This report identifies which industries are most vulnerable to relocate outside China after COVID-19 based on some typical global value chain indicators and empirical findings. We also gauge the impact of global value chain relocation on China's growth.

Key points

  • COVID-19 has triggered multinational firms to re-consider their global layout with various purposes, in particular to diversify their supply and production chain back to their own countries to stimulate the domestic economy as well as to safeguard the public health amid COVID-19.
  • We apply a series of criteria to identify which sectors are most possible to relocate outside China after COVID-19, including revealed comparative advantage (RCA), Koopman GVC Participation Index and GVC Position Index.
  • In addition, we apply the most recent four months' exports data by HS category as a natural experiment to further prove our identified industries above.
  • Based on these three indexes, four sectors are most likely to relocate outside of China, chief among them are the labor-intensive sectors such as textile, footwear, wood etc.; in addition, some labor-intensity part of high-tech industries also has a relocation trend, such as optical devices etc.
  • We finally gauge the impact of value chain relocation on China's growth based on input-output table analysis. It will lead to around RMB 16 trillion of total output loss for China in the next 10 years, this is equivalent to around 1.6% of total GDP loss per year on average.

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