Coronavirus Could Be The End Of China As Global Manufacturing Hub

[Hamartia Antidote]

COVID-19 exposes US reliance on China for pharmaceuticals and medical devices

China is the largest and sometimes only global supplier for the active ingredient of some vital medications, say four experts.

19 Feb 2020 06:15AM

A scientist works at Zai Labo's drug development facility in Shanghai, China October 18, 2017. REUTERS/Adam Jourdan

COLLEGE STATION, Texas: As COVID-19 spreads rapidly around the globe, the international community is scrambling to keep up.

Scientists rush to develop a vaccine, policymakers debate the most effective containment methods, and healthcare systems strain to accommodate the growing number of sick and dying.

Though it may sound like a scene from the 2011 movie Contagion, it is actually an unfolding reality.

In the midst of all of this, a potential crisis simmers in the shadows: The global dependence on China for the production of pharmaceuticals and medical equipment.

CHINESE DOMINANCE IN THE PHARMACEUTICAL MARKET

Today, about 80 per cent of pharmaceuticals sold in the US are produced in China.

This number, while concerning, hides an even greater problem: China is the largest and sometimes only global supplier for the active ingredient of some vital medications.

The active ingredients for medicines that treat breast cancer and lung cancer and the antibiotic Vancomycin, which is a last resort antibiotic for some types of antimicrobial resistant infections, are made almost exclusively in China.

Additionally, China controls such a large market portion of heparin, a blood thinner used in open-heart surgery, kidney dialysis and blood transfusions that the US government was left with no choice but to continue buying from China even after a contamination scandal in 2007.

China is not only the dominant global supplier of pharmaceuticals, but it is also the largest supplier of medical devices in the US. These include things like MRI equipment, surgical gowns, and equipment that measures oxygen levels in the blood.

Supplies of these essential products have not yet been severely disrupted by the coronavirus, but if China is no longer will or able to supply them to the US, thousands of Americans could die.

LIMITED ALTERNATIVES

More concerning still are the limited options available to the US and the rest of the globe to make up the shortfall.

It could take years to develop the necessary infrastructure to reestablish US manufacturing capacities and obtain Food and Drug Administration licensure to overcome the loss of the Chinese supply.

When a disease reaches epidemic levels, the first obligation for leaders in any country is to protect their own people.

As this current crisis progresses, there may come a point when political leaders in China will face decisions on whether to prohibit the export of pharmaceuticals, medical devices and other vital medical components in order to treat or protect their own people.

Such acts would be the logical outcome of an escalating situation.

For the 2009 H1N1 pandemic response, for example, the US was pushed to the back of the queue for vaccine deliveries even though we had existing contracts with a major vaccine manufacturer located in another country. Those vaccine deliveries were delayed.

WILL COVID-19 DISRUPT GLOBAL PHARMACEUTICALS?

While a total loss of active ingredient imports from China might seem far-fetched, we believe the increasing scale of the outbreak moves it closer to the realm of possibility.

About six weeks into international recognition of the epidemic in China, there are already shortages of vital personal protective equipment in both China and the US. United Parcel Service (UPS) has transported more than 2 million masks and 11,000 gowns to Wuhan to help alleviate the shortage.

But what happens when everyone runs out of protective equipment?

Wuhan is a significant player in the biotechnology and pharmaceutical industry, with multiple pharmaceutical companies located in the city. How many of these factories have closed as a result of the pandemic, and when will those that have closed open back up?

Global supply chains could reach a crisis point if they are compromised because Hubei province, where Wuhan is located, is in quarantine and factories are shut down.

Additionally, Wuhan is the location of China’s first Biosafety Level (BSL) 4 laboratory, which was opened in 2017 to research SARS and other emerging diseases. It is the only lab in China that can safely handle the world’s most dangerous pathogens that pose a significant risk of transmission.

Infection, death and quarantine in Wuhan and the surrounding Hubei province is restricting the ability of all types of commerce in the region.

Meanwhile, the virus is already creating a significant supply chain imbalance within China.

That means those medical supply companies will be under pressure to keep any products produced within the country for protection of their own health care workers, laboratory personnel and the general public.

The regulatory apparatus to ensure that the Chinese manufactured pharmaceuticals being exported meet the highest standards of safety and quality control are weak or nonexistent, according to a US congressional report last year.

The pressure placed on supply chains by the outbreak could further exacerbate existing quality control challenges.

The virus has thus highlighted the US' reliance on China as a national security issue due to outsourcing manufacturing capabilities and inability to ensure quality control.

RECLAIM CONTROL OF THE MEDICAL SUPPLY CHAIN

As with all pandemics, the complexity of this outbreak demands international collaboration and transparency.

At the same time, US public health officials must acknowledge the country’s vulnerability due to its dependence on Chinese production of pharmaceuticals and medical equipment.

The US must develop a response plan for the inevitable shortages in the near-term and take necessary actions to reclaim control of its medical supply chain. Continuing to overlook this long-known vulnerability will only lead to catastrophe.

https://www.channelnewsasia.com/new...ina-us-medical-medicine-supply-chain-12441770

Costa Rica and Honduras grow Cavendish bananas developed in Britain. Does that make them special or something? It just means they can do it cheaper and they don’t mind the water pollution.

Same with China. Did you invent all those medicines your factories output? No. Design any of the medical equipment? No. Create a new medical device? No.

Just cheap manufacturing and you have no problem with the pollution.

 

[American Pakistani]

what are you on bout

Sorry if you misunderstood,

I was talking about that guy @Jinnah The Great

 

[beijingwalker]

Costa Rica and Honduras grow Cavendish bananas developed in Britain. Does that make them special or something? It just means they can do it cheaper and they don’t mind the water pollution.

Same with China. Did you invent all those medicines your factories output? No. Design any of the medical equipment? No. Create a new medical device? No.

Just cheap manufacturing and you have no problem with the pollution.

You know 80% dependence of pharmaceuticals and medical devices is not like growing bananas, don't you?

 

[beijingwalker]

Check this chart and good luck with your dreams..

Top 30 Most Industrialized Countries, and The EU (1989-2018) [4K]

This video compares the level of industrial development of the top 30 countries / economies (and the European Union) on a dynamic graph. Dates range from 1989 to 2018.

In 2011, China officially surpassed US as the No. 1 industrial output ranking. Now China's output is the equi of US+Japan+Germany. Analyst put China's 2030 output to be half of the entire planet.

When people talk about manufacturing shifting, it's already too late, manufacturing is not only about manufacturing , it evolves infrastucture support like supply chains, raw materials, logistics, power supply, highways, railways, ports, airports.... and most of all, a large skilled work force.

China's success was not manufacturing itself, it's China far sighted program to build up supporting infrastructure and vast investment in education and vocational training.

 

[Hamartia Antidote]

You know 80% dependence of pharmaceuticals and medical devices is not like growing bananas, don't you?

Well we are 100% dependent on those countries for bananas so you aren’t in a special boat. When the prices get high we’ll look for another country to grow then in...maybe Africa.

 

[beijingwalker]

Well we are 100% dependent on those countries for bananas so you aren’t in a special boat. When the prices get high we’ll look for another country to grow then in...maybe Africa.

So you still think growing bananas and making pharmaceuticals and medical devices are the same thing, ok, great.

 

[PeaceGen]

So you still think growing bananas and making pharmaceuticals and medical devices are the same thing, ok, great.

it takes about 8 years to train technical workers and designers.
i went through the training myself.

so indeed, i too doubt that the corona virus is going to shift production of goods away from China.
other nations (and you're right to point this out) simply do not have the experience as a culture required to make high tech goods.

however, that does not mean low skilled production of goods (and there's a lot of money involved in the sale of those over here in the West) can't be gradually shifted from China to other nations, nor that no program can never be set up whereby production of even high tech goods is, after diplomatic warnings to China that might make it to the headlines of international news, shifted away from China.

so i recommend that the Chinese show respect for our western cultures and African cultures, etc, instead of just demand respect for *theirs*.
then you'll be fine. we'll be in that state of true friendship that you like to mention quite often recently, @beijingwalker

 

[Chhatrapati]

The west can't shift their manufacturing back. They want to live in a clean environment, the Chinese provide a better alternative, so the western countries can get their stuff without mining their nation and polluting their air, or rivers. This is not going to change anytime soon, Corona is a setback for sure. I hear car sales in China have dropped 90% soon this will have blowback on all of us. On the bright side, new manufacturing centers may come up in the future instead of concentrating on China alone, other Asian countries will benefit from it for sure.

 

[beijingwalker]

it takes about 8 years to train technical workers and designers.
i went through the training myself.

so indeed, i too doubt that the corona virus is going to shift production of goods away from China.
other nations (and you're right to point this out) simply do not have the experience as a culture required to make high tech goods.

however, that does not mean low skilled production of goods (and there's a lot of money involved in the sale of those over here in the West) can't be gradually shifted from China to other nations, nor that no program can never be set up whereby production of even high tech goods is, after diplomatic warnings to China that might make it to the headlines of international news, shifted away from China.

so i recommend that the Chinese show respect for our western cultures and African cultures, etc, instead of just demand respect for *theirs*.
then you'll be fine. we'll be in that state of true friendship that you like to mention quite often recently, @beijingwalker

China is moving up the value chain and it's natural some other developing countries may get a share for some low ends goods production, however, labor cost doesn't decides the price alone, it's still much cheaper for things made in China than those made in India, also mass production can significantly bring down the price, no country can do mass producion feat better than China on this planet.

 

[大汉奸柳传志]

Dude. do you even have 14 days of supply of food &necessities stored in your home? coz if not, trolling on PDF is probably the last thing you should do right now.

 

[AViet]

https://www.forbes.com/sites/kenrap...ina-as-global-manufacturing-hub/#8b3cfbe52988

The new coronavirus Covid-19 will end up being the final curtain on China’s nearly 30 year role as the world’s leading manufacturer.

“Using China as a hub...that model died this week, I think,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm.

China’s economy is getting hit much harder by the coronavirus outbreak than markets currently recognize. Wall Street appeared to be the last to realize this last week. The S&P 500 fell over 8%, the worst performing market of all the big coronavirus infected nations. Even Italy, which has over a thousand cases now, did better last week than the U.S.

China On Hold

On January 23, Beijing ordered the extension of the Lunar New Year holiday, postponing a return to work. The coronavirus was spreading fast in the epicenter province of Hubei and the last thing China wanted was for that to be repeated elsewhere. Travel restrictions and quarantines of nearly 60 million people drove business activity to a standstill.

The most frightening aspect of this crisis is not the short-term economic damage it is causing, but the potential long-lasting disruption to supply chains, Shehzad H. Qazi, the managing director of China Beige Book, wrote in Barron’s on Friday.

Chinese auto manufacturers and chemical plants have reported more closures than other sectors, Qazi wrote. IT workers have not returned to most firms as of last week. Shipping and logistics companies have reported higher closure rates than the national average. “The ripple effects of this severe disruption will be felt through the global auto parts, electronics, and pharmaceutical supply chains for months to come,” he wrote.

That China is losing its prowess as the only game in town for whatever widget one wants to make was already under way. It was moving at a panda bear’s pace, though, and mostly because companies were doing what they always do - search the world with the lowest costs of production. Maybe that meant labor costs. Maybe it meant regulations of some kind or another. They were already doing that as China moves up the ladder in terms of wages and environmental regulations.

Under President Trump, that slow moving panda moved a little faster. Companies didn’t like the uncertainty of tariffs. They sourced elsewhere. Their China partners moved to Vietnam, Bangladesh and throughout southeast Asia.

Enter the mysterious coronavirus, believed to have come from a species of bat in Wuhan, and anyone who wanted to wait out Trump is now forced to reconsider their decade long dependence on China.

Retail pharmacies in parts of Europe reported that couldn’t get surgical masks because they’re all made in China. Can’t Albania make these things for you? Seems their labor costs are even lower than China’s, and they are closer.

The coronavirus is China’s swan song. There is no way it can be the low-cost, world manufacturer anymore. Those days are coming to an end. If Trump wins re-election, it will only speed up this process as companies will fear what happens if the phase two trade deal fails.

Picking a new country, or countries, is not easy. No country has the logistic set up like China has. Few big countries have the tax rates that China has. Brazil surely doesn’t. India does. But it has terrible logistics.

Then came the newly signed U.S. Mexico Canada Agreement, signed by Trump into law last year. Mexico is the biggest beneficiary.

It’s Mexico’s Turn?

Hecho en Mexico. Porque no?

GETTY
Yes. It is Mexico’s turn.

Mexico and the U.S. get a long. They are neighbors. Their president Andres Manuel Lopez Obrador wants to oversee a blue collar boom in his country. Trump would like to see that too, especially if it means less Central Americans coming into the U.S. and depressing wages for American blue collar workers.

According to 160 executives who participated in Foley & Lardner LLP’s 2020 International Trade and Trends in Mexico survey, released on February 25, respondents from the manufacturing, automotive and technology sectors said they intended to move business to Mexico from other countries – and they plan on doing so within the next one to five years.

“Our survey shows that a large majority of executives are moving or have moved portions of their operations from another country to Mexico,” says Christopher Swift, Foley partner and litigator in the firm’s Government Enforcement Defense & Investigations Practice.

Swift says the move is due to the trade war and the passing of the USMCA.

The phase one China trade deal is a positive, but the coronavirus - while likely temporary — shows how an over-reliance on China is bad for business.

There will be fallout, likely in the form of foreign direct investment being redirected south of the Rio Grande.

“Our estimates of possible FDI to be redirected to Mexico from the U.S., China and Europe range from $12 billion to $19 billion a year,” says Sebastian Miralles, managing partner at Tempest Capital in Juarez, Mexico.

“After a ramp-up period, the multiplier effect of manufacturing FDI on GDP could lead Mexico to grow at a rate of 4.7% per year,” he says.

Mexico is the best positioned to take advantage of the long term geopolitical rift between the U.S. and China. It is the only low cost border country with a free trade deal with the United States, so there you have it.

Thanks to over 25 years of Nafta, Mexico has become a top exporter and producer of trucks, cars, electronics, televisions, and computers. Shipping a container from Mexico to New York takes five days. It takes 40 days from Shanghai.

They manufacture complex items like airplane engines and micro semiconductors. Mexico is the rank the 8th country in terms of engineering degrees.

Multinational companies are all there. General Electric is there. Boeing is there. Kia is there.

Safety remains a top issue for foreign businesses in Mexico who have to worry about kidnappings, drug cartels, and personal protection rackets. If Mexico was half as safe as China, it would be a boon for the economy. If it was as safe, Mexico would be the best country in Latin America.

“The repercussions of the trade war are already being felt in Mexico,” says Miralles.

Mexico replaced China as the U.S. leading trading partner. China overtook Mexico only for a short while.

According to Foley’s 19 page survey report, more than half of the companies that responded have manufacturing outside of the U.S. and 80% who do make in Mexico also have manufacturing elsewhere. Forty-one percent of those operating in Mexico are also in China.

When respondents were asked about whether global trade tensions were causing them to move operations from another country to Mexico, two-thirds said they already had or were planning to do so within a few years. A quarter of those surveyed had already moved operations from another country to Mexico on account of the trade war.

For those considering moving operations, 80% said they will do so within the next two years. They are “doubling down on Mexico”, according to Foley’s report.

Of the companies that recently moved their supply chain, or are planning to do so, some 64% of them said they are moving it to Mexico.

Good luck to locate manufacturing to Mexico.

 

[PeaceGen]

China is moving up the value chain and it's natural some other developing countries may get a share for some low ends goods production, however, labor cost doesn't decides the price alone, it's still much cheaper for things made in China than those made in India, also mass production can significantly bring down the price, no country can do mass producion feat better than China on this planet.

ah, but China has done serious intellectual property theft to arrive at this industrial status.
so it's not impossible that other nations won't play the same trick back onto China, "stealing" intellectual property to make other nations as strong, or even stronger, than China is in terms of industrial production power.

Good luck to locate manufacturing to Mexico.

they'd have the option to spread production to other nations too. even to major western nations and their closest western allies (like Canada).

 

[AViet]

ah, but China has done serious intellectual property theft to arrive at this industrial status.
so it's not impossible that other nations won't play the same trick back onto China, "stealing" intellectual property to make other nations as strong, or even stronger, than China is in terms of industrial production power.

I do not mean to be racist, but Mexican work ethic is not like Chinese, and will never be. Same to education quality, disciplines, etc. No country can emulate China at this scale, at least for next 1,000 years.

 

[PeaceGen]

I do not mean to be racist, but Mexican work ethic is not like Chinese, and will never be. Same to education quality, disciplines, etc. No country can emulate China at this scale, at least for next 1,000 years

no country? well, Germany can. so can the USA, Canada, and most of the north western NATO members. we'll see if the former USSR countries in eastern europe are any good at manufacturing, but there's hundreds of millions of potential workers in the countries i just mentioned. And any chance to join this potential production alliance within NATO is a great opportunity for any country, so our diplomatic influence in the world would increase as well.

 

[AViet]

no country? well, Germany can. so can the USA, Canada, and most of the north western NATO members. we'll see if the former USSR countries in eastern europe are any good at manufacturing, but there's hundreds of millions of potential workers in the countries i just mentioned. And any chance to join this potential production alliance within NATO is a great opportunity for any country, so our diplomatic influence in the world would increase as well.

I said "At this scale".

And regarding work ethic, quality and discipline, I doubt American and Canadian workers can beat the Chinese. Perhaps only some very homogenous Germanic countries.