Deglobalisation looms, but the Chinese find their little worlds of opportunity

The Shanghainese really love their chicken. They love it so much that not even the ongoing pandemic could stop them from flocking to the country’s first Popeyes when it opened in downtown Shanghai on May 15. Fried chicken sandwiches have been flying off the shelves since.

Yet, Popeyes’ highly-anticipated opening almost could not take wing. In April, thousands of poultry farmers in Brazil held their breath after the South American country’s education minister insinuated a Chinese “world domination” conspiracy behind the contagion – in a racially charged tweet, no less. It sparked a retort from the Chinese embassy, and triggered concerns about bilateral trade ties.

Before the kerfuffle, the Brazilian chicken farmers had played an important role in fulfilling China’s poultry demand as domestic farms struggled to secure feed for the birds due to Covid-19 shutdowns. In fact, Brazilian poultry exports soared 59 per cent in the first two months of the year.

Such is the elegance of efficient market allocation.

But the underlying tensions of the situation also underscored one thing: the beauty of global supply chains can turn ugly just as quickly, especially in these precarious times.

All cooped up

Brazil and China are not the only ones caught in a wobbly bilateral relationship. The US-China trade war preceded Covid-19, but the pandemic is accelerating the breakdown of relations between countries, and with it, the possible decimation of the global economy.

Already, all signs are pointing towards an increasingly insular trade system. Put simply, we are in a process of deglobalisation. Covid-19 might just cripple global trade.

Each Twitter barb from President Trump directed at China will only sink us further into what analysts are calling a “new type of Cold War”. This leads to a highly unproductive allocation of resources, leading to a further slowdown of economies, and the stifling of recovery worldwide.

Here’s a sobering statistic that has emerged from the trade spat: Chinese investment into the US totalled US$5 billion last year – a mere fraction of the US$46 billion in 2016. The two giants are wilting.

By the end of the year, the US economy is slated to shrink by the biggest single figure since World War II, while China will register its worst economic performance in half a century.

The duo dictate the ebbs and flows of the global supply chain. But the barriers they have put up to trade and capital flows are rewiring globalisation as we have known for years.

Wriggling a way out

Let’s be clear – deglobalisation should not be happening. But these dire circumstances turned up one thing that has left me astounded: The never-say-die spirit of the Chinese.

Businesses here are being pummelled by setback after larger setback, but they are also doing what they can to power through and adapt to the new normal, as Covid-19 forces a rethink of China’s role as the world’s primary manufacturer and supplier.

After the first wave of infections, factories whirred back into action, only to have orders from the nation’s largest markets in the US and Europe cancelled as the disease tightened its stranglehold in the West.

In this uncertain era, anyone with a business or a factory has learnt to dance to the economy’s tune of the day. And right now, it is local demand, which looks promising. For instance, the 6.18 Mid-Year Shopping Festival, a cyber sales bonanza by Alibaba, raked in 50 per cent more in gross merchandise value in its first ten hours when it kicked off on June 1.

The country’s business gurus are primed to capitalise on such demand. There’s never been a lack of innovation in China. The ultra-competitive national 高考 exams siphon off the cream for the civil service, but those who don’t wind up serving the country are by no means bottom-tier, and are extremely determined to make it in the private sector.

In the absence of external demand, these very minds are directing firms to home in on the needs of the domestic market. When the risk of infection was still high, and consumers felt that a personal vehicle was safer than public transport, businesses directed their resources towards manufacturing. Now, with the short spurt in automobile sales having tapered down, the hunt is on for the next profit outlet.

This survival instinct seems to be innate for many in the country. I recall being fresh on these shores when I visited a battery plant in Henan province, about 10 years ago. In a single year, it had pivoted three times in business strategy – from producing nickel batteries (standard AA/AAA cells for consumer electronics) to producing two different types of Lithium-ion batteries, after the government announced a focus on electric vehicles.

Elsewhere, an entrepreneur friend of mine has gone from producing motorbikes exported to Iran, to manufacturing face masks today. A Chinese business school owner we now work with started her career in the state media, and later sold stationery, before finally transiting to running post-graduate courses.

Nimble? Check. Adaptable? Check. These personal stories reflect an adaptive streak in the economy, which has shifted from being centred on steel, then solar power, and now e-commerce.

Deglobalisation will deal a severe blow to Chinese businesses. But given their determination and ingenuity, the punch will not lead to a knock out.