Today's theme is the outlook for the global supply chain for the rest of 2023 and beyond! Risk and opportunity coexist!


1. 2023 is the year when global supply chain activity returns to normal. Evidence from manufacturing managers, shipping, and corporate inventory suggests that most (but not all) have returned to historical levels and traditional patterns.


2. However, there are still many additional risks that we need to pay attention to in the post pandemic era in the remaining period of 2023. The conflict between Russia and Ukraine will continue and lead to the expansion of sanctions, including the adoption of "secondary sanctions". Companies or nationals of third countries or third countries engaged in economic and trade transactions with sanctioned countries or targets will face the risk of secondary sanctions. For example, it will face a series of commercial trade restrictions such as banning imports and exports with the United States and cutting off channels to the US financial system. The tense relationship between China and the United States, especially in terms of technology, will continue, and a re examination of additional tariffs imposed during the Trump era may provide space for easing. Some EU environmental rules will also come into effect, which will have a significant impact on the global supply chain of shipping logistics.


3. The risk of strikes at West Coast ports has been reduced, but it has not been completely eliminated. In peak seasons elsewhere, labor strikes will still hit global supply chains. For example, ILWU Canada began a strike on July 1, 2023 at 8am, affecting approximately 7400 dock loaders and 49 employers and operators in over 30 ports in British Columbia, Canada, including Vancouver Port and Prince Rupert Port, which are the busiest ports in Canada.


4. Tesla is preparing to make a "major investment" in India, which may mean that the company will expand to the fifth country in the field of automobile assembly (after the United States, China, Germany and Mexico). Tesla has previously suspended its investment plan in India. Due to India's stance on electric vehicle import taxes, the Indian government insists that Tesla promise to produce and manufacture Tesla in India before enjoying import tariff benefits.


5. The Indian market is a potential market that global consumer and logistics giants attach great importance to, such as. In terms of importing electric vehicles, India saw a year-on-year growth of 513% in the first quarter of 2023. Among the imported brands, Hyundai (including Kia) from South Korea accounted for 44%, followed by BYD from China accounting for 18%, and Mercedes Benz ranked third with 13%. The Indian government currently plans to provide incentives for the comprehensive production of batteries and cars. The government has previously done this in the telecommunications sector, and the country's large domestic market has a strong attraction for local sales and exports.


6. Expanding automobile assembly without integrated battery and motor supply chains may make India more dependent on China for investment. This is an industry chain opportunity to focus on serving suppliers of China India air routes. With the development of the electric vehicle industry, the leading position of Chinese Mainland exporters in the global lithium battery market continues to improve. In the same period, the total export volume of the industry grew by 33% annually, but the export share of Chinese Mainland in the global total volume increased from 39% in the first quarter of 2018 to 67% in the first quarter of 2023.


7. Returning to the topic of supply chain normalization, S&P PMI shows that manufacturing activity levels in the eurozone, Japan, and the United States deteriorated in the June survey and are still in areas of significant contraction. The decline in new orders has played a leading role. For example, the US new order indicator decreased from 41.9 in May to 40.4 in June (below 50 indicates contraction). Excluding April and May 2020, this is the lowest level since the survey began in October 2009. New export orders from China are also decreasing month on month.


8. In terms of inventory, the total retail inventory in the United States continued to grow by 0.8% in May, with automotive inventory increasing by 2.9%. H&M, a Fast fashion retailer, reported that in the three months ended May 31, 2023, sales increased by 6% year on year. Due to "high raw materials and shipping costs," the company's operating profit margin decreased by 1 percentage point, and sales increased by 10% in the first month of the new quarter. On the basis of the report, the company successfully reduced inventory by 7% year-on-year, and adjusted for exchange rate changes, inventory decreased by 20%. The company has been pursuing "higher nearshore share, shorter delivery cycles, and more intra season procurement" to better manage inventory and reduce costs. Cost reduction can also be observed in the context of a decrease in the number of supplier partners related to H&M.


9. Like the governments of China, South Korea, the European Union, and the United States, the Japanese government is investing heavily to ensure long-term leadership in the semiconductor supply chain. Recently, the investment company "INCJ" supported by the Japanese government will spend about 45.5 billion yuan to acquire JSR Corp. The "photoresist" of JSR accounts for about three components in the global market. It is a pre coated agent on the substrate to achieve etching, and is an indispensable Strategic material in semiconductor manufacturing. Previously, when the Japanese government tightened export restrictions on South Korea in 2019, "photoresist" was one of the targets and was also used as a diplomatic chip. Japan may impose export restrictions on other countries and repeat the same tactics. From third-party data, in 2022, the global export value of photoresists and similar chemicals was 6.4 billion US dollars, with Japanese exporters accounting for 50% of the total export value. Exporters from South Korea and the United States account for 11% and 10% respectively.


10. The United States may be considering formulating new rules to further restrict the export of advanced high-performance GPUs to Chinese Mainland. The manufacturer partially bypassed the early regulations in the United States last year and provided the latest chips with lower performance. For example, Nvidia's A800 processor did so to replace the A100 under export control. Last year, the United States Department of Commerce decided to implement new export controls on advanced computing and semiconductor manufacturing items exported to China, which in essence restricted US enterprises from exporting high-end microchips and equipment for producing advanced chips to China under the pretext of so-called national security.


11. Nvidia said about the possible new rules that it "expects that the new measures will not have any direct substantive impact", but in the long run, "American industry will permanently lose the opportunity to compete and lead". Chinese Mainland accounts for "about 20% to 25%" of its data center revenue. The chief financial officer of Nvidia, an American chip company, said recently that if restrictions on the sale of GPUs in data center graphics processors to China were implemented, it would lead to the permanent loss of competition and leading opportunities in one of the world's largest markets for the American industry, and affect Nvidia's future business and financial performance. Jensen Huang, CEO of Nvidia, also said in an interview a few days ago that the Chinese market cannot be replaced and exiting the Chinese market is not a feasible option.


12. China's development has entered a period of coexistence of strategic opportunities and risks, as well as an increase in uncertain and unpredictable factors. At present, the background of the new judgment on the strategic opportunity period lies in the changes in China US relations, the impact of unprecedented changes in the world in a century, and the challenges and effective maintenance of international peace and security. How to extend the strategic opportunity period for China's development in the face of the coexistence of opportunities and challenges? We need to prioritize internal factors and balance internal and external factors, actively shaping new strategic opportunities; Emphasize the United States, balance others, and shape a new pattern of foreign relations; Oppose unilateralism, practice multilateralism, and uphold international fairness and justice; Clarify existing advantages, face risks and challenges directly, and expand strategic opportunities. Global perspective, tomorrow thinking.