Global Supply Chain Risks in 2020

Many companies that used the PRC and Alibaba for their supply chain are monitoring geopolitical developments and risks as they consider supply chain manufacturing options for their parts and products.

By Mike Dunn | Mutualfunddirectory.org | Copyright – All Rights Reserved |9/11/20

 

 

Increased Military Risks with China and the World

This site is investor-focused and stays away from the political discourse: there or many other outlets for that. However, the threat of military intervention or direct military intervention affects commerce flow, supply chains, and investors.

Early September, the PLAN (Peoples Liberation Army Navy) shot a military-grade laser weapon from a ship at a Navy P3 submarine hunter plane. It is not sure if the laser was to destroy the aircraft or blind the piolets in the cockpit.

Also, in early September, the PLA test-fired what are called “Aircraft Carrier Killer” missiles into the South China Sea as a show of force.

If a shooting war starts, commerce in the South China Sea will be reduced or may even stop for some period, which affects economics and investors.

CCP Salami Slicing and Debt Trap Diplomacy Tactics

The US is continuing to send US front line Arleigh Burke-class destroyers and Ticonderoga Class guided missile cursers into the disputed South China Sea on “Freedom of Navigation Missions.”  All of the “Freedom of Navigation” missions are protested by the CCP and PLA leadership. The CCP is now claiming the South China Sea as its waters. However, a United Nations international court ruling in the Haag has officially ruled that that the PRC territorial claim of their “Nine Dash Line” is invalid.

The CCP has been using what is called the Salami Slicing Tactic to “annex” an island at a time or a little more territory each year across the globe. Recently, the CCP/PLA has “created” artificial islands in the Spratly Island chain for military bases. The Spratly Islands area is claimed by the Philippines, Vietnam, and China. However, the consensus is that The Philippines have the most legitimate claim to these islands.

The CCP’s Salami just failed twice in the past few months on the Chinese/Indian Border. There have been two significant battles between India and China, resulting in losing more soldiers in the first battle and losing territory in the 2^nd battle last week.

For many years, the CCP has been investing in navigable port infrastructure other projects in strategic areas around the world. The Debt Trap Diplomacy is to create a project, and if and when the smaller county cannot pay the debt, the CCP forecloses and takes over the port or asset.

The CCP has re-claimed Hong Kong this summer, nullifying the British treaty. The US and the banking industry retaliated by eliminating special banking arrangments given to Hong Kong companies. Plus, the US took it a step further by banning CCP officials from using US banks for transactions. This regulation, in effect, shuns CCP officials in investing or being part of management in US Companies.

 

Solid World-Wide Push-Back

It appears that the CCP/PLA has overplayed its hand and pushed too far, and too fast. The world is now pushing back.

• The Philippines moved allegiance from a stable PLA relationship to the US this summer. The Phillippines are now buying US military hardware and using the US military as an inferred protector in the event of a PLA invasion.
• India is taking the lead in creating an alliance between India, the US, and Australia. However, the bigger news is India is in seriously talking to Russia in joining a coalition against China.
• Several have recently announced that they will not pay the debt on their “Belt and Roads” projects (aka. Debt Trap Diplomacy)
• Malaysia is now saying “no” to the PLA about a proposed strategic canal project that would be a shortcut from the Gulf of Thailand to the Indian Ocean.
• It’s so bad for China’s foreign relations is that its only ally just sunk a Chinese fishing boat. In retaliation to illegal commercial fishing, a North Korean patrol boat opened fire on the lead boat of a fleet of commercial fishing vessels. Good luck finding a record of this incident on the internet. Interestingly, news of this incident appears to have been expunged.
• The US is proceeding with the sale of $2.2 Billion in “non-nuclear” military hardware to Taiwan. The CCP views Taiwan as a rogue province of China and is planning to invade Taiwan according to most experts.
• The world is still blaming the CCP for COVID-19 and the aftermath of the deaths of citizens, the deaths of family members, and massive economic loss.

How can Investors Profit?

Investors should continue to follow the money and look for economic and geopolitical trends. Money is moving, and the risk is elevated. However, “change is opportunity.”

• Investors should look for trends where companies will relocate manufacturing plants that make parts and products.
• India, The Philippines, Vietnam, Malaysia, Mexico, Australia, Russia, and others are candidates to win with manufacturing moving to more stable situations.

 

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