A Chinese conundrum

by February 22, 2020 0 comments

As that nation catches a cold, the world sneezes. But the virus spread has led to a revival of crucial sectors back home

The effects of Coronavirus, now called COVID-19 by the World Health Organisation (WHO), have mostly been contained along China’s borders. Beijing declared a war-like situation to deal with its spread. It shut down all its cities effectively and Wuhan, the centre of the outbreak, became a ghost town. Streets, that once bustled, wore a deserted look. According to data from Flightradar24, a flight tracking site, air traffic in China dropped by over 80 per cent since  the outbreak. Nevertheless, the spread of coronavirus forced the entire world to realise just how integral China is to the global supply chain, even when it does not produce finished products. Take the example of the Indian pharmaceutical sector, which is afraid that a shortage of Active Pharmaceutical Ingredients (API) that form the basis of many important medications, including anti-retroviral drugs used to manage HIV/AIDS, will start running out by mid-March. We are so dependent on China-sourced raw materials that they form almost 70 per cent of India’s imports of key ingredients for medicines. The potential damage this has caused to the sector cannot be wished away. Most importantly, domestic manufacturing is struggling to take off. But the long-term implications of the spread of the virus must not be missed and it has at least compelled the Government to reset its focus on local sourcing to offset the current supply disruption. In the pharma industry itself, a revival of old drug manufacturing units that once produced key ingredients for crucial medicines is on the cards. In other sectors such as automobiles, a complete shutdown in China is expected to lead to a shortage of fuel-injectors and electronic control units among other devices that are essential to meet the new BS-VI emission norms that come into force nationwide on April 1. In sectors like paints and plastics, China supplies essential dyes used for colouring. Industry insiders have warned that production lines in various sectors as also across the country will come to a screeching halt if supplies do not restart by the middle of next month. And even if they come back into the market, it might take six to eight weeks for fresh products to be shipped from China to India. The situation is so dire that even the Central Government has said that the Coronavirus outbreak can be considered a force majeure on contracts and that it can even be classified as an act of God for vendors so as to negate penalties if delivery schedules are not met. Logistical experts are working overtime to ensure once supplies start, delays at ports and at Customs points are minimised.

While there is no firm outline as to when production will restart at factories, the Chinese Government has announced that production units in Wuhan will remain shuttered till early March at the very least. However, manufacturing can happen around Beijing and the Pearl River Delta, possibly with limited production by next week. The Coronavirus outbreak must serve as a warning for Indian industries to diversify their supply chains. The Indian Government, too, must start encouraging production of critical components within the country. While this is an extreme situation, it has exposed Indian vulnerabilities to Chinese supplies. The latter is the former’s top non-oil trading partner. But statements from the Chinese Government concerning Arunachal Pradesh prove that it is still inimical to India’s interests, even if, at least once, it did support our stance against Pakistan at the Financial Action Task Force (FATF) pertaining to the farce surrounding Jaish-e-Mohammad chief Masood Azhar. While we live in a globalised world and it is impossible for a single nation to do everything for itself, India must use the COVID-19 outbreak as an opportunity to protect its industrial interests. This will be in the world’s greater interests as well.

(Courtesy: The Pioneer)

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