Together with The Young SEAkers (TYS), ASEAN Business Youth Association (ABYA) organised a webinar on China-ASEAN supply chains on 20 February 2021 as part of ABYA’s ‘A Future in ASEAN’ monthly dialogue. They had the honour of inviting Dr Sanjana Goswami, Assistant Professor at the Lee Kuan Yew School of Public policy, National University of Singapore, to moderate the session alongside 2 esteemed panellists: Mr Low Yew Seng, the Director of Shanghai Apolo Medical Technology Co Ltd and Former Vice President of ST Engineering, as well as Mr Jeffrey Tan, Head of Group Corporate Development & Group Technology at YCH Group.
Written by: Veronica Low Kai Lin
Edited by: Louise Tang & Bryan Chang
The recent implementation of RCEP marks a milestone in fostering closer business and economic ties between China and ASEAN, two of the most promising Asia Pacific economies. Integrated global value chains (GVCs) fostered by closer regional partnership have brought about abundant opportunities for companies and talents alike. Thriving businesses and increased employment opportunities have also resulted from the increasing connectivity and collaboration between the two economic powerhouses, both of which account for 30% of the world’s population and GDP. In the webinar, the panellists shared the major trends and opportunities in ASEAN-China business dynamics, challenges faced in this new era of supply chain management, and how youths can better equip themselves with the necessary skills and experiences.
Challenges in Global Value Chains and Processes
Starting from a macro perspective of GVCs and processes, the panellists shared their personal experiences in the industry. Jeffrey shared his experiences before the pandemic, noting that goods and trade are moving in a disputative manner. The complexity and different cargo needs result in challenges faced in identifying the authenticity of cargo.
Adding to this complexity is the fact that China has its own regulations and preferred list of imported goods. Yew Seng addressed the importance of knowing the 3C – China Compulsory Certificate (CCC) and preferred list to prevent any potential supply chain and tax issues in China. The CCC mark is required for both Chinese-Manufacturers and Foreign-imported products to enter into China market. Without the CCC mark, China would reject or quarantine the product, delay the products, and even claim a warranty on them. Every two years, the Chinese customs has its own preferred imported, non-preferred imported and restricted products. The list changes regularly, and it is essential to check the products according to the updated lists to ensure that it is safe to import goods into China.
In addition, a dual court system is utilised in China, with arbitration and execution as the two different courts. The arbitration court nearest to the supplier’s business generally rules on awards meted out in arbitration. Yew Seng acknowledged the difficulties faced in the dual court system and for the Chinese to travel out of their country due to restrictions imposed currently. Yew Seng then advised the participants to have contracts signed in Shanghai or Beijing for minor business deals due to the shorter duration for arbitration awards to be transferred to execution courts if contracts are signed at these locations. Having arbitration held in Shanghai or the Beijing International Arbitration Centre also enables companies to leverage the legal representative blacklisting system more easily and increase company protections.
Supply Chain Disruptions due to COVID-19
The pandemic situation limits the operational procedures of many MNCs, culminating in the need to operate remotely in China. Setting operating standards to mitigate risk and having representatives present in the company to manage operational needs is thus essential for many companies. When Dr Sanjana asked about the disruptions to the supply chain industry, Yew Seng shared his difficulties maintaining connections with clients due to communication changes from meeting in-person to online meetings. Operational challenges such as the fall in shipment levels have also occurred with constraints faced by the Chinese customs on handling goods being exported out of China. This reflects how the pandemic has caused many disruptions in the supply chain industry, although the situation has improved for the fourth quarter of 2020.
Jeffrey shared how Singapore has an advantage in trade negotiations and the largest number of free trade agreements (FTA) with different countries. This position creates opportunities for companies to leverage the FTAs to assist in reducing taxation and tariff burdens in ASEAN and China.
As a practitioner in the logistics industry, Jeffrey highlighted the impacts of the pandemic on the sector. The first blow to the industry in Singapore was when Malaysia imposed the Movement Control Order restricting trucks from Malaysia entering Singapore. After various negotiations, the only essential cargo was allowed into Singapore despite the FTA between Singapore and Malaysia. COVID-19 thus reinforces the importance of close relations between countries amidst disruptions such as natural disasters and other crises. Resilience in the supply chain is equally crucial during a global crisis in allowing for essential goods to move between the regions. The pandemic has demonstrated to youths and future leaders the industries are capable of surviving such a crisis and the significance of diversification in the supply chain industry.
Growing Opportunities in the ASEAN region
With the ongoing US-China trade war, Multinational Corporations (MNCs) can shift their operations to the ASEAN region. Dr Sanjana asked the panellists for their perspectives on how ASEAN countries can benefit from the trade war.
The US-China trade war has affected GVCs, leading to many MNCs’ decisions to focus on diversification by shifting part of their factories and production plants to the ASEAN region. Those MNCs which are not operating in the ASEAN region faced specific challenges, but these were resolved with companies like YCH which can use their extensive network in the ASEAN region to serve MNCs’ needs in moving their factories out of China. Jeffrey shared his personal experiences on how his MNC clients are shifting their production and manufacturing operations to other ASEAN countries. Currently, the labour skillsets in these ASEAN countries are geared towards simple, less complex manufacturing processes. The region’s expanding opportunities reflect how ASEAN countries need to maintain their political stability and improve their infrastructure and labour workforce to manage supply chain complexities.
Jeffrey further illuminated how opportunities are rising in the ASEAN region, in countries such as Vietnam, which is located next to China and has benefited from the relocation of manufacturing activities from China. Vietnam is also the ASEAN country with the highest growth potential with large cross border trade flows from China. As such, goods from the Western and Eastern parts of China often travel from Yunnan or Guangxi through Vietnam before arriving in countries such as Malaysia, Thailand, and Singapore.
Despite the challenges faced in the pandemic situation, a country like China has shown its ability to recover swiftly. Yew Seng explained how China can maintain positive growth, especially in the construction industry, while Jeffrey analysed the entrepreneurial mindset of the Chinese and their ability to deal with the pandemic situation swiftly. China has also come up with a dual-circulation strategy by relying on internal consumption based on its belief that GDP can be boosted more sustainably by relying on the Chinese population.
Ability to learn from challenges in ASEAN and China
On a final note, Dr Sanjana asked the panellists about their opinions on future trends and what youths should learn to succeed in the changing environment. Yew Seng shared about the new manufacturing concept of additive manufacturing and the emerging trend of 3D machines in China, which reduces lapses in the supply chain. He also added that the product’s origin requirements will also affect companies’ decisions in buying raw materials. This has resulted in Chinese Small and Medium Enterprises (SMEs) switching to have their product raw materials originating from ASEAN countries, as many ASEAN countries have protectionist policies that limit foreign companies from investing heavily in the region. Chinese companies thus often tailor their supply chain flows to meet such country of origin requirements. Due to Chinese aversion towards outsourcing practices, it is difficult to convince them to subcontract operations out to local companies or to partially invest in production plants in the region. ASEAN countries thus need to develop more appealing ways by investing more in infrastructure to attract amplified support from Chinese companies.
Jeffrey revealed that the RCEP benefits people from the ASEAN and China region in that the agreement provides more connectivity and movement choices for cargo flows. The RCEP reflects how countries are more connected in a globalised society, which facilitates free trade and unlocks opportunities for people interested in doing business. Youths would hence have more options to be involved in regional activities, and embark on business opportunities. However, this increasing regional connectivity may bring challenges such as an increase in potential competition as the playing field has been levelled for youths across ASEAN. Therefore, they must innovate and embrace these challenges, anticipating and adapting to market trends.
Additionally, Jeffrey pointed out the diverse cultures in ASEAN and China, which may pose challenges to people interested in navigating the regions. He advised youths to be practical and get on the ground to grasp unspoken business norms and to learn the importance of being flexible by adapting to each country’s norms.
Finally, ABYA would like to thank Dr Sanjana Goswami, Mr Low Yew Seng, and Mr Jeffrey Tan for sharing their personal and professional insights on the factors that have guided their careers in China and ASEAN, as they see a future in ASEAN. With these insights, ABYA will continue to establish connections between ASEAN and Singaporean youths, whilst helping to cultivate ASEAN-savvy youths with the necessary skills and information needed to succeed in a rapidly transforming region.