The United States seems to have a new understanding of China's supply chain that seems unbreakable for the time being. The latest intelligence research from Bloomberg in the United States believes that although it is difficult to decouple the supply chain between the United State

Author

Lin Xueping: General Manager of Beijing Lianxun Power Consulting Company, Shanghai Jiaotong University Visiting Researcher

Slowly corrode

Since we cannot decouple in a hurry, we will seek to dismantle China's supply chain. The United States seems to have a new understanding of China's supply chain that seems unbreakable for the time being.

The latest intelligence research from the United States believes that although it is difficult to decouple the supply chain between the United States and China, it is not impossible. With the effort, the United States' dependence on China can be reduced by less than 40% by 2030.

Americans should have realized that a simple trade war and control list cannot immediately collapse the dominance of China's supply chains established over the past 30 years. Roughly decoupling , the method has failed. But time will be an antidote to corrode this steel-like supply chain. China has formed a complex, efficient and skilled supply chain, but if countries such as the United States continue to invest for about ten years, the former may be significantly disintegrated: from semiconductors to hardware, or assembly. The

server has dropped sharply by the manufacturing of

server, showing this trend. With the turbulent situation in the past two years, the number of server manufacturing in mainland China has dropped from 90% in 2019 to less than 60% in 2021. This downward trend is amazing. Dell has always been the world's first production, and in 2021, the Inspur server produced 1.3 million units, ranking second in the world, and followed by HP servers in third place - this is a joint venture between New H3H3 and HP , and China accounts for the majority. Almost all manufacturers of

servers are concentrated in China. The biggest customers of Taiwanese manufacturers in China are Facebook, Dell, Amazon and HP, followed by Inspur in mainland China, Lenovo and Huawei . These manufacturers have taken the top ten customer list.

Due to the influence of Sino-US relations, many brand manufacturers require design and manufacturing ODM bases to transfer to non-mainland China. North American cloud service provider CSP (such as Google or Facebook, etc.) involves high-level assembly lines and have been moved to Taiwan, China and Southeast Asia. In addition to Google and Facebook, which have production lines in Taiwan, China, AWS and Microsoft have also transferred production lines to Taiwan, China in the past two years.

At present, in terms of major server design ODMs, most of them have established brand new production lines in Taiwan, China. Among them, Yingyeda, Wistron , Quanta and Foxconn are making the most rapid progress. Yingyeda, which has the largest market share in the world, has now operated eight production lines in Guishan, Taoyuan at the end of 2020. The sharp expansion of Inyeda's production capacity in Taiwan, China and the significant decline in server manufacturing share in mainland China have shown a trend of one increase and another decrease. The shipment of

Quanta notebooks ranks first in the world, and Renbao is equivalent to that, with an annual output of 50 million units. Wistron has relatively fewer, but has begun to expand. In addition to installing several spare production lines at the Southern Science Park of Taiwan, China, it has acquired a factory in , Malaysia, in , in October 2020 to expand the production capacity of its production base in Southeast Asia. In order to avoid China's vigilance, Wistron argued in a low-key manner that the proportion of Chinese production has decreased not because of the closure or removal of Chinese factories, but because of the establishment of new factories in areas other than mainland China. Wistron is evaluating chips in their left and right hands, switching their trump cards. In the first three months of acquiring the Malaysian factory, it will sell the Wistron Weixin Kunshan factory, which was manufactured for Apple , to Luxshare Precision , and then go to India and Vietnam to expand vigorously.

This hand-change is meaningful. Full of geographical considerations.

In addition to Taiwan and Southeast Asia, Inert, Wistron and Foxconn, the service OEM, have launched server assembly factories in New Mexico and Eastern Europe and Czech Republic, and have gradually installed new server motherboard production lines.

The entire server supply chain has begun to undergo significant regional changes.

Why can the server take the lead in "escape from the mainland Chinese base"? This is related to its not high production capacity requirements. In 2022, the global server output can reach 18 million units, while Lenovo's main factory, Hefei Lianbao, has an annual output of nearly 40 million laptops, , and one unit will be removed from the line in less than 1 second on average. As you can imagine, the production efficiency requirements of servers are not very high. Moreover, the assembly equipment production of electronic chip machines has been highly automated, mainly due to relatively large investment. Things that can be solved by investment and automation are nothing. All these make the transfer of the server industry chain easier to leave China's base.

These global server design ODM manufacturers have completed the layout of transferring production bases in the past three years, resulting in a significant decline in the share of servers manufactured in mainland China. The manufacturing of

server is the best window to observe the erosion of China's supply chain. Brand manufacturers look like ducks floating on the water as if nothing had happened, but their supply chains are fighting like duck feet underwater. If you cannot see the underwater movements clearly, it is easy to cause superficial misjudgment.

Notebooks and mobile phones are much more complicated

but there are also reassuring things. For some electronic products, China's supply chain as the global leader, it is difficult to shake. The unshakable moat of mobile phones in China can be said to be formed by Apple, and 98% of Apple's mobile phones are currently produced in China.

Bloomberg predicts that even by 2030, Apple will only be able to transfer up to 10%-20% of its production capacity out of China. Given that China accounts for 70% of global smartphone manufacturing, its major suppliers account for nearly half of global shipments. This holy grail can be said to be jointly defended by Apple and mobile phone manufacturers such as , Xiaomi, and .

And electronic manufacturing such as notebooks are also as solid as a rock in China's manufacturing location, and the supply chain is difficult to remove. This is due to the fact that China has the world's largest computer manufacturer: Lenovo. Although this is a highly international company with sales overseas accounting for more than 70%, its products made in China reach an astonishing 90%. This means that there are countless factories that are deeply embedded in the bases in mainland China. The employment it brings is closely related to the people's livelihood of a city.

Whether it is an Apple phone or a Lenovo computer , it plays the role of "land protection chain". Bloomberg inferred that although Dell and Cisco also rely heavily on China's supply chain, Dell has significantly reduced its dependence, while HP, which has a joint venture with H3 New H3, seems more stable. This further shows that the rooting of the supply chain requires meticulous cultivation, and many subtle relationships need to be dealt with. The competition for manufacturing

is the "chain battle"

According to Bloomberg's calculations, the global semiconductor equipment manufacturer Top4 Panlin LAM and tester Aidwan Test Avantest are both heavily dependent on China - this is the result of China's continuous investment in semiconductors. Since the infancy of investment around 2010, the financing amount of China's semiconductor industry has exceeded one trillion yuan in the past decade. And then, it won't stop. These are a super temptation for semiconductor manufacturers. Although in September, Pan Lin hurriedly stated to the US government that it would follow the restrictions on Chinese equipment. But with such a big market opportunity, Fanlin will not give up easily.

For future predictions, it is obvious that chip manufacturing is considered. Intel and AMD investments in the United States and Israel seem to be accelerating its escape in China. By 2030, its dependence on China will range from severe dependence to mild dependence.Since Intel announced the integrated manufacturing of IDM2.0 in 2021, it has invested US$40 billion in the United States to establish an advanced process factory.

chip manufacturing will drive packaging and testing at the same time, which is China's biggest advantage. China has 38% of the global assembly, testing and packaging ATP market share, but this share is 81% in Southeast Asia. Therefore, it seems that ATP is easy to leave China. 50% of the package of Texas Instruments comes from China, but it only needs to be reduced by half by 2025.

This is also why the US $52.7 billion chip bill CHPS has only allocated less than 5% of the fee, that is, $2 billion, for ATP expansion. This little money is not even enough for a state-of-the-art independent packaging factory, which requires at least US$7 billion to US$10 billion.

Americans obviously made accurate calculations on the supply chain dismantling route. In ATP, there is no intention to spend money to cultivate. The power in Southeast Asia is easy to cultivate. Manufacture in China cannot take it lightly for such conversions as

. Once relatively low-end manufacturing can be settled, high-end manufacturing will be easier for Western countries to establish. The chairman of TSMC once lamented that the packaging cost in the United States was too expensive, but it didn't seem to be a serious problem.

China has made great achievements on memory chip , and Changxin and Yangtze Memory will both become China's new support. But in logic chips, such challenges have not been seen yet. The open source chip based on the open source architecture Risc-V may be an opportunity, and China seized the opportunity to launch it initially. Overall, the International Open Source Foundation RISC-V has a firm goal, which is to challenge Intel and ARM. SiFive, a startup company in Silicon Valley, has a clear goal, which is to replace ARM, and there are new customers trying it out, with its current market value reaching US$2.5 billion. Similarly, the performance of the "Xiangshan Third Generation Kunming Lake" of Beijing Open Source Chip Research Institute is also eye-catching in the laboratory. Although the seedlings are still weak, this may be the real opportunity for subversion. The

manufacturing competition is by no means simply seeking advanced manufacturing. China seems to prefer to commit to breakthroughs in strategic emerging industries, but in fact traditional manufacturing is a strong balance. How to retain giants is also a big skill. Otherwise, there will be many disasters. For example, if Apple seeks diversified production, the capacity dependence of OEMs and electronic manufacturing OEM services in China will drop from 70% now to 35%-40% in 2030. Because Apple has a huge influence in these aspects, its procurement in 2021 accounts for 45%-47% of the industry's revenue.

Apple manufacturing in China is a considerable stabilizer for the foundation of the supply chain. Those fruit chains that create myths around the Apple supply chain are not only symbols of wealth for listed companies, but also underwater anchor hooks for those densely packed small manufacturing companies in China.

Geographic discovery

, but the power of destruction comes one after another, just like the impact of the waves. Manufacturing has always been the fundamental factor that determines the power of a great power. The rise of Britain is the first country in the world to conquer the world by relying on manufacturing. Finance and commerce are closely integrated with this. After that, Germany, the United States and Japan all followed this rule. In the process of fighting for global hegemony, the comparison between maritime power and land power countries has become a distinctive science. Correspondingly, in the tide of internationalization that began in the 1990s, offshore manufacturing (Off-Shoring) began to become the most important business weapon for multinational enterprises. Shoring itself means a coast, and Off-Shoring means going to the deep sea. Offshore manufacturing (offer-shoring) has a clear shadow of the sea power center, full of confidence and an open attitude.

However, in the past decade of reflection, the United States believes that offshore manufacturing keeps manufacturing bases away from source innovation, which greatly damages the vitality of American innovation, so the call for return-Shoring began to rise sharply. This is the specific implementation method of " re-industrialization of ". However, returning to the shore is not easy.No factory can be established in isolation. No matter how much investment is, manufacturing will be competitive without a supply chain around it like capillaries.

As the previous government-initiated incentives for China's trade, American manufacturing did not meet the expected goal of returning to the shore manufacturing. Therefore, the US government has changed its simple extreme thinking of "tariff suppression" and realized the isolation of "return to the shore manufacturing", so it began to adopt the "resilent supply chain" strategy to launch a "protracted supply chain war". This involves three strategies. The first strategy is to continue to promote local manufacturing bases and stimulate the implementation of "return-strait manufacturing" by spending a lot of money on industrial policies and regulations; the second strategy is to promote "near-strait manufacturing" and vigorously encourage the development of production bases such as Mexico. This is the main strategy implemented by the Trump administration in , and it is all about the tactics that prioritize the United States. The third strategy is that it has begun to emerge in the past two years, and it is becoming more and more obvious, which is "friendly manufacturing" - selecting the supply chain team according to values. In May 2020, an official from the United States Agency for International Development mentioned the concept of "Ally-Shoring". A year later, the US government released a 100-day review report on the supply chain, officially adopting the concept of "friendly manufacturing", especially for the key mineral supply chain parts. The upstream mineral resources that determine the future security of electric vehicles , as well as the indispensable rare earth elements in the military industry, have all become the focus of "you'an manufacturing".

"Off-shoring" (Off-shoring), the most favorable weapon that led the United States to become the most favorable weapon to gain global wealth, is now being despised and even seen as a "huge failure" of the United States' supply chain system in the era of globalization. "Amendrome Manufacturing" has become the new favorite of the US government, promoting selective technology alliances to artificially divide the supply chain fence based on the economics of officials' likes and dislikes rather than free flow. This is the most typical example of the Chip4 chip four-nation alliance bill formed by winning over Japan, Taiwan and South Korea. South Korea, sandwiched in a huge vortex, can be said to be in a dilemma. Industrial diplomacy has become the connection point between economy and diplomacy and has become a highly anticipated new topic. The supply chain iron curtain is slowly revealing its outline. Geomanufacturing based on "geographic rediscovery" has become the most important factor in supply chain turmoil. Below the crater waiting for the eruption, there was a chaotic and noisy force. The increase and decrease of the power of the four major manufacturing industries, including Ally-shoring, Near-shoring, Re-Shoring and Off-shoring, has faintly reproduced the sound of the sea power. The global supply chain's A-N-R-O model has become a new place for geopolitical manufacturing.

It seems that the US government believes that as long as human investment and cultivation are carried out, the dissolution process of the original supply chain system will occur. This takes time, investment and geographic rediscovery.

For Chinese manufacturing, this is the critical point when the supply chain is corroded. The United States' actions to reshape the global supply chain are undergoing tremendous changes, and it is advancing with multiple measures to seek various breakthroughs. From the perspective of safety, return-shore manufacturing is undoubtedly the safest, but it is progressing slowly because of the least economicality; near-shore manufacturing is widely favored due to its better economicality. In addition to Mexico, Eastern Europe is also becoming a hot spot for "near-shore manufacturing". However, there is still great uncertainty about whether "Youan Manufacturing" is successful. Although this method fills the gap in American manufacturing, it is still far from the principle of economics. Since half of the core competitiveness of each company comes from the control of many supply chains, holding down several leading companies alone to form an agreement in the building may not work. And to form a supply chain, just like planting a cherry tree, requires long-term cultivation and patience. Supply chain resilience tests policy makers' patience and cleverness in making mistakes.

Note: The "Capital and the Capital" made by

The concept of "China +1" proposed by Japan since 2010 was to get rid of the constraints of Chinese manufacturing. It never succeeded. However, in the past two years, this idea that seems to be returning to the West seems to have come back to life. Its meaning is also revised to become a flexible "shuangdu supply chain" practice: maintain China as the main production base, but achieve production capacity diversification in other places.

Japanese air conditioner overlord Dajin Industry has reduced its dependence on China's supply chain by as much as 35% in 2020, and returned to about 20% in 2021, which took only one year. The latest goal of Dajin Industrial is to spend another year to build a zero-China supply chain to prepare for the "extreme moment". It is required that all parts produced in China bases must be backed up with a set of production capacity at bases outside mainland China. However, Daikin is also happy to continue using the Chinese base. It just maintains the freedom to switch at any time. This is an ominous sign. If you want to extract teeth, the loose teeth will be pulled first; the others will be shaken to shake the foundation. A server is an example of loose teeth falling off first. The holes it forms will be irreversible degradation.

This is to reconstruct geopolitical manufacturing through investment, use "geographic rediscovery", and use empty bones and cotton palms to disintegrate the roots of China's manufacturing supply chain, and try to gradually disintegrate the ecological rainforest of China's supply chain. Faced with the United States' increasingly skilled actions and global chain replenishment behavior, Chinese manufacturing is entering a critical window period in the war to defend the supply chain. "Soil protection chain" requires vigilant and advanced top-level design.