China bolsters supply chains amid western withdrawals and export challenges

China is proactively fortifying its supply chains amidst growing concerns over Western disengagements, even amid a surge in volumes on some of its recently established rail routes. During the Central Economic Work Conference in Beijing this week, China’s leadership asserted its commitment to enhancing supply chain resilience to counteract potential losses from international shippers, particularly with heightened competition from India and Mexico.

While specific measures were not disclosed, the announcement coincided with China’s November export figures reflecting negligible year-on-year growth after six consecutive months of contraction. State-owned Xinhua reported the leadership’s acknowledgment that China faces challenges in reviving the economy but has made solid progress in high-quality development in 2023.

A representative from the Central Committee for Financial and Economic Affairs, speaking to the state-run China Daily, emphasized that China still accounts for over 14% of global exports. However, industries identified for strategic actions included automotive, a sector where the US aims to restore sourcing through measures tied to the Inflation Reduction Act. The act, effective from January, disqualifies US-manufactured electric vehicles with Chinese-made battery components from full subsidies under the $370 billion climate bill.

As a response to these developments, China has advocated for globalization, expressing concerns about the potential ramifications of reshoring initiatives. While opinions on the Inflation Reduction Act vary, with some anticipating delays in cleaner vehicle adoption and others seeing it as an opportunity to revitalize domestic car manufacturing, US businesses are increasingly diversifying away from China. According to a poll by the Department of Commerce’s office of textiles and apparel, 61% of respondents no longer consider China their primary supplier.

This shift away from China is attributed to rising operational costs in the country and concerns about escalating China-US tensions. Notably, Italy recently became the only G7 country to withdraw from China’s Belt and Road Initiative, choosing not to renew its agreement when it expires in January.

Despite these challenges in its connections to the West, China has experienced growth in specific areas. Rail freight volumes with Azerbaijan have surged by 47% over the past 12 months, according to Azerbaijani media, and similar growth has been observed on newly opened rail routes with Russia and through Caucus countries, providing alternative pathways to Europe bypassing sanctioned transiting by Russia.

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