In the wake of the coronavirus, India is waking up to several unpleasant realities — that the most-affected countries are the ones closely integrated commercially with the Chinese economy; that the global economy will take a beating; and that the global value chains (GVCs) will have to rethink their future strategies.
The Italian economy has been at a low ebb now for almost a decade. As Italian manufacturing flagged due to high wages and low productivity, the Chinese quickly seized the opportunity to buy out Italian designers —arguably the most famous brands in the world — and used them to embellish their own manufacturing.
Remember, China’s Belt and Road Initiative (BRI) was endorsed by Italy in March 2019, making it the first major European economy and the only G7 nation to sign on to BRI. Italian State lender, the Rome-headquartered investment bank Cassa Depositi e Prestiti (CDP), entered into a pact to sell Panda bonds — Chinese renminbi-denominated bonds from a non-Chinese issuer sold in China — to investors in mainland China to co-finance Italian and Chinese companies.
Italian and Chinese companies agreed to cooperate in the natural gas sector — pipelines, storage facilities, liquefied natural gas (LNG) infrastructure, and biomethane plants. They decided to set up a steel plant in Azerbaijan. China agreed to participate in the rebuilding of the infrastructure of Genoa, Italy’s biggest seaport.
Bank of China gave a credit line to Italian energy giant Eni for collaborating in building solar plants. Huawei announced a $3 billion investment in Italy to create at least 1,000 jobs, and telecom giant ZTE completed a joint 5G-ready rollout across Italy in partnership with Italian company, Wind Tre.
China’s Suning already owns the football club, Inter-Milan. Ferrari’s museums are collaborating with a Chinese travel agency to promote curated circuits for Chinese tourists — even as the two museums in Maranello and Modena have been closed over coronavirus fears. Essentially, China is practically moving into Europe through Italy.
The Silkworm Route
Then there’s Iran. China’s relations with the country are built on the strength of trade, weapons and oil. It has been among Iran’s top arms suppliers going back to the time of the Iran-Iraq war in the 1980s, supplying Hai Ying ‘Silkworm’ missiles and conducting joint naval drills in the Persian Gulf and Indian Ocean. China’s interest in Iran since has been fuelled by an energy policy shift from coal to petroleum. The bulk of Chinese imports from Iran are of petroleum, minerals and chemical products.
Chinese companies like China National Petroleum Corporation (CNPC), Zhuzhou Cemented Carbide Cutting Tools (ZCC-CT) and the Sinopec Group have bought huge stakes in Iranian oil and gas fields for their holistic development for dedicated long-term export to China — and then beyond that to Europe and other parts of Asia.
In fact, so deep is the China-Iran oil and gas partnership that Beijing has gone so far as to say that they would defend these regions as if they were China’s own. Iran, too, has signed into China’s BRI.
The China Iran rail link and extensions to Kazakhstan, Kyrgyzstan, Uzbekistan and Turkmenistan are aimed to give China easy access to Europe. For South Korea, despite Beijing’s historical alliance with North Korea, China is its largest trading partner. South Korean companies have been big suppliers of machinery, materials and equipment parts to Chinese electronics, general machinery and other manufacturers.
Despite phases of extreme coldness in geopolitical relations, the two nations realise their importance to each other — China, to hold both Koreas within its sphere of influence; and South Korea to maintain a nuanced counterfoil to the US and to ease tensions with China’s protégé North Korea.
Thus, there has been a high amount of interaction between China and South Korea — most pronounced in sectors where the latter commands big soft power such as cinema (remember, South Korean Bong Joon-ho’s Parasite became the first non-English language film to win the Best Movie Oscar this year), fashion, music and art.
South Korea, in turn, is a favoured destination for Chinese tourists, making this the mainstay of the enormous personto-person contacts between the two countries.
Value Your Chain
In the wake of the coronavirus tragedy, the global economy is likely to contract. Further, each of these countries is likely to rethink its China dependence strategy. As for transnational companies, the biggest challenge will be to navigate the domino effect of the suspension of manufacturing in Chinese plants — as has been the case, for instance, in Toyota, Honda, Levi’s and Apple, for almost a full quarter now.
Fiat Chrysler halted production in a car factory in Serbia because parts were not forthcoming from China. Hyundai reacted similarly in South Korea. These have implications, and hold lessons, for companies and countries — not only to safeguard the health of employees and citizens, but also to relocate, disperse and future-proof their GVCs.
The author is a former civil servant