Resilience capacitors

Industry clusters in China will have great appeal for high-end manufacturing companies as the global value chain is reshaped

The global economy is facing an enormous challenge of unprecedented scale because of the novel coronavirus, in fact it is the biggest threat since World War II, possibly bigger. In light of the current situation, shocks and damage to the global supply and value chains due to the epidemic are inevitable. Faced with such gloomy economic prospects, we have to act proactively to fight against the pandemic on the one hand, sharing the experiences and lessons learned in China with the rest of the world to help contain the global spread of the virus as soon as possible. On the other hand, we also need to play our part in restoring the global value chain and the world economic order through reactivating post-pandemic growth, and have to keep our eyes peeled for opportunities from any reorganization of the value chain triggered by the pandemic.

The Chinese government swiftly responded to the spread of the virus and achieved remarkable results, turning China from the country with the highest number of infections into one of the safest places to be during this global pandemic. This transformation has not only provided China with valuable lessons in epidemic response, but also earned China much praise. It will also provide an opportunity for Chinese companies to foray into new markets and participate in the reshaping of the global value chain.

Normalcy is already being restored in the Chinese market, which is good news for global efforts to fight against the pandemic. Many companies believe that China's role in the global value chain would be written off by other countries and some even went as far as predicting a decoupling of China from the world economy. However, as the pandemic continues to spread globally and economies come to a grinding halt, China has proved to be the country with the most reliable production capacity and a safe harbor for global manufacturing.

China's manufacturing sector already contributes to 30 percent of the global GDP and accounts for nearly 30 percent of global manufacturing. Known as "the world's factory", China has been struggling with improving the quality of its manufacturing given its limited role in the current global division of labor.

Even as China's factories reopened in March, individual situations differed widely. Some companies have yet to recover production, and some are even teetering on the edge of bankruptcy as their customers in Western countries have canceled orders. However, there are also companies who saw their demand grow and in some cases spike, such as electronics manufacturers in cities such as Suzhou and Chongqing. These more successful companies owe their resilience to regional industry clusters, from where they source over 80 percent of the parts and components needed. By taking advantage of production clusters, these companies have minimized the risks of sourcing parts and components globally, and the pandemic has served to bring their competitiveness into sharp relief. Therefore, these industry clusters will be a main theme of the post-pandemic global value chain. Industry clusters in China, both existing and in the making, will hold special appeal for global high-end manufacturing companies as they ponder where to set up shop overseas.

For China, it is time to seize this strategic window of opportunity offered by the reorganizing of global value chain over the next two to three years and deepen our longstanding policy of reform and opening-up. It is necessary to put in place regional industry clusters to support the nine "strategic emerging sectors" mandated in our national development strategy, such as the Guangdong-Hong Kong-Macao Greater Bay Area, the Yangtse River Economic Belt, the Beijing-Tianjin-Hebei Metropolitan Region and Chengdu-Chongqing Twin-City Economic Circle. These industry clusters will help centralize different parts of the global value chain in one place, making them much more resilient while minimizing the operational risks associated with potential strangleholds on key technologies.

Given the extremely limited experience available in other countries that China could draw on to respond to the current situation, we have had to find our own path. For Chinese companies, this will promote a focus on innovation in science, technology and business models and developing core competencies to withstand turbulence in the global capital market.

Therefore, it is necessary for the Chinese government at various levels to expand reform and opening-up, optimize the business environment at a faster pace, and participate in the restructuring of the global value chain in a proactive and methodical way.

Investment in industry clusters will be a key driver for China's GDP growth in the future. Each of the industry clusters in any of four economic circles and nine strategic emerging industries has the potential to attract billions of dollars of investment, which can translate into industrial value added that boost national economic development. In the rest of the country, industry clusters of different sizes can also be created based on the characteristics of the local economy to raise the quality of regional economic development.

President Xi Jinping highlighted the importance of joint efforts to preserve the stability of the global supply and value chain at the G20 Extraordinary Virtual Leaders' Summit on COVID-19 on March 26. His remarks are a true reflection of China's commitment as a responsible stakeholder in the global fight against the virus, and of China's confidence and composure in keeping the global economic machine running. While the novel coronavirus has been a crisis for humanity, it also provides an opportunity to reshape and upgrade global supply chains.

China's regional industry clusters are also industry clusters in a global sense. They represent China's contribution to global social and economic governance, and they are an important measure to minimize risks to the global economy and to increase our resilience to crises like the current virus pandemic.

The author is former mayor of Chongqing and chairman of Advisory Board of Industry Transformation of Institute of Internet Industry at Tsinghua University. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.