[OP-ED] Navigating China's Complex Supply Chain Landscape: Strategies for Resilient Operations in Aviation

How Aviation’s Business Leaders Can Adapt to Global Trade Dynamics, Tariff Wars, and Sustainability Trends in the Post-Pandemic Era

BY ANA LOVERA, Supply Chain Coach & Consultant

As the world continues to recover from the COVID-19 pandemic, the global supply chain landscape has been reshaped by evolving geopolitical tensions, trade wars, and sustainability demands. China, a pivotal player in the aviation industry’s supply chain, presents both opportunities and challenges that require strategic navigation. In April and May 2023, I traveled across 12 Chinese cities to explore sourcing opportunities and assess the current political and regulatory climate's impact on supply chains. This article distills the key insights from that trip, offering practical recommendations for C-level airline executives on how to build resilient and adaptable supply chains in an increasingly complex global environment.

Sustainability & Social Responsibility Under the Chinese Government

China’s historical struggle with environmental degradation is well-documented, with its cities often ranking among the world’s most polluted. However, there is a noticeable shift underway. The Chinese government is increasingly prioritizing environmental sustainability, recognizing that natural resources are critical to the country’s long-term economic prospects. Across the cities I visited, from Qingdao to Shenzhen, there was a consistent emphasis on environmental education, government subsidies for green technologies, and the pursuit of unified environmental metrics across provinces.

Despite these advances, significant challenges remain. Aligning China’s environmental metrics with Western standards is crucial for establishing a common ground on compliance and reducing supply chain risks. For airline executives, this means that while China may offer cost-effective sourcing opportunities, there is a need for rigorous due diligence to ensure alignment with global sustainability goals.

Social responsibility in China is deeply rooted in its cultural and socio-economic fabric. The concept of Guanxi—building and maintaining relationships based on trust, reciprocity, and loyalty—remains central to business dealings. However, the complexity of enforcing social responsibility standards, particularly regarding labor practices, poses significant risks for Western companies.

While child labor is illegal in China, enforcement is inconsistent, especially in regions where local governments interpret Beijing’s laws differently. For aviation companies sourcing from China, it is vital to work closely with suppliers to ensure compliance with ethical labor practices. Western pressure on human rights issues, coupled with persistent international scrutiny, can catalyze positive changes in China’s labor practices, but companies must be prepared for potential disruptions.

Subsidies, Global Trade Dynamics, and Tariff Wars: Navigating the Maze

The ongoing tariff wars between the US and China have put a spotlight on the issue of alleged Chinese government subsidies. These subsidies, which are said to unfairly boost Chinese exports, have led to retaliatory tariffs and heightened tensions in global trade. For example, Canada’s recent decision to study additional import taxes on Chinese electric vehicles (EVs) has prompted threats of retaliation from China. Similar dynamics are playing out in clean technologies, with the European Union investigating Chinese subsidies in the wind farm sector.

For the aviation industry, understanding the nuances of these trade disputes is essential. Aviation is heavily reliant on global supply chains, and the imposition of tariffs on critical components can have cascading effects on costs and operations. As China continues to contest these issues at the World Trade Organization (WTO), companies must remain vigilant and proactive in mitigating the impact of tariff wars on their supply chains.

The World is Shifting: Geopolitics & New Export Trends

China’s export strategy is continuously evolving in response to changing global dynamics. While exports to the West have seen a decline, China is increasingly focusing on developing markets in Latin America and Southeast Asia. By setting up production capacities in countries like Vietnam, Indonesia, and Mexico, China is circumventing Western tariffs and strengthening its economic position.

However, this shift introduces new risks and costs for producers, ultimately affecting the final price of goods. For aviation companies, this means that while China remains a crucial source of components and materials, there is a need to diversify supply chains to include other regions. This approach can mitigate risks associated with China’s shifting export strategies and enhance supply chain resilience.

Meanwhile, the geopolitical tension between China and Taiwan adds another layer of complexity to global supply chains. Taiwan’s strategic importance in the semiconductor industry, where it holds a 68% share of the global market, makes it a critical player in the aviation industry’s supply chain. However, the threat of Chinese influence over Taiwan, whether through military force or political pressure, poses a significant risk.

Aviation companies sourcing components from Taiwan must closely monitor these developments and consider alternative sourcing options in the event of a disruption. Building strong relationships with Taiwanese suppliers and staying informed about geopolitical trends is essential for maintaining continuity in supply chains.

In an era of accelerated global change, aviation leaders need to adopt a strategic approach to sourcing and supply chain management. Based on my observations and interactions across China, here are key recommendations for navigating the current landscape:

• 1. Stick to a Rigorous Framework: Trust only your established framework for sourcing in China. Avoid making assumptions or cutting corners, and continuously refine your approach based on new experiences.
• 2. Strengthen your Guanxi: Invest in building and maintaining strong relationships with Chinese suppliers. Trust and reliability are crucial for successful operations.
• 3. Stay Informed and Adaptable: Keep abreast of new trade policies, regulations, and geopolitical trends that may impact your sourcing strategies. Proactive adaptation is key to mitigating risks.
• 4. Know Your Suppliers’ Raw Materials Sources: Understanding where your suppliers’ raw materials are sourced is critical for assessing vulnerability to shortages and new regulations.
• 5. Diversify Supply Chains: While China offers significant advantages, diversify your supply chains to include regions like Southeast Asia, Eastern Europe, and Central and South America to enhance resilience.
• 6. Prioritize Sustainability: Align with suppliers committed to sustainable practices to meet regulatory requirements, consumer expectations, and international environmental goals.

The current geopolitical and economic environment presents both challenges and opportunities for the aviation industry. While the risks associated with sourcing from China are real, they can be managed with a strategic and informed approach. Prepare for and navigate these challenges to build a resilient, future-proof supply chain. Remember that disruption is just another word for change. Embrace it, innovate, and stay ahead of the curve.