Scale Matters: Industry Chain Restructuring Amid Deglobalization

Since the outbreak of COVID-19, the global supply chain has been disrupted by three rounds of shocks. During the explosive spread of the pandemic in 2020, the halt in economic activity eroded production and inventory, while quarantine measures undermined employment. When global demand rebounded in 2021, the demand–supply imbalance deteriorated due to low inventory, weak production, as well as disruptions to transportation and logistics. In addition, the outbreak of the Russia-Ukraine conflict in 2022 also had major impacts on the supply of energy, raw materials, and food. These shocks to global industry chains and supply chains have exacerbated impacts of the pandemic and geopolitical conflicts on the world economy, prompting the public and private sectors to reexamine stability of supply. At the micro level, business entities are attaching greater importance to the stability of supply chains. At the macro level, governments stress industry chain resilience and view industry competitiveness from both efficiency and security perspectives. The Report to the 20th CPC National Congress states that: “Pursuing high-quality development as our overarching task, we will make sure that our implementation of the strategy to expand domestic demand is integrated with our efforts to deepen supply-side structural reform; we will boost the dynamism and reliability of the domestic economy while engaging at a higher level in the global economy; and we will move faster to build a modernized economy. We will raise total factor productivity, and make China's industrial and supply chains more resilient and secure”. While China plays a key role in global industry chains after four decades of reform and opening-up with rapid economic growth, the country is confronted with new challenges as high-quality development calls for attention to both efficiency and security of industry chains. The CICC Research Department and CICC Global Institute collaborated to publish The Reshaping of China’s Industry Chains, an in-depth report that provides a comprehensive analysis on opportunities and challenges for industry chain development in a multitude of aspects, including the macro economy, various sectors, technologies, policies, as well as domestic and international issues from both efficiency and security perspectives. In particular, the report suggests that China should take full advantage of its economies of scale to improve both efficiency and security of industry chains. In this preface, we provide readers with some of our thoughts about the future of global supply chains from a macro perspective.