Japan, China, and the Tech Supply Chain

By AdamElkus

My amigo Alex Olesker has a nice roundup at OODA Loop of why China and Japan are feuding over a pile of rocks in the South China Sea. So why, you might ask, is this relevant for technologists? Well, consider this story from August:

Chinese tech hub and boom town Shenzhen is set to increase the minimum wage of workers there by 13.3 per cent in early 2013, causing a few sweaty palms in the technology supply chain. Shenzhen and the wider Pearl River Delta area in southern China is one of the most concentrated technology manufacturing hubs in the world. Samsung, Apple, HP, Dell and Nokia all have kit built here by the big Taiwanese ODMs such as Foxconn and Wistron.

If a wage hike that did not even effect a giant like Foxconn caused jitters in the tech world, one wonders what military clashes might do, particularly if they have synergistic effects with continuing labor unrest. Cheap labor is really only the beginning of the story with Asia’s role in the tech supply chain. Rare earth materials, which are crucial to high-tech products like smartphones and flat-screen TVs, are also harvested from the Asian mainland. 90% of rare earth minerals originate from China. If you’re curious about exactly how this process works on a micro-level basis you can read this rather gory report from CNET about your smartphone’s journey from a mine in Inner Mongolia to your waiting hands in the US. In 2010, China suspended exports of rare earths to Japan in the middle of another maritime border dispute, damaging Japan’s technology industry. But the economic consequences of Chinese-Japanese hostility are far greater today because of the extent of Japanese investment, China’s slowing economy, and possible region-wide effects.

Whatever the resolution of the South China Sea crisis, its dynamics should highlight the fact that the supply chain has been globalized. While the risks of a globalized supply chain have been chiefly conceptualized in cybersecurity terms, disruption of that chain as part of a geopolitical crisis also poses some economic uncertainties. A Japan-China clash would certainly be bad enough, but damage to the tech sector would be inevitable if US involvement triggered heightened geopolitical tensions between Beijing and Washington.

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