Executive Summary: “China + 1” Manufacturing and the Challenges of Processed Metal Dependence

Lies, Damned Lies, and Trade Flow Statistics

Welcome back to this iteration of Non Ferrous Flows!

Last time we looked at the new rush of national critical mineral strategies published around the world in the last few years, and can be seen here.

For our second article of the month, we will examine the growing trend of firms enacting a “China + 1” policy, where they try to diversify away from solely relying on China for manufacturing. Companies like Apple, Samsung, Sony, and Siemens are opening new factories in Southeast Asia and India to spread risk. But have these new supply chains limited volatility, and what role do metals play?

Generally, those companies still source many processed metals from China, especially the small, forgettable metals critical to manufacturing electronics. This is a bigger theme within ASEAN, where “middleman” countries like Vietnam play an intermediary role, importing preprocessed goods, performing some domestic manufacturing, then exporting those goods internationally. Given the reliance on China for preprocessed metals, any major problems in China could still disrupt those “China + 1” supply chains. Instead, of China manufacturing domestically and shipping worldwide, China exports inputs to ASEAN firms, which then exports worldwide. The world is getting more globalized, not less.

As always, we’ve got the executive summary below, and and the full article on the website here.

---

“China + 1”

Our “China + 1” definition : supply chain concerns regarding over-reliance on China prompting a firm to establish a factory in Southeast Asia or India.

-       Migration of high-level manufacturing, ie: electronics, from China to India and Southeast Asian countries like Vietnam, Malaysia, Thailand, and to a lesser extent, Indonesia

-       Strategy emerged in Japanese business circles in during early 2000s, and gaining salience after China cut off rare earth exports to Japan in the early 2010s following political spats

-       Companies like Sony, Apple, Samsung, and Siemens each announced recent plans

The Problem:

-       Firms are not as deleveraged as they hope, given that the supply chain is still China-dependent, despite assembly elsewhere

-       China is still intricately linked in supply chains, because other countries source their processed metals from China, which are then used in electronics goods

-       Southeast Asia acts as an intermediary, buying inputs from China, manufacturing in country, and exporting finished goods

Case Studies:

-       China processes 83% of the world’s Magnesium (used in medical, automotive, aeronautic, and electronic manufacturing)

-       Despite expanding into Vietnam, most Apple Tantalum suppliers are in China

Where to go from here:

-       Metal processing costs will not be cheaper outside of China, and changes will require upfront costs

-       No silver bullet, but strategic Stockpiling and ready-made Substitution plans can limit disruption for certain metals

-       Rolling existing recycling pledges into building facilities outside China, to deleverage and meet ESG goals

-       Manufacturing work together to help new ASEAN metal manufactures, eg. provide guaranteed off-take agreements

Thanks for reading! If you’re interested to learn more, the full article is up on the website (link below).