.

Even so, China’s supply exposure is still significant — 70% of China’s imports were used for production in 2015, with these representing 8% of all inputs used in the production of goods and services.

Mainland China’s factories are exposed to supply disruptions on account of their reliance on difficult to substitute manufactured components. Their largest suppliers of such inputs in 2015 were South Korea, Taiwan and Japan, followed by the U.S. and Germany.

Exposure to agricultural, mining and energy products — and to large commodity exporters — were also sizable, but such imports should be easier to source from other suppliers if needed.

Continuing Reliance on Imported Inputs

China’s reliance on imported inputs for production has declined over the years. Imported inputs accounted for 8% of China’s total inputs in 2015, down from 14% 10 years earlier, according to the latest data from the Organisation for Economic Co-operation and Development.

China was most exposed to technology-based manufacturers — South Korea, Japan and Taiwan were among the most important suppliers of inputs to Chinese businesses, as well as the U.S. and Germany.

Large exporters of primary products, such as Australia, Russia, Saudi Arabia and Brazil, also ranked high among China’s suppliers. The imported inputs were predominantly manufactured goods, accounting for 4.6% of all inputs in China’s production.

Imports of primary products accounted for about 2% all inputs, and imports of services (transport, storage and distribution services in particular) for about 1.5%.

Factories Most at Risk

Manufactured inputs were predominantly used by Chinese factories as components and equipment. Many of these inputs are specific to each value chain, and would be difficult to source from alternative suppliers.

This makes China’s factories particularly at risk to the supply shock — with some industries more heavily exposed. In contrast, imports of primary products might be easier to substitute, while the provision of intermediate services might be less affected by the pandemic.

Manufacturing Sectors Most Exposed

The exposure to foreign inputs is particularly large in China’s computer and electronics industry — with almost a fourth of all manufactured inputs coming from abroad, in particular 7% from South Korea and 5.5% from Taiwan in 2015. Transport equipment is the second most vulnerable, with almost 14% of inputs sourced from abroad, including 6% from the U.S. — think of airplane engines.

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About the author

Anil Prabha

Editor In Chief

Anil started his career in journalism all the way back in 2003. After traversing the sphere of editorial, corporate communications and advertising, he has now come full circle and is back in the world of journalism. He believes in the power of the written word, and its ability to enthrall, delight and inform the reader.