Chinese firms reshape global industrial chains

Global industrial chains and structures are constantly evolving, alternating between periods of relative stability and of profound disruption. Industrial restructuring refers to periods of accelerated change, such as the one currently underway. The forces behind such restructuring can broadly be divided into two categories: geopolitical competition and technological change. The two are closely intertwined, although their relative importance varies over time. At present, both are driving the reconfiguration of global industry, with geopolitical competition playing the dominant role.

Historically, major waves of global industrial restructuring have been initiated and led by advanced economies, with their large corporations possessing technological and financial advantages. Other countries and firms have generally played reactive roles, gradually adapting as a new global industrial equilibrium emerged. The current round is different. China and Chinese companies have shifted from passive responders to active participants in shaping global industrial restructuring.

At the early stage of this transition, China proposed the Belt and Road Initiative, anticipating changes in the global economic landscape. At the corporate level, overseas expansion initially emerged as a response to changing market conditions. As more companies expanded abroad, however, Chinese enterprises have increasingly become an important force in reshaping global industrial and supply chains.

This new wave of international expansion has several distinctive characteristics.

First, an unprecedented number of Chinese firms have entered overseas markets within a relatively short period. Unlike earlier waves of industrial relocation, which were concentrated in a limited number of destinations, Chinese companies are investing across every continent. Participants range from large corporations to small and medium-sized enterprises and even individual entrepreneurs.

Second, overseas expansion now spans virtually every industrial sector. Rather than concentrating on labor-intensive manufacturing, Chinese companies are expanding across the full industrial spectrum, including advanced manufacturing, new energy vehicles, financial technology, telecommunications infrastructure, consumer brands, e-commerce and technology start-ups. Many young tech firms are pursuing offshore markets from the very beginning of their development.

Third, Chinese companies are increasingly expanding abroad as integrated industrial clusters rather than as individual firms. One of Chinese manufacturing's greatest competitive strengths lies in the coordination and efficiency of its industrial and supply chains. Many companies find that production supported by Chinese supply networks remains more efficient and cost-effective than relying entirely on local suppliers. As a result, entire industrial ecosystems — including suppliers, managers, engineers and technical personnel — are moving overseas together, creating a new model of global industrial organization.

Fourth, the scale of this expansion is unprecedented. Given the size of China's economy, both the number of companies and the volume of investment are exceptionally large. For many developing economies and smaller markets, Chinese enterprises quickly become significant industrial participants, raising local industrial capacity while also creating competitive pressure for existing businesses.

Fifth, this globalization is being driven by companies from a developing country rather than advanced economies. Historically, multinational expansion benefited from the economic, technological and geopolitical advantages of developed countries. Chinese companies often operate under different perceptions in host countries. While many governments welcome Chinese investment, Chinese firms may encounter social and commercial challenges that differ from those historically experienced by Western multinationals.

These characteristics are generating new opportunities as well as new challenges.

For many countries in the Global South, China's manufacturing capabilities, infrastructure expertise and integrated supply chains create an opportunity to accelerate industrialization and infrastructure modernization. Cluster-based investment can establish complete industrial ecosystems, infrastructure and business models within relatively short periods, potentially shortening development paths that historically required decades.

At the same time, as Chinese companies expand internationally, Chinese technological standards, industrial standards, digital technologies and business practices are increasingly being adopted overseas. In the past, Chinese firms generally participated in supply chains organized by multinational corporations and therefore followed externally established rules and standards. Today, Chinese companies are increasingly organizing their own international industrial and supply chains, particularly in emerging industries where they possess technological leadership.

The expansion of Chinese companies also presents short-term challenges for host economies. Although Chinese investment can contribute to industrial upgrading, economic growth, trade and improvements in living standards, it may also create adjustment pressures for local industries and interest groups. Different countries, reflecting their own political systems, legal frameworks, cultural particulars and national interests, are likely to respond in different ways. While some may adopt restrictive measures, many are expected to balance short-term pressures against long-term development opportunities.

Chinese companies themselves are entering largely uncharted territory. Their international operations generate service needs that differ from those traditionally associated with multinational investment, including legal protection, security, cross-border financing, payment and settlement, treasury management and other forms of professional support. Respecting local laws, customs and cultures remains essential, but these measures alone may not fully address the challenges arising from this new phase of globalization.

Supporting Chinese companies operating overseas should therefore become an important component of China's participation in global industrial restructuring. Financial regulation should adapt to growing cross-border capital flows by coordinating the management of domestic and international financial resources. Policies governing credit, insurance, bond issuance, foreign exchange, cross-border payments and related financial services should evolve in line with the needs of internationally expanding companies and international practice.

Shanghai should be developed into a comprehensive service center for Chinese companies operating abroad by strengthening its role in cross-border financing, forex trading, payment and settlement, treasury services and international legal, accounting and arbitration services. Large commercial banks should establish integrated domestic and overseas service systems capable of supporting industrial clusters rather than serving companies individually. Insurers, investment banks and other financial institutions should accelerate their offshore presence so that they can better support Chinese companies overseas.

China should also use this development to promote its approaches to green finance and sustainable investment internationally, encourage futures exchanges to develop products and trading models that better serve actively globalizing Chinese companies, and foster cooperation between large and small financial institutions to build integrated service chains for overseas businesses.

Beyond financial services, greater policy coordination is needed. While respecting companies' commercial decisions, the geographic distribution of overseas industries should receive appropriate strategic guidance. More Chinese standards should gradually evolve from market practices into internationally recognized institutional standards. Tax incentives, stronger protection for overseas personnel and assets, and broader policy support should also be considered to facilitate the long-term development of Chinese enterprises operating — and wishing to operate — abroad.

The writer is vice-president of the Shanghai Finance Institute. The article is translated from a recent speech by Liu at a CF40 quarterly seminar.

The views do not necessarily reflect those of China Daily.