---
title: "2024: Go Global or Go Bust"
description: "In 2023, a key theme for Chinese enterprises was 'going global.' This article examines the implications of the massive overseas expansion of Chinese businesses, questioning whether it will undermine China's status as the world's factory and its international standing. It argues that what is often perceived as a 'transfer' of manufacturing is actually a 'spillover' of the supply chain, with only the 'front-end' (final assembly) moving abroad while the 'middle-end' (supply chain network) remains in China, offering new growth opportunities and potential solutions to challenges like aging."
author: "施展"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2024-01-03"
language: "en"
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---

# 2024: Go Global or Go Bust

> In 2023, a key theme for Chinese enterprises was 'going global.' This article examines the implications of the massive overseas expansion of Chinese businesses, questioning whether it will undermine China's status as the world's factory and its international standing. It argues that what is often perceived as a 'transfer' of manufacturing is actually a 'spillover' of the supply chain, with only the 'front-end' (final assembly) moving abroad while the 'middle-end' (supply chain network) remains in China, offering new growth opportunities and potential solutions to challenges like aging.

In 2023, a key theme for Chinese enterprises was 'going global.' Currently, we see many related reports about Chinese companies relocating overseas in large numbers. What do these reports really mean? We know that in recent decades, whether in economic development or international political maneuvering, China's strength and capabilities have been rooted in its status as the world's factory. Now, will this large-scale 'going global' trend affect that status, potentially leading to a decline in China's international position? And consequently, will it affect each of us? Under the new order, judging 'relocation' with old experiences is no longer accurate. Current online discussions about 'going global' and the transfer of Chinese manufacturing, from my personal observation and thinking, I don't quite agree with, because there's a premise everyone overlooks before making judgments.

1. China's Economic Rise Has Led to the Separation of Global Political and Economic Spaces

The premise is: In the last 30 years, due to China's economic rise, the global order has undergone unprecedented changes, with the separation of global political and economic spaces. What does this mean? Two data points can illustrate this more intuitively: In the 1990s, 30 years ago, over 70% of global trade was in finished goods, with less than 30% in intermediate goods. That meant most products were produced within a single country. By 2018, the year before the trade war, the numbers had reversed: over 70% was intermediate goods, less than 30% finished goods, meaning most products were now produced across multiple countries. This change is what I call the separation of political and economic spaces. Political space is dominated by states, covering specific territories and populations. Economic space, however, is not state-dominated; while macroeconomic policy may be controlled by states, the specific microeconomic processes are led by entrepreneurs. The economic space led by entrepreneurs has already transcended national borders, forming a completely different spatial structure, leading to the separation of political and economic spaces. Consequently, judgments that were valid 30 years ago may need adjustment today. For example, the trade war. In the 1960s and 1970s, the US fought trade wars with Europe and Japan, and mostly achieved its policy goals. That was because political and economic spaces roughly overlapped; most products were made within single countries, so trade barriers could keep products out. But with the separation of spaces and cross-border production, past policies may not achieve their goals today. The trade war did not achieve the US's initial policy objectives regarding Chinese products; it fell far short. The reason is the spatial separation I mentioned. After the trade war, some might see data showing China's exports to the US dropping sharply and Vietnam's exports to the US rising, suggesting the world's factory is moving to Vietnam. But few look at the third data point: China's exports to Vietnam are rising sharply. In this context, when discussing 'transfer,' you must ask what is being transferred.

2. China's Manufacturing Is Not Transferring but Spilling Over

When I conducted in-depth research in Vietnam in 2019, I concluded that the so-called transfer of Chinese manufacturing to Vietnam was not a typical transfer but a spillover of China's supply chain. That was my pre-pandemic judgment. At that time, the Sino-US conflict was mainly about interests, but after three years of the pandemic, the conflict has become more complex, far beyond interest conflicts, and people may have more considerations. In this situation, even with the separation of economic and political spaces, can the logic of spillover still hold? We need to look at the global landscape and how this separation has changed.

**The 'Transfer' of Chinese Manufacturing: Mostly the Front-End**

I once mentioned that with China's economic rise—which was, in a sense, a 'passive rise'—the US and Western countries, to drive innovation and efficiency, had the incentive to outsource production. China, due to specific historical opportunities and natural endowments, was able to take on this outsourcing. Over half of the mid-to-low-end manufacturing moved to China, and the West entered a phase of deindustrialization. In this context, a broad secondary-tertiary industry cycle formed between China and the West, and a primary-secondary cycle between China and underdeveloped countries like those in Africa: China exports finished goods, resource-rich countries provide raw materials, and the West provides markets. This created a global pattern of Western consumer countries, East Asian producer countries, and producers in East Asia and Germany/Eastern Europe. This pattern is not easy to change overnight, as it involves shifts in comparative advantages. More importantly, China's economic growth brought significant changes at the manufacturing level, which I'll compare to the internet.

**1. Front-End Transfer**

A popular concept on the internet is front-end, middle-end, and back-end. The back-end is based on massive data and its refinement. The middle-end is the aggregation of various technical capabilities, but it doesn't interact with users; the front-end is the interface for users. If the middle-end is strong, the front-end can be light, serving as an entry point for users to call functions. In manufacturing, the back-end is large-scale infrastructure and a large skilled labor force, essential for manufacturing. The middle-end is a supply chain network that can efficiently iterate and provide diverse intermediate goods and components. The front-end is the final assembly that delivers the finished product to users. Under this structure, when I observed China's manufacturing 'transfer,' even after the pandemic, in 2023 I conducted research in China's southeast coast, Southeast Asia, and the Middle East. The results largely confirmed my hypothesis: the large-scale 'going global' or 'transfer' is mainly the front-end; the middle-end is rarely moving out.

**2. The Middle-End Is Hard to Move**

I had theoretical reasons for why the middle-end is hard to transfer. First, China's supply chain network is currently unmatched globally. No other country has the scale and capability to absorb such a massive supply chain. If China's middle-end were to move out, any country could only take a fragment, leading to lower efficiency and higher costs. Second, even if the middle-end could move, it would cause massive unemployment and bankruptcies in China, leading to a sharp drop in factor prices (land, capital). Meanwhile, the receiving countries, due to their small size, would see factor prices skyrocket. This cost inversion would inhibit further transfer. There are real examples: after the trade war, many companies moved to Vietnam, especially electronics firms to the north near Hanoi, to stay close to the Pearl River Delta for easy logistics. But even with only the front-end moving, local factor prices have changed dramatically; land rents in good industrial areas around Hanoi are now on par with Shenzhen. If the middle-end moved, economic problems would be severe. Additionally, large-scale transfer would raise costs, and since the consumer countries are in the West, they'd face higher prices, exacerbating their inflation problems. All these factors limit the transfer of the middle-end.

**Front-End Transfer Brings New Growth to China's Economy**

Looking back at China, if the middle-end stays but the front-end moves out, what are the effects? First, regarding manufacturing, from a stock perspective, I don't think China's stock has problems; it's still very good. The main issue is insufficient increment, which is not due to economic reasons but other factors. However, the vitality of the stock depends on the increment; without it, the stock is in a vegetative state. The front-end moving overseas is actually providing increment in a new way.

**1. Front-End Transfer Is New Increment**

Of course, the increment from the transferred front-end is far from enough to compensate for the lost increment domestically, but it's better than nothing. If more front-end moves out, it gives the domestic middle-end room to breathe. In this sense, when entrepreneurs discuss this with me, I say the more, the better; transfer as much as possible. But note: opportunities to transfer the middle-end are rare; focus on the front-end. The more front-end moves out, the more breathing space for the remaining middle-end in China. So, I'm not pessimistic about the large-scale front-end transfer; in a sense, I welcome it.

**2. Middle-End Profits Decline**

The front-end is the user-facing interface with brand recognition and news value, while the middle-end is B2B, with no news value except to insiders. This creates the 'illusion' that Chinese companies are all moving out. You see branded front-ends moving, but not the unbranded middle-end. The front-end moving out may bring new increment and vitality to the middle-end, but another effect is that profits are larger in the front-end, while the middle-end's profits are relatively smaller. This could mean Chinese companies suffer greatly, yet the world's factory and manufacturing center remain in China. These two things can coexist, which is hard to imagine under old logic but is a likely phenomenon now. My research and observations confirm this. So far, we've looked at this from China's perspective, within the political space. But as I said, political and economic spaces have separated; the economic space is driven by merchants.

**A New 'Going South' Wave: Opportunities and Crises**

Let's switch to the merchants' perspective. These merchants going overseas—I call this a new 'going south'—differ greatly from a hundred years ago. This time, Chinese enterprises are going south with technology, capital, and more. This 'new south' may not be limited to Southeast Asia; based on industry and comparative advantages, it could spread to Southeast Asia, Latin America, and the new Eastern Europe, which I collectively call the 'new south.'

**1. Profit Repatriation May Help Solve Aging Problems**

These merchants transfer the front-end, and as mentioned, the profit-generating parts move with them. I often compare this to the Plaza Accord in 1985: after the yen appreciated, Japan had its 'lost decades,' but it also transformed from a pure producer to a consumer country. If you only produce and don't consume, your surplus becomes too large, causing trade imbalances and geopolitical conflicts. By becoming a consumer country, you can offset the surplus and reduce conflicts. Also, yen appreciation made overseas investment cheaper, leading to massive overseas investment and a 'shadow Japan.' Japan's overseas assets total $18 trillion, and after offsetting liabilities, it holds $4 trillion in net assets, forming a huge shadow Japan. The profit repatriation from this shadow Japan gives Japan more leeway despite its aging problem. Could a 'shadow China' emerge overseas, providing more room to maneuver in the future, especially regarding aging? 

**2. Mastering Discourse Power Is Key to Self-Protection**

Chinese people in the 'new south' may have significant assets and wealth overseas. History teaches us that if you can't protect yourself, you're 'walking fat.' For these merchants, what policies and laws in host countries are favorable to them and their property security? Can they push for such political processes to establish favorable laws and policies? I often use an analogy: if they can drive such political processes, they could become the 'Jews of the new south.' This political consciousness, forming organic links with local economies and societies, and engaging in political transactions, requires not just business and economics knowledge but also political science, law, anthropology, sociology, and more. For today's Chinese entrepreneurs going global, this is a crucial knowledge reserve for the future.


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