China’s role in the global electronics supply chain is dominant, though some are questioning its future.

The quest to optimise global supply chains and lower the costs of electronics manufacturing is as endless as demand for rapid delivery. Tech firms have long found solutions in China. The country now assembles more than half the world’s mobile phones, nearly all printed circuit boards, and two-fifths of all semiconductors. Henry Yeung of the National University of Singapore estimates that more than half of the world’s manufacturing capacity for electronics is in China. Apple’s top 200 suppliers, for example, operate 357 production facilities there, compared to just 63 in the U.S.

Despite widening automation in manufacturing, the electronics industry still requires some labour-intensive production. And labour costs in China have been rising. Between 2011 and 2016 they went up more than 60%, by some estimates. There is much cheaper labour to be found elsewhere in Asia. However, China’s infrastructure is getting better all the time. Numerous local firms are now on hand to provide ancillary services, such as logistics and prototyping. High-end components like processors and memory chips still need to be imported, but much can be sourced locally. “The total production cost is still lower than elsewhere,” says Yeung.

At the same time, higher labour costs have brought some changes to the electronics supply chain, with firms moving some of their production. Samsung, the world’s biggest smartphone-maker, has shifted most of its production to Vietnam over the past 10 years or so. Others are starting to do likewise in response to U.S. tariffs. In addition, firms such as SK Hynix of South Korea, and Japan’s Mitsubishi Electric have started moving production back home.

It comes down to whether the advantages China offers outweigh concerns such as labour costs, as well as trade tensions and questions about global supply chain security. Alternatives such as Vietnam and India cannot match it in terms of infrastructure or a (vastly improved) ease of doing business. In Yeung’s opinion, bringing home assembly and the production of commodity components would be “impossible”, partly because few would want the low-paying, repetitive jobs. Firms are more likely to pass the costs of tariffs on to customers and invest in supply-chain security.

American firms are being given incentives to lessen their dependence on Chinese manufacturing, while Chinese companies keep getting deterrents. Some have suggested that the electronics supply chain could split in two between the East and the West, with each serving its own domain. But as The Economist notes, “A complete split seems unlikely: interdependence in the global electronics industry is too strong for that.”

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