Reminder from FTChinese.com: If you are interested in the content of FTChinese.com, please search for “FTChinese.com” in the Apple App Store or Huawei App Store, download the official app of FTChinese.com, and pay for subscription. Happy using!
In our articles in Vietnam and Singapore, we mentioned that coexistence policies are not very friendly to manual workers – both Vietnam and Singapore have seen large-scale return of manual workers to their hometowns in the context of the high epidemic. In addition to being less friendly to manual workers, the high epidemic is not so friendly to the employers who employ them. For example, Vietnam had total foreign direct investment (FDI) of US$8.47 billion in the first two months of 2019, and US$6.47 billion in 2020 – but only US$5.46 billion in 2021 and less than US$5 billion this year.
Let’s move the target north a bit. Compared with countries in Europe and the United States that have opened their borders and shouted “coexistence with the virus”, the three East Asian countries (China, Japan and South Korea) have always adhered to extremely strict management policies: China’s “dynamic clearing” is very familiar to all readers, needless to say; On the one hand, Japan and South Korea strictly restrict the entry of foreigners (especially foreigners from European and American countries), and on the other hand, they restrict the gathering of people in restaurants, conference venues and other places.
Such strict measures are closely related to their position in the current world supply chain. Let’s take China as an example. “Eighty million shirts for one A380” was a description of the structure of China’s import and export trade in 2005 by the then Minister of Commerce. However, 17 years later, China’s import and export trade structure has already changed with the great development of smartphones, tablet computers and supporting electronic products. China exported 21.7 trillion yuan worth of goods in 2021, imported 17.4 trillion yuan, and had a net export of 4.4 trillion yuan. Among them, Chapter 85 “Electric machines, electrical equipment and their parts; recorders and sound players, television images, sound recording and reproducing equipment and their parts and accessories” is China’s largest single export chapter: at 21.7 trillion exports Among them, it accounted for 27% (5.8 trillion). It can be said that China has now transitioned from “exporting shirts” to exporting “electronic products”.
China’s Chapter 85 commodities (hereinafter referred to as electronic products and their parts) show a clear chain division of labor. Chapter 85 commodities are also China’s largest import category – of the 17.4 trillion imports, it accounts for 25% (4.3 trillion), even higher than oil’s 2.6 trillion and ore’s 1.8 trillion.
Among the 4.3 trillion imported electronic products, Taiwan, China has the first tier, with 1.1 trillion; South Korea and Vietnam have the first tier, 1.1 trillion; Japan, Malaysia, the European Union and the United States have the first tier, 1.0 trillion; other countries and regions have the first tier. , 1.1 trillion. Among the 5.8 trillion electronic products exported, Hong Kong, China occupies the first tier, 1.3 trillion; the EU and the United States, 1.7 trillion; South Korea, Vietnam, Japan, China Taiwan, India and Malaysia, 1.4 trillion; other countries One file in each region, 1.4 trillion.
From this, we can see an obvious industrial chain—mainland China imports chips and integrated circuits from Taiwan and other places, processes them into electronic products, and then exports them to global destinations through Hong Kong and other places. In addition to China, this industrial chain also includes established electronics giants such as South Korea and Japan, Southeast Asian countries such as Malaysia with factories of foreign-funded enterprises such as Intel and AMD, and upstream supply chain countries such as the European Union, the United States, and Japan (such as lithography machines, etc. machinery and photoresist, hydrogen fluoride and other chemical raw materials), as well as Vietnam and other countries that are new to the assembly industry.
For every participant in this supply chain, this supply chain has a pivotal position in trade. For example, Taiwan’s total exports in 2021 will be 446.4 billion US dollars, and the total export value to the mainland and Hong Kong will be 188.9 billion US dollars (42%). The total is 118.9 billion US dollars (27%); South Korea’s total exports in 2021 are 643.9 billion US dollars, 85 chapters of commodity exports total 200.8 billion US dollars (31%), exports to China total 224.7 billion US dollars (35%), and 85% of exports to China In 2021, Japan’s total exports will be 83.1 trillion yen, and its exports to China will total 2.79 billion yen (34%).
Therefore, it can be said that East Asian countries are in a relationship like a grasshopper in the electronics industry chain. If the factories in mainland China are blocked by the epidemic, suppliers in Taiwan will immediately face the problem of inventory backlog and difficulty in collecting payments; if the chip factories in South Korea are blocked by the epidemic, Chinese customers will immediately stop production and wait for raw materials.
There is a ready-made example of this relationship in the semiconductor supply chain. Intel and AMD are old enemies in the world of central processing units (CPUs) for personal computers. In the long run, AMD has been suppressed by Intel – in the first quarter of 2020, AMD’s market share was around 14.8%. However, this trend will gradually change in 2020 and 2021 – in the second quarter of 2020, AMD’s share reached 18.3%, 22.4% in the third quarter, and 21.7% in the fourth quarter; 20.7%, 22.5%, 24.6%, 25.6%.
This change is not unrelated to the supply chain disruption caused by the epidemic – Intel’s wafers are manufactured in the United States, Israel and Ireland, and CPU assembly is completed in Malaysia, Vietnam and Chengdu. Among them, the wafer capacity in the United States and the assembly capacity in Malaysia are used. Highest.
There is no need to say much about the epidemic in the United States, but the overall situation in Malaysia in 2020 is under good control. In March 2020, Malaysia suffered a peak of more than 1,000 confirmed cases per week in March 2020, but it was relieved in mid-April. . However, starting in late September, the outbreak in Malaysia continued to skyrocket—by December, the number of confirmed cases per week had exceeded 10,000.
This has caused the Intel assembly plant in Malaysia to be hit hard: such an epidemic is enough to make the hearts of the workers in the factory fluctuate. Therefore, Intel announced in December 2020 that it will restart the chip assembly facility in the Costa Rica factory that was closed in 2014 in June 2021 in order to alleviate the dilemma of the Malaysian factory.
In 2021, the epidemic situation in Malaysia will become more and more serious, with more than 10,000 confirmed cases per week throughout the year. In August, due to the gathering of people brought by the Islamic New Year, the number of confirmed cases of the epidemic reached 100,000 every week. Therefore, Intel’s factories in Malaysia will inevitably be affected. To make matters worse, Intel’s factories in Vietnam were also affected by the Delta epidemic at about the same time. To this end, in November 2021, Intel announced that it would take over the GlobalFoundries factory in Chengdu, with the intention of stabilizing the supply of production capacity and avoiding a further decline in market share.
At the same time, AMD’s market share growth is partly due to a stable supply chain – AMD’s chip wafers are manufactured by TSMC and Samsung, while assembly is done in Taiwan and Jiangsu.
The increase or decrease in the market share among such enterprises is finally reflected in the GDP, exports and employment of the host country. Malaysia’s GDP in 2021 will increase by 3.1% relative to 2020, and exports in US dollars will increase by 14.6%; at the same time, China’s exports in RMB (21.7 trillion yuan) will increase by 21.2%, while taking into account the appreciation of the yuan in 21 years. In dollar terms ($3.4 trillion), it increased by 29.9%. South Korea’s dollar-denominated exports also rose 25.6 percent.
The situation in Malaysia has really sounded a wake-up call for everyone – no matter the mainland, Taiwan, China, Japan and South Korea, no one dares to risk the world’s largest electronic product supply chain (and related industry practitioners). jobs) open borders at the risk of ruining their own hands. Considering that the world is already hard to find a core, the borders of the three East Asian countries may be better closed from the perspective of practitioners in related industries.
(This article only represents the author’s own views, editor in charge: Yan Man [email protected])