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Victor Shih

Fighting the Covid-19 virus and saving the economy might not go very well together, says political analyst Victor Shih in Al Jazeera. While there is very little international supply chains can do at this stage, as Chinese governments make decisions, says Victor Shih, the message for the long run is: diversify.

Al Jazeera:

While that situation persists, global supply chains of everything from eyeglasses to cars, chemicals, batteries and electronic components remain crippled.

“The instructions that we know Xi Jinping issued, are in a way in deep contradiction with each other,” Victor Shih, associate professor of political economy at the University of California San Diego, told Al Jazeera by phone.

“If the authorities are really doing everything possible they can to prevent new cases, then they would have very stringent measures to prevent migrant workers coming back in,” Shih said. “But that, of course, will hamper economic activity.”…

Analysts say an even bigger issue is that thousands of small- and medium-sized factories, assembly plants and facilitators of global supply chains in those key manufacturing areas remain out of action.

“A lot of these smaller companies are already operating on very thin margins and many of them have taken on a lot of debt,” Shih said. “So even a few weeks of not having any business, not having any cash flows will potentially bankrupt these companies. This is why they don’t pay their workers because they literally don’t have the money.”

Many such plants either remain shuttered or are only slowly cranking up their activities…

While global companies with international supply chains can do little to escape the short-term disruptions to their China operations, the long-term message to them is clear, says the University of California’s Shih: Diversify.

“This is yet another reason for a lot of foreign companies, especially those based in North America and Europe, to really try to diversify their supply chains,” Shih said.

“With global warming and with the advent of cheap airline and transportation infrastructure, you will have the potential for pandemics breaking out, not just in China, but other developing and maybe even advanced countries,” he said. “So the more diversified a company’s production chain is, the better they are able to weather these different shocks.”

More in Al Jazeera.

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