The supply chain should be redistributed in China — from the epidemic situation to see the influence of Shanghai on the whole country!

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Original: Shenzhen ningnanshan source: ningnanshan

The recent epidemic data show us one thing, that is, the impact test of Shanghai as an economic center on the whole country. At present, this impact is particularly concentrated in the automotive industry,

According to the data of China Automobile Association,

In April, the automobile sales volume was 1181000, a month on month decrease of 47.1% and a year-on-year decrease of 47.6%, almost halving.

In the field of auto parts, Shanghai is home to Bosch, ZF, Magna and other auto parts giants, as well as Tesla, SAIC and other vehicle manufacturers.

The figure below shows the statistics of CSC. The top ten auto parts giants in the world are all in Shanghai, except for Beijing.

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The parts enterprises in Shanghai supply not only the vehicle manufacturers in Shanghai, but also the whole country’s vehicle manufacturers. The following figure shows the circle of friends of the founder of Xiaopeng automobile on April 14. Of course, this was a month and a half ago. At present, Shanghai is gradually returning to work and production.

At present, it seems that some industry leaders are worried about the impact of the closure of the epidemic in Shanghai, mainly in the automotive industry. It can be seen that the automotive industry is indeed the most affected.

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On April 15, yuchengdong of Huawei also expressed a similar view. At that time, he expressed his concern about the overall parking of Shanghai’s supply chain, and especially mentioned the automotive industry.

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The three new forces of making cars have been greatly affected,

The sales volume of Weilai, Xiaopeng and the ideal April all declined significantly, with a month on month decline of 41.6%, 49% and 62% respectively.

On April 9, Weilai automobile issued a statement saying that due to the epidemic, the company’s supply chain partners in Jilin, Shanghai, Jiangsu and other places have stopped production one after another, which has not yet been resumed, resulting in the suspension of vehicle production in Weilai Hefei factory,

Ideal automobile said that its automobile output suffered a heavy blow in April, because nearly 80% of its auto parts supply came from Shanghai and its surrounding areas. The COVID-19 in Shanghai blocked the supply chain, logistics and production.

Tesla China’s output in April was only 10757 vehicles, and only 1512 vehicles were delivered, a month on month decrease of 97.6%.

Xiaopeng’s headquarters are in Guangzhou, while the epidemic situation in Guangdong Province is not serious. It can be seen that some of Xiaopeng’s industrial chains also rely on Shanghai, which is estimated to have a large relationship with automotive chips.

In fact, among the major auto companies with monthly sales of more than 5000 vehicles in China, only BYD saw a month on month growth of 1.11% in April, and all the others saw a sharp decline.

We can also see from the first batch of key enterprises on the white list released on April 16 in Shanghai that among the more than 660 enterprises, there are more than 200 supporting enterprises in the automobile industry chain, accounting for one third (32%),

Integrated circuit enterprises rank second in the manufacturing field, but the number accounts for only 9%,

The third largest manufacturer in the manufacturing sector is the epidemic prevention and control material enterprises, accounting for 6%. I understand that this is actually a medical manufacturing related industry.

The following figure is from CSC.

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In addition to automobiles, the chip industry is also highly concentrated in Shanghai, especially the chip design industry. Shanghai accounts for more than a quarter of the country. The figure below shows the data of Wei Shaojun. In 2021, Shanghai accounted for 27.73% of the country’s chip design industry. In fact, I think the proportion of Shanghai is higher. Because the statistics in the figure below should count Huawei Hisilicon as an enterprise in Shenzhen, Shenzhen can rank second in the country in chip design, In fact, Shanghai think also has a large R & D team in Shanghai.

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According to the data of 2020 and the statistics of China Semiconductor Association, in 2020, the output value of Shanghai’s integrated circuit industry accounted for 23% of the country, of which the design industry accounted for 25% of the country, while the manufacturing and package testing accounted for 18% and 17% respectively.

Huahong, SMIC and Jita semiconductor all have large-scale factories in Shanghai. The most advanced 14nm production line of SMIC is located in Shanghai.

However, compared with its influence on automobiles, the national chip industry is relatively less affected,

In the first three months of this year, China’s integrated circuit output fell

4.2%, which is the worst quarterly capacity performance since China’s chip production fell by 8.7% in the first quarter of 2019.

Among them, the decline in March was even greater. In just one month in March, China’s chip output fell by 5.1%.

In April, 2022, China produced 25.9 billion pieces of integrated circuits, a year-on-year decrease of 12.1%. From January to April, the cumulative output was 107.4 billion pieces, a year-on-year decrease of 5.4%.

This is an interesting thing. In fact, Shanghai accounts for a large proportion of the semiconductor industry, but why is the national semiconductor industry less affected than the automotive industry?

I think there are three main reasons:

1: Because of the US sanctions, the domestic semiconductor industry has made a “war preparation mode” in advance,

The United States’ sanctions against China’s semiconductor industry in the past two years have made the domestic semiconductor industry chain feel threatened by supply interruption. At the same time, the demand of the semiconductor industry has soared in the past two years and has been in a state of shortage. Therefore, enterprises have relatively large inventories of raw materials required for production, which is different from the general enterprises’ pursuit of zero inventory. After all, inventory is a financial loss.

Take the financial report of SMIC in the first quarter of this year as an example, the inventory reached US $1.317 billion, which is not a small figure.

2: The semiconductor production line has its particularity. As it is a high-precision production line, it cannot be shut down casually and must maintain continuous production. During the epidemic period, SMIC international, Huahong and other companies in Shanghai adopted closed-loop management, and some workers continued to produce in the factory. At the same time, the Shanghai Municipal government also made special guarantees for the supply of raw materials for these key enterprises.

3: At present, the localization rate of semiconductor upstream raw materials is relatively low and depends on imports from abroad. Unlike the domestic automobile industry chain, a large number of parts are produced in Shanghai, although Shanghai also has semiconductor raw material suppliers such as Anji and Xinsheng.

Shanghai is not the only import port in China. Even if Shanghai is closed due to the epidemic, its impact on semiconductor factories in Jiangsu, Beijing, Zhejiang, Shaanxi, Hubei, Guangdong and other provinces is not as great as that of the automobile industry.

Of course, in addition to the manufacturing of automobiles and semiconductors, Shanghai’s influence on the whole country is not limited to this. Shanghai accounts for a large proportion of the medical devices, pharmaceutical industry, advertising industry, etc.

Shanghai is also the headquarters of a large number of multinational companies and local companies in China, so Shanghai is actually the national advertising center. A large number of advertising companies and launch owners are concentrated in Shanghai. The closure of Shanghai has led to a decline in the advertising revenue of many we media in China. I saw a video producer with more than one million fans who said that he had not received advertising for several months.

In addition, at Jiangnan Shipyard in Shanghai, COMAC also undertakes China’s strategic manufacturing tasks, one is the 003 aircraft carrier and the other is the C919 aircraft.

In other words, at present, several strategic industries in China, such as new energy vehicles, semiconductors, medical devices and pharmaceuticals, shipbuilding, aviation industry, and Shanghai occupy extremely important positions,

Like the three pearls of shipbuilding (aircraft carrier, cruise ship and LNG ship), Shanghai is the only one in China where all three are built at the same time, and the domestic jet is also in Shanghai.

It can be said that Shanghai has a significant impact on the upgrading of China’s most critical industries.

To say something, if we say that globalization is going backwards in our world, because of the epidemic and the suppression of China’s rise by the United States, the distribution of supply chains in countries around the world is no longer simply based on cost, market and efficiency, but should consider the autonomy and security of supply chains.

The epidemic situation in Shanghai reflects the influence of Shanghai as an economic center on the whole country, especially the automobile industry. I think the redistribution of the industrial chain in China also needs to be considered. In fact, although the proportion of Shanghai’s GDP in the whole country is not too high, the impact on the whole country is not only cars, but also semiconductors, medical pharmaceuticals, and even advertising.

In contrast, BYD, which has a highly dispersed industrial chain across the country, can be said to have become the only automobile enterprise that has not been greatly affected by the epidemic in Shanghai, and its sales have maintained growth.

It has always been felt that the best way for China to achieve common prosperity, including solving the problem of housing prices, is industrial transfer, because the land area of the first tier cities is always limited, and the housing price cannot be reduced due to the limited land + the continuous influx of population. However, transferring industries and work opportunities to the second, third and fourth tier cities not only drives the local development, but also expands the land supply, The housing price has been reduced (the same jobs with a monthly salary of 10000 yuan have been relocated from the first tier cities with a housing price of 50000 yuan to the cities with a housing price of 120000 yuan. The housing price has been reduced and the living standard has been improved). At the same time, for many people who originally wanted to work in their hometown or the province, they have also improved their sense of life happiness. Over the past decade, many enterprises in Shenzhen have gradually moved to the mainland. Foxconn has moved a large amount of production capacity to Henan Province, Huawei has moved its headquarters to Dongguan, and BYD has invested heavily in setting up factories in Chongqing, Xi’an, Changsha, Qinghai, Jinan and other parts of the country. I think this is a win-win situation. As reported by Qilu Evening News, BYD Jinan plant began large-scale recruitment after the Spring Festival in 2022, and it is expected to eventually have a scale of 25000 people. But now I think that besides common prosperity, the security of the supply chain is also an important consideration. Although the epidemic in Shanghai has a great impact on the national economy, if it can affect and stimulate the redistribution of the supply chain across the country, more and more industries will be transferred in China to achieve multi-point distribution and backup, so as to reduce the impact of single point problems on the whole country, This will be a good thing for the security of domestic supply chain and the personal choice of migrant workers across the country.

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