China has succeeded in transforming itself from a low-cost manufacturing hub into a true powerhouse of global supply chains through a long-term, planned strategy spanning more than 20–30 years. The gradual opening of special economic zones allowed for controlled experimentation with capitalism, and entry into the World Trade Organization reduced trade barriers, facilitating the entry of Western multinationals. Companies such as Apple were invited to produce in China, where their engineers trained local workers, transferring know-how and quality standards, while Chinese firms accepted slim margins in order to learn and develop internal innovation capacity, explains Aaron Alpeter, a Canadian expert in supply chains and business scalability, in an interview for CursdeGuvernare.ro.
The Chinese government played an active role, designating priority industries such as steel, shipbuilding, and infrastructure, and providing cheap capital to build massive industrial capacity in anticipation of future demand. This strategic approach contrasts sharply with Western logic, where investments are often dictated by immediate demand and profitability.
Global dependence on China is amplified by complex supply ecosystems that are difficult to relocate, especially for electronics and rare earths. Even when assembly takes place in other countries, the majority of components still originate from China. Western strategies of tariffs and trade restrictions have limited impact on essential products, and full decoupling remains improbable without military conflict.
For companies, the key to resilience lies in optionality: diversifying sources of supply, placing bets on alternatives such as India, Eastern Europe, or South America, and planning risk scenarios. War-gaming and scenario analysis enable preparation for volatile tariffs, demand fluctuations, or global crises, reducing risk without compromising efficiency. At the same time, companies must understand when to act quickly and when to make prudent decisions in order to protect the supply chain and ensure business continuity.
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CursdeGuvernare.ro: How did China manage to evolve from this low-cost manufacturing hub to a dominant global supply chain powerhouse?
Aaron Alpeter: It’s a really fascinating story when you start to break it down, because everything was done very intentionally, on a 20- to 30-year horizon. When China began to open up and create these testbeds of capitalism — in Guangzhou or other regions — they allowed certain provinces to experiment. Essentially, they said: “We’ll let companies come in, we have plenty of labor, let’s test this model.”
After China entered the WTO, when trade barriers had eased, there came a moment — whether by collective decision or by a convergence of ideas — when they invited Western companies into China and essentially said: “We are willing to work for almost nothing in order to learn these skills.”
Apple is a great example. Initially, they operated in other countries, like Taiwan, and later decided to move into China. They were drawn there because land was abundant, factories were easy to build, and labor was nearly unlimited.
What we observed with Apple and several other large multinationals was that they would send engineers — those who had managed manufacturing in North America — to China. These engineers would spend weeks or months troubleshooting production issues and training local workers on how to handle complex processes. The Chinese, in particular, valued Apple for its innovative approach.
A kind of quid pro quo emerged: Apple was willing to teach and innovate alongside these workers, while Chinese companies were willing to operate at very low margins — sometimes just breaking even — with the primary goal of learning and developing their capabilities.
One illustrative story involves an engineer who regularly went to China. He would stay for a month, training about 20 people and getting them fully up to speed. The next month, he would return to find a completely new class of 20 people. It wasn’t that the first group left the company — they were simply moved to other parts of the business.
Chinese companies saw this as free education. They were learning how to innovate and meet the quality standards set by companies like Apple. As a result, they became highly skilled at innovating alongside engineers and eventually applied those skills independently.
Although this example focuses on Apple, similar patterns occurred across nearly every industry.
The government also played a major role by mandating focus on specific industries. Early plans targeted steel, shipbuilding, and infrastructure. Massive capacity was built with the expectation that once supply existed, demand would follow.
By contrast, the Western mindset tends to be: “I need a loan to build a factory, but I don’t have demand today — why would I invest?”
In China’s case, three factors aligned: the reduction of trade barriers after joining the WTO, the willingness of large Western multinationals to teach, train, and innovate in Chinese factories, and strategic government intervention — providing cheap capital and building massive industrial capacity, whether in steel or energy, with the expectation that demand would follow later.
CursdeGuvernare.ro: That’s a really good point, because this sort of thinking does not happen in the Western world. From a business perspective, companies are not going to produce things in the US or in the EU just from patriotism. So it has to make economic sense for them to be here. And if China is cheaper, how can the Western world compete in cost effectiveness with China? Are tarriffs a solution?
Aaron Alpeter: The question of tariffs is an important one. The intention behind tariffs and trade barriers is to make production in China economically less attractive. At one point, the US imposed a 185% tariff on Chinese goods, which was effectively an embargo. Yet, companies continued to produce and source from China.
The reason is that some activities are easy to relocate, while others are nearly impossible to move. Many activities fall somewhere in between.
Activities that are relatively easy to relocate include assembly — processes that primarily require manual labor to put components together. Other low-cost countries around the world, such as Honduras, Nicaragua, or Mexico, can be viable alternatives for these tasks.
At the other end of the spectrum, there are entire supply chain ecosystems that are very difficult to replicate. Anything related to electronics, particularly cell phones, now runs predominantly through China.
For example, we had a client who operated a business for several years, assembling products in Mexico. However, nearly all of their components came from China because that’s where the suppliers were located. Even when companies have European or North American operations, often the primary feedstock or subassemblies are still sourced from China.
This distinction becomes critical when considering products with multiple sourcing options — such as oil, cotton, or other commodities. If a 100% tariff were imposed on Chinese cotton, the world would adapt within months or years by sourcing cotton from Egypt, the US, or other producers. Costs might rise, but China could effectively be removed from the equation, and supply chains would adjust.
However, for products without realistic alternatives — for example, electronic cables, which are essential in virtually every industry — even a 50% tariff would only increase costs. Companies would still rely on China, remaining dependent. Perhaps if such barriers persisted for 5, 10, or 15 years, factories and ecosystems could be established elsewhere, with labor eventually trained to replicate those capabilities.
It is crucial to remember that China has been playing this long-term game for the past 30 years. They were willing to endure enormous losses and leave substantial profit margins on the table, all to train workers, build institutions, and establish the infrastructure that enables their dominant position in global supply chains today.
CursdeGuvernare.ro: Do you think that the Western societies might be able to do that? People in Romania are angry the Government imposed a logistic tax on Temu and Shein.
Aaron Alpeter: It is particularly interesting because two things were happening simultaneously. While China was executing its 30-year strategy — accepting a 1% margin, investing substantial capital, and effectively allowing Western companies to take the profits — Western consumers were becoming accustomed to cheap products, ever-stocked stores, endless selection, and extensive customization.
Similarly, just as Chinese factories are unhappy with new taxes, platforms like Temu are also affected. The reality, however, is that this disrupts a system that has been built over several decades. Both consumers and sellers will experience friction, which will be frustrating and sometimes painful, until adaptation occurs.
This adaptation may involve people in Romania ordering less from Temu or reducing consumption in general due to higher prices. Consumers might also become more deliberate in their purchasing decisions: for example, when a t-shirt cost six euros, it could be bought impulsively; at 40 euros, people may become more thoughtful and take better care of their possessions.
Ultimately, there will be a recalibration on both the consumer side and the supplier side.
CursdeGuvernare.ro: So what happens with things that are not optional? I can live without a t-shirt, but there are a lot of strategic dependencies on China.
Aaron Alpeter: The most significant example today is rare earths. Approximately 80 to 90 percent of global rare earth refining capacity is located in China. These materials are essential — we need magnets and other components for virtually every electronic device.
China’s approach is notable because they were willing to engage in a highly polluting and energy-intensive industry, invest substantial capital to build the necessary infrastructure, and leave enough profit margin to outcompete other potential entrants.
As a result, the world has become heavily dependent on these resources, simply because there are no viable alternatives at scale.
When it comes to strategic resources, they are increasingly considered part of national defense. In the West, if a resource or technology can be linked to defense, action tends to follow. For example, the United States, through DARPA, has driven major technological innovations. GPS satellites and related technologies on our phones originated from DARPA’s investments, which were initially aimed at missile guidance systems.
Regarding rare earths, we can expect that defense departments and countries will begin mandating that a certain percentage of production comes from within their own borders, even if it is more expensive or limited in availability. The European Union, for instance, may conclude that it cannot rely solely on the United States or North America and will need to develop European sources of rare earths.
This approach will generate demand, which in turn will lead to the creation of companies capable of servicing it. Over time, a portion of the industry will be established domestically.
China, observing this challenge, would likely respond similarly: if there is no immediate demand, they will simply build the necessary capacity and figure out the market later.
CursdeGuvernare.ro: Do you feel a forced decoupling from China?
Aaron Alpeter: I do not believe this is a full decoupling; rather, it is a strategic reassessment. For a long time, both sides perpetuated the notion that if the West purchased from China, the country would become more like the West. China, in turn, believed that it would eventually be recognized as a peer.
At present, both assumptions are uncertain. China has not become more Western; on the contrary, it has further developed its own model of governance and communism. The West, in turn, views China either as a peer or with concern regarding its growing influence.
This raises significant questions about alignment of values and perspectives. Differences are emerging on a range of issues, and as China becomes the other pole in a multipolar world, lines of influence will be drawn — ideally not through kinetic conflict, but through competing ideas and concepts of leadership.
It is my view that a complete decoupling would only occur through military conflict. The world is considerably safer and more prosperous when the West and China maintain trade relations.
CursdeGuvernare.ro: How should companies balance this need for efficiency with resilience when China remains so central to global supply chains?
Aaron Alpeter: This is the most important question I receive from clients, both large and small, around the world. What we emphasize to them is that the key principle today is optionality. Companies need to make decisions that do not lock them into a fixed course of action in the future.
For example, suppose I am producing electronics in China. That is the current reality, and it is where I need to operate. The supply chain there is strong, and costs are favorable. While continuing to work with China, it is crucial to explore other sources of supply, even if only for 10 to 20 percent of demand. This approach prompts questions such as whether India might be a viable alternative, given its proximity to China, or whether assembly could be relocated elsewhere.
Similarly, one must consider scenarios in which China is no longer an option, and other parts of Southeast Asia may also be unavailable due to conflict. In such cases, alternatives such as Eastern Europe or North America may become attractive locations for production.
The strategy involves placing small, calculated bets and hedging risk. For instance, if the cost of a product is 10 euros in China and 15 euros in Eastern Europe — a 50 percent increase — a blended approach can mitigate risk. By sourcing 80 percent of volume from China at 10 euros and 20 percent from Eastern Europe, overall landed costs increase only slightly, while exposure to supply disruption is significantly reduced. Transparency with suppliers is essential: communicating that they will serve as a backup and need to be able to scale quickly ensures preparedness, avoiding last-minute complications when sourcing new partners.
CursdeGuvernare.ro: Speaking of the current conflict, do you think it will have long-term effects on supply chains due to the situation in Iran, or is it mainly a temporary impact on raw materials without structural consequences?
Aaron Alpeter: It is still very early to assess the situation. This war could be over by the time this is published.
Just this week, with oil prices fluctuating, many companies announced they would release their strategic reserves, which helped bring prices back down. Oil is the most significant input into the economy, purely from a pricing shock perspective. We observed raw input costs rising by 20 to 30 percent within a single week, which created substantial challenges.
There are also numerous secondary effects, such as fertilizer, which is derived from oil and does not have a strategic reserve. Fertilizer prices, for instance, have increased by 400 to 500 percent in the past week.
If the conflict in Iran concludes quickly, there is hope that some level of normalization can be restored promptly.
However, there remains a non-zero possibility that Russia could become involved in Iran, potentially merging conflicts in Russia-Ukraine, Iran, Israel, and the US into a single complex situation. In such a scenario, China might perceive the US as distracted and heavily engaged in defensive operations, potentially prompting action regarding Taiwan.
There are multiple factors at play that could escalate rapidly, and the hope is for a swift resolution.
CursdeGuvernare.ro: If you were speaking to a CEO today, advising them, what should their top priorities be in building a resilient supply chain?
Aaron Alpeter:I think the most important advice I would give is that companies need to begin game planning and scenario planning for different outcomes.
I used to run these war games with our companies in preparation for the holiday season, when 80% of our volume occurred within six weeks. We would go through various scenarios to determine: if this happens, what would we do? If that happens, how would we respond?
This kind of planning needs to be done at the company level, regardless of size. It involves asking questions such as: if tariffs quadruple, what is our exposure? If tariffs are removed, what is our exposure? If demand collapses, what are the implications? Every possible scenario should be analyzed.
Typically, one team develops worst-case and best-case scenarios, while another team works on potential responses. The value of this exercise is that even ideas that seem unlikely or improbable often reveal practical measures worth implementing. Companies should ensure proper documentation, contracts, backup suppliers, and vetted relationships are in place.
By doing this, organizations start to identify concrete actions they can take and can implement them proactively.
The first step is therefore to conduct war games and scenario planning to understand the potential landscape.
The second step is to determine when to act quickly and when to proceed cautiously. Looking at the tariff fluctuations in the United States last year, the situation was chaotic: 50% on Monday, 30% on Wednesday, 120% on Friday. Such unpredictability makes business planning extremely difficult.
It is essential to understand how much disruption a company can tolerate before it becomes existential and what steps need to be taken to mitigate risks.
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