Philippa Kaur

IN THE 1800S greeting an associate in the West meant doffing your hat. A hand may have been kissed. But seldom was it shaken—a gesture deemed too pally. The handshake has since become de rigueur even in Asia, which had resisted it in favour of bows. Now Jose Maria Barrero, Nick Bloom and Steven Davis, three economists, find that 19th-century mores are back. As part of a long-running survey of American business practices they find the handshake is out, especially among women: 62% now prefer a verbal greeting, up from less than 30% before covid-19. Whatever the replacement—fist bump, anyone?—Baroness de Fresne’s tip sounds pertinent. Proffering your hand, she wrote in her etiquette manual from 1858, shows “poor upbringing and is liable to be considered an affront”.This article appeared in the Business section of the print edition under the headline “New civility” More

A ROCKSTAR’S WELCOME greeted Universal Music Group when it launched on Amsterdam’s Euronext exchange on September 21st in Europe’s largest listing of the year. Giddy investors all but threw their knickers at the newly public company, whose share price finished the day up by 36%, valuing the world’s biggest record label at €45bn ($53bn).Not long ago Universal looked like a flop. In 2013, as digital piracy ravaged the music industry, SoftBank, a Japanese group, bid €7bn for the label. Vivendi, Universal’s French owner, was thought mad for turning down the offer. In fact the decision was inspired. A streaming boom has since lifted worldwide recorded-music revenues by half. Two-thirds of last year’s sales of $22bn went to the three “major” labels: Universal, Sony Music and Warner Music Group.Investors’ rush owes in part to a dearth of alternative tickets to this hot market. Sony Music is locked inside a conglomerate. Warner went public last June, since when its value has risen by half (including a bump of 12% on September 21st, amid the Universal frenzy), but its catalogue is half the size of Universal’s. The listing of Universal gives investors the chance at last to get their hands on what JPMorgan Chase, a bank, dubbed a “must-own asset”.Now, after their chart-topping run, the majors face the equivalent of a difficult second album. Streaming is nearing saturation-point in the rich world. Three in five American homes subscribe to a service like Spotify, up from one in five in 2016. DIY audio tools are helping unsigned artists take a small but growing share of the business. And regulators are asking whether labels are giving artists a fair share of streaming profits. On September 22nd Britain’s government ordered a competition probe into the music industry.Keeping the hits coming will therefore rely on conquering emerging markets, where revenues are lower (Spotify costs the equivalent of $4 per month in South Africa, less than half what Americans pay), and on licensing music to new forms of media. This year Universal has signed deals with TikTok and Snap, allowing the apps’ users to sample clips from Universal’s back catalogue in their videos. Future deals with gaming, streaming and other entertainment platforms are likely. “Fortnite”, an online game, and Roblox, which lets users make their own games, have already become popular virtual-concert venues. Next year ABBA, a troupe of septuagenarians on Universal’s books, will appear in a series of gigs in London as digital “ABBA-tars”. As the streaming boom slows, labels will need new ways of bringing in money, money, money. ■This article appeared in the Business section of the print edition under the headline “Gimme! Gimme! Gimme!” More

LEUVEN IS PERHAPS best known to the general public as the birth place of Stella Artois. Among chipmakers the Belgian city’s biggest claim to fame sits in a squat building not far from the Leuven Institute for Beer Research. Metal banding lends its facade the glittering look of a silicon wafer etched with microcircuitry. Inside, its lower floors hum with the noise of $3bn-worth of some of the most complex equipment humanity has ever devised. The offices above house hundreds of the planet’s keenest semiconductor engineers dreaming up the future of chipmaking.The building (pictured) is the headquarters of the Interuniversity Microelectronics Centre. IMEC, as it is better known, does not design chips (like America’s Intel), manufacture them (like TSMC of Taiwan) or make any of the complicated gear in its basement (like ASML, a Dutch firm). Instead, it creates knowledge used by everyone in the $550bn chip business. Given chips’ centrality to the modern economy—highlighted by the havoc wrought by current shortages—and increasingly to modern geopolitics, too, that makes it one of the most essential industrial research-and-development (R&D) centres on the planet. Luc Van den hove, IMEC’s boss, calls it the “Switzerland of semiconductors”.IMEC was founded in 1984 by a group of electronics engineers from the Catholic University of Leuven who wanted to focus on microprocessor research. In the early days it was bankrolled by the local Flemish government. Today IMEC maintains its neutrality thanks to a financial model in which no single firm or state controls a big share of its budget. The largest chunk comes from the Belgian government, which chips in some 16%. The top corporate contributors provide no more than 4% each. Keeping revenue sources diverse (partners span the length and breadth of the chip industry) and finite (its standard research contracts last three to five years) gives IMEC the incentive to focus on ideas that help advance chipmaking as a whole rather than any firm in particular.A case in point is the development of extreme ultraviolet lithography (EUV). EUV is a delicate process involving high-powered lasers, molten tin and ultra-smooth mirrors. The bus-sized machines that generate EUV are today all made by ASML and used by TSMC and Samsung, a South Korean chipmaker. It took 20 years of R&D to turn the idea into manufacturing reality. IMEC acted as a conduit in that process. That is because EUV must work seamlessly with kit made by other firms. Advanced toolmakers want a way to circulate their intellectual property (IP) without the large companies gaining sway over it. The large companies, meanwhile, do not want to place all their bets on any one experimental idea that is expensive (as chipmaking processes are) and could become obsolete.IMEC’s neutrality allows both sides to get around this problem. It collects all the necessary gear in one place, allowing producers to develop their technology in tandem with others. And everyone gets rights to the IP the institute generates. Mr Van den hove says that progress in the chip industry has been driven by the free exchange of knowledge, with IMEC acting as a “funnel” for ideas from all over the world.This model has lured ever more contributors. Today “several hundred” are active at IMEC at any one time, the institute says. They range from startups to the stars of the chipmaking firmament, from ASML to TSMC. Pat Gelsinger, Intel’s newish boss, is effusive in his praise for the outfit. Even as their number has grown, individual partners have also become more generous, in part to keep pace with the rising price of all the chipmaking equipment that IMEC must procure (even if it gets a lot of it from collaborators at reduced rates). As a result, IMEC’s revenues, which come from the research contracts and from prototyping and design services, doubled between 2010 and 2020, to €678m ($773m). Its annual takings are already on the order of those of giant charities such as the Ford Foundation or the American Cancer Society, and growing roughly in line with the booming chip business (see chart).The deepening rift between America, home to some of the industry’s biggest firms, and China, which imported $378bn-worth of chips last year, threatens IMEC’s spirit of global comity. China’s chip industry is increasingly shielded by an overbearing Communist Party striving for self-sufficiency, and ever more ostracised by outsiders as a result of American and European export controls. All this limits the extent to which IMEC can work with Chinese semiconductor companies.It is a matter of public record that IMEC has worked with Chinese firms in the past, including Huawei, a telecoms-gear giant with a chip division that has been hobbled by American sanctions, and SMIC, China’s biggest chipmaker. Chinese make up 3.5% of people working at IMEC, the fifth-largest group and ahead of Americans at 1.5%. IMEC has a unit in Shanghai. Still, no Chinese tools are visible in its basement. IMEC would not comment on individual partnerships but says it has “a few engagements with Chinese companies, however not on the most sensitive technologies, and always fully compliant with current European and US export regulations and directives”. Mr Van den hove adds that IMEC has no “major partnerships” with up-and-coming Chinese toolmakers.Less chipmaking know-how flowing to China and less streaming out of it means that Chinese engineers’ ideas can no longer be integrated with the global technology base of which IMEC is the custodian. There is little that IMEC can do about the growing distance between the Western and Chinese techno-spheres. So it is focusing instead on what it does best: pushing the cutting-edge of chip manufacturing.A hulking machine made by SUSS MicroTec, a German firm, scans chips to create a 3D image so that multiple processors can be aligned and affixed—fiddly business at nanometre scales. Elsewhere in the building Peter Peumans, who runs IMEC’s health-tech portfolio, hands over a prototype developed during the pandemic that uses a custom silicon chip to cut DNA-sequencing times from hours to minutes. Xavier Rottenberg is developing semiconductor-based ultrasound sensors that can be printed out using the technology to make flat-screen TVs, which may lead to More

VISITORS TO a big supermarket in America these days could be forgiven for feeling disoriented. From one angle, all-American consumerism is on full display as in normal times: throngs of people struggling to steer overflowing trolleys in a straight line. Retail sales (excluding cars) rose at a seasonally adjusted rate of 1.8% in August, compared with July, the fastest monthly rate since March. Other images, however, look distinctly unAmerican. To their horror, some shoppers discover empty shelves where their favourite brands of biscuits, detergents, pet food and loo roll typically reside—the result of supply-chain disruptions as outbreaks of the infectious Delta variant of covid-19 shut factories and ports around the world.Unlike in the early days of the pandemic, when shops were stripped bare by panic-buying, America’s consumers mostly have alternatives to pick from. But the shortages are a sign that things in the country’s $5.6trn retailing industry are not back to normal. If the supply shock were not enough, retailers must simultaneously deal with demand from shoppers once again keen to stroll around aisles rather than scroll through apps. Having survived the initial pandemic upheaval, they are now in the throes of another.Start with the bottlenecks. Congestion in ports from China to California has pushed shipping costs to record highs. Domestic trucking costs are up, too, as a result of the surge in online deliveries. This is less of a problem for expensive things like iPhones than it is for the sort of cheaper wares peddled by most big retailers, where shipping constitutes a bigger slice of the list price. Walmart went so far as to charter vessels directly to ensure steady supplies.At the same time, companies face a shortage of labour. Depending on whom you ask, this is down to workers being spooked by Delta, coddled by generous pandemic-era benefits or re-evaluating their lives and careers in the wake of the pandemic. Whatever the reason, the result is the virtual disappearance of customer service at large stores. Helpers that normally direct shoppers to the right shelf are nowhere to be found. With many cash registers closed, long queues form at the few that remain open. In-store placards that used to promote products are now soliciting employees. In August Walgreens, a chain of chemists, said it would raise wages, matching a move earlier in the month by its main rival, CVS. Target raised wages earlier this year. Walmart has done so multiple times over the past 12 months. As with higher shipping costs, this puts pressure on margins. And additional expenses might be coming in the form of federally mandated covid-19 tests for employees who refuse to get vaccinated. This month the Retail Industry Leaders Association, which counts Target among its members, warned about insufficient testing capacity in the country to meet this requirement.The shift back to bricks and mortar presents a second set of problems. E-commerce, which shot up from 11% of American retail sales before the pandemic to nearly 16% in the panicky second quarter of 2020, has fallen back to 13% of the total. Target’s comparable digital revenues grew by just 10% year on year in the three months to June, down from nearly 200% in the same period last year. Meanwhile, offline sales shot up by a third in the second quarter, compared with a year earlier, to $1.4trn, handily outpacing e-commerce (see chart 1). Coresight Research, a firm of analysts, reckons that so far this year shop openings have exceeded closings (see chart 2). If this trend continues, it would be the first time since 2016 that America has added new outlets.The retailers’ investments in online capabilities will not go to waste. Once seen as a costly mistake, Walmart’s $3.3bn takeover in 2016 of Jet.com, an e-merchant, gave America’s mightiest conventional retailer a platform on which it built a successful digital business. Some 3,000 of its 4,700 domestic stores now offer same-day deliveries. Similarly, Target’s $550m acquisition of Shipt, a same-day delivery platform, a year later formed the basis of an integrated technological network that now stretches from a data centre in India to its 2,000-odd stores in America. Even Amazon seems to recognise that the future is “omnichannel”, mixing digital and in-store experiences, as it plans to expand its relatively piddling physical footprint, possibly with a chain of department stores. Consumers’ rediscovery of the pleasures of in-person shopping helps explain why the online giant no longer looks unstoppable; its share of American retail sales actually declined from 7.8% in the first three months of 2021 to 7% in the subsequent three (though it remains above its pre-pandemic level of under 6%). In principle, Target, Walmart and their brick-and-mortar peers stand to benefit more from the move back to bricks and mortar than the beast of Bezosville. But shoppers’ stampede to their outlets requires another reallocation of resources, before the retailers’ foray into cyberspace was complete.Investors have faith that the biggest firms can withstand these pandemic aftershocks just as they did the original covid-quake in March 2020. The combined market capitalisation of the three largest bricks-and-mortar generalists—Costco, Target and Walmart—has swelled to around $730bn, from $520bn or so at the start of the pandemic (see chart 3). In the past year Costco’s and Target’s share prices have outperformed even that of Amazon, by a factor of two and nearly four, respectively. Look beyond the biggest retailers, which have more or less maintained their market shares throughout the pandemic, and the picture is one of wreckage. As in many sectors, covid-19 put struggling merchants out of their misery. Last year nearly 9,600 shops shut for good, while fewer than 4,000 opened, according to Coresight. Casualties include such venerable names as Neiman Marcus (a department store for the wealthy) and JCPenney (one for everybody else). Targets and Walmarts may be buzzing with activity. But derelict shopping malls marooned amid the cracked concrete of empty parking lots have replaced rustbelt factories as the poster children of creative destruction’s toll. ■ More

A FEW MONTHS ago Kim Beom-su looked like the face of responsible capitalism in South Korea. In March the billionaire founder of Kakao, which runs the country’s most successful messaging app and a slew of other digital services, promised to give away half his wealth for charitable causes, the second Korean tycoon to make that pledge. Now he is making headlines for some less salubrious reasons. Antitrust officials have reportedly set their sights on his private holding company for allegedly failing to report properly on its shareholders and affiliates.The apparent move against Kakao’s founder is the latest salvo in an ongoing battle. Like their counterparts in America and China, South Korea’s technology giants have come under scrutiny. Officials worry that as firms such as Naver, which began life as a search engine, and Kakao have expanded into anything from ride-hailing to personal finance, they have picked up the bad habits of the chaebol. These sprawling conglomerates were instrumental in making South Korea rich and continue to dominate its economy. But they are notorious for murky governance structures, oligopolistic business practices and close ties with the political elite.Over the past few weeks politicians have ramped up the rhetoric. “Kakao has turned from a symbol of growth and innovation into a symbol of old greed,” Song Young-gil, a leader of the ruling Minjoo party, told the National Assembly this month. “We will find a way to stop its rapid expansion and help it coexist with small-business owners,” he warned.The same day regulators ruled that some financial services offered by Kakao and Naver violated consumer-protection laws because the platforms were not registered as intermediaries. The two companies will now be required to abide by brokerage regulations. Spooked investors dumped Kakao and Naver shares, shaving a tenth, or $11bn, off their combined stockmarket value.Korean trustbusters, for their part, are investigating allegations that Kakao’s taxi-hailing service favours its own pricier cabs. They want e-commerce platforms to draw up proper contracts with third-party sellers, and specify what commissions they earn. In August Coupang, the country’s biggest e-commerce firm, was fined 3.3bn won ($2.8m) for pressing suppliers to lower prices. South Korea’s largely unregulated crypto-exchanges will have to register as legal trading platforms.The techlash is not limited to domestic tech darlings. On September 14th regulators fined Google $177m for not allowing versions of its Android operating system to be installed on locally made smartphones. And last month South Korea became the first country to oblige Apple and Google to accept alternative payments systems in their app stores.App developers like Epic Games, which suffered a courtroom defeat against Apple in America on September 10th, welcomed the move. The maker of “Fortnite” invoked the South Korean law to try to get its app reinstated on Apple’s app store, from which it had been booted for breaching rules that barred such in-app payments. Apple has refused.Lim Jung-wook, a venture capitalist, applauds the government’s instincts to protect consumers and small suppliers. But he reckons stricter rules will do little to curb the tech companies’ power in the long run. “These firms’ services are too convenient for them not to keep growing.”Nonetheless, faced with sinking stock prices, the Korean firms have begun to respond. On September 14th Kakao announced a new 300bn-won fund to help small suppliers and promised to scrap new services such as flower delivery that compete with mom-and-pop businesses. Mr Kim promised that the company would “throw away” its old growth model and replace it with one that fostered “social responsibility”.Coupang has chosen a more combative approach. It insists that its platform has made it easier for small firms to get their products to consumers. And it is appealing against the antitrust fine, claiming that the penalty serves to protect chaebol such as LG, which brought the complaint. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The other techlash” More

IT IS NOTHING new for foreign firms to endure shakedowns by the Chinese Communist Party. As far back as revolutionary times, Chairman Mao’s victorious troops did not directly confiscate foreign-owned assets as their Bolshevik forerunners had done in Russia. Instead, they wore them down with higher taxes and fines so big that eventually companies gave away their assets for nothing. In one memorable case dug up by Aron Shai, an Israeli academic, a British industrialist in 1954 professed to be handing over everything to the Communists from “large blocks of godowns (warehouses) down to pencils and paper”. And yet, he complained, Comrade Ho, his opposite number, continued to haggle “like a pre-liberation shopkeeper”.Though multinationals have flocked back to China since, the government’s nit-picking has continued, encompassing everything from technology transfer to how freely firms can invest. There have been big improvements, but the pettifoggery is a constant reminder, as one American puts it, that companies should not get “too big for their britches”. Western firms operate in China on sufferance and one day the country may seek to replace them.As a result, some may have felt a sense of Schadenfreude that Chinese firms, not Western ones, have been the main victims of President Xi Jinping’s recent effort to socially engineer a new type of economy. In the past week alone the government has taken steps to reduce barriers between tech giants Alibaba and Tencent, and, according to the Financial Times, ordered the break-up of Alipay, a financial super-app owned by Alibaba’s sister company, Ant. Some go so far as to draw flattering comparisons between Mr Xi’s efforts to emasculate China’s tech “oligarchs” and the way governments in America and Europe are going after Western tech giants.The heavy-handedness, though, is chilling to an unusual degree. So is the capriciousness. Kenneth Jarrett, a veteran China watcher in Shanghai for the Albright Stonebridge Group, a consultancy, says the question on everyone’s lips is “who might be next?” The crackdowns occur against the backdrop of rising tensions between China and the West that leave multinationals stranded in a sort of semilegal limbo. For many the lure of China remains irresistible. But the perils are catching up with the promise.Besides banks and asset managers, some of whose investments in China have taken a big hit in recent months, several types of multinational firm are at risk. One group includes those that make most of their money in China from pandering to a gilded elite who flaunt their $3,000 handbags and sports cars. Another encompasses companies that irritate their customers for what can be construed as Western arrogance; Tesla, the electric carmaker, is an example. A third category includes European and American makers of advanced manufacturing equipment and medical devices that China feels it should be producing itself.As usual, the threats come in the form of policy announcements that sound deceptively bland. One, “common prosperity”, is a catch-all phrase extending from a reduction in social inequality to more coddling of workers and customers to the nannying of overstressed youngsters. Its most obvious impact is on Chinese tech, tutoring and gaming firms, which have lost hundreds of billions of dollars in market value as a result of government crackdowns. Yet multinationals, too, have been caught in the fallout. In a few days in August the valuation of European luxury brands, such as Kering, purveyor of Gucci handbags, and LVMH, seller of baubles and bubbles, tumbled by $75bn after investors finally took Mr Xi’s common-prosperity agenda seriously.Mr Xi does not intend to force Chinese consumers back into Mao suits. But his war on flamboyance, especially among the rich who may spend at least $100,000 each a year on foreign brands, threatens the most lucrative end of the market. It also imperils luxury marques that charge consumers in China more than they do in their outlets in, say, Milan. Flavio Cereda of Jefferies, an investment bank, expects the government to keep supporting a growing middle-class luxury market, since aspirational purchases reflect economic success. If China were to mess up the experiment, the shock could be huge. Its consumers account for 45% of the world’s spending on luxury, he says. “No China, no party.”“Dual circulation” is another buzz phrase with troubling overtones. It is an attempt to promote self reliance in natural resources and technology, partly in response to fears that a dependence on Western suppliers could make China vulnerable to geopolitical and trade pressures. But it also poses a threat to Western multinationals in China by reducing imports of technology and creating a “buy Chinese” mentality. Friedolin Strack of BDI, a German industrial federation, notes that state firms in China have reportedly been given procurement guidelines that mandate domestic supply of devices such as X-ray machines and radar equipment.Between a bloc and a hard placeIt is all becoming a catch-22. On the one hand, America, Europe and allies are in a geopolitical contest with China, which they accuse of human-rights abuses in places like Xinjiang, home to the oppressed Uyghur minority. The West wants to restrict what technologies its firms sell to China and what materials, such as cotton, they source there. On the other hand, China asserts its right to retaliate against companies it thinks are wading into geopolitics.Jörg Wuttke, president of the EU Chamber of Commerce in China, says the size of China’s market makes it worth the discomfort. “The biggest risk is not to be in China,” he insists. Yet anyone with a long-term perspective might see Mr Xi’s undisputed personal authority, his gamble to reshape the Chinese economy, and the dark geopolitical backdrop as more than enough reasons to ponder an exit. It may never come to that. But as in post-revolutionary days, sometimes all it takes is one too many shakedowns to convince even the hardiest industrialist to throw in the towel. ■This article appeared in the Business section of the print edition under the headline “Who will be next?” More

IF CHIEF EXECUTIVES are the monarchs of the corporate world, the cadre of well-paid staff they deploy from head office to oversee operations across the planet are their ambassadors. In the golden era of globalisation, sending an expatriate Western executive to a distant emerging market signalled the place was being taken seriously. That model was starting to feel out of date before covid-19 made foreign travel a misery. As Zoom and remote work have become the norm, is shuffling emissaries across the world even worth it anymore?Some 280m people live in a country other than their own, often because of their job. Many toil on building sites in the Gulf or mind brats in Manhattan. High-flying expats are the most cosseted of these migrants. Their exalted status, should it need to be pinned down, is secured by snagging a housing allowance, school fees for the brood, annual flights home and a healthy salary bump. Some business folk have turned into perennial business wanderlusters, making a career out of flitting from Mumbai to Abu Dhabi to Lagos.The business case for expats had started to look stretched in recent years. Moving staff to the ends of the Earth made sense when it was tricky to find globally minded (and English-speaking) employees over there. But globalisation has worked its magic. If an American investment bank in Shanghai wants a bright number-cruncher with a top-tier MBA, it has plenty of local candidates to choose from. They will cost a fraction of what it would take to move a transplant—and already speak the language.Getting head-office staff to up sticks for Jakarta has been getting harder, too. In decades past a compliant “trailing spouse” took on the responsibility of keeping a household running in far-flung places. Now she (as is still more often the case) is likelier to quibble about the impact on her own career. A survey carried out by the Boston Consulting Group found 57% of workers globally were willing to move to a foreign country for work in 2018, down from 64% four years earlier.The figure fell even further, to 50%, once the pandemic hit. Many expat haunts, such as Hong Kong, Singapore and Dubai, went through looser lockdowns than America or Europe. But that often meant throttling foreign travel or imposing weeks-long quarantines for returnees. The prospect of a trip to see family for Christmas, or of a weekend getaway to Bali, is part of what makes living in Singapore attractive. Once that goes the trade-off between career and personal life starts looking uncomfortably different.Many foreigners who had once been given royal treatment felt treated like second-class citizens. Some hesitated to leave their country of assignment for fear of not being able to get back in. Others had to wait longer than locals for vaccines. Clubby communities no longer made space for outsiders. As Hong Kong, once the spiritual home of expatdom, has fallen into China’s ambit, Western imports have started to look like a vestige of the colonial past.This speaks to a broader economic shift that has dented the need for expats. Once upon a time they used to be the ones able to facilitate access to foreign capital and know-how, often from Western sources. Now money is abundant and the most exciting business opportunities are emerging markets doing business with other emerging markets, particularly in Asia. You don’t need a Westerner to show you how to do that. The world they understand is no longer as relevant.Expats are not just expensive perk-baggers (as this stand-in Bartleby, a foreign correspondent in his day job, can attest). Companies have cultures and processes which are forged at headquarters, and which envoys can disseminate. They in turn will imbibe new ways of doing things that can be transferred back to other bits of the business. Having an outsider somewhere in the organisational chart of a distant subsidiary can provide reassurance no funny business is taking place there. However, penny-pinching bosses might now consider whether regular Zoom calls will not achieve much the same thing for a fraction of the cost—not least if employees the world over are going to be working from home at times anyway.The surest way to signal commitment to a market these days is not by importing top talent but by nurturing it locally. Many companies that proudly deployed expats now boast of appointing local bosses to head up each country. That isn’t a reversal of globalisation so much as an affirmation of it.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “End of the travelling circus” More

AT THE END of the month the production line of a Toshiba factory in Dalian will come to a halt, 30 years after the Japanese electronics giant opened it in the north-eastern Chinese city. Once a totemic example of global supply chains expanding into China, the closure exemplifies how these are being reconfigured. The short answer is: delicately and at the margin.Toshiba’s plant in Dalian has spanned a sea change in Asian business patterns. When it opened, Japan was the undisputed linchpin of the region’s trade and manufacturing networks. By 2019 Japan’s $390bn in intermediate-goods trade with big Asian economies was vying for runner-up status with South Korea and Taiwan. China, with $935bn-worth, was way ahead.Hourly wages commanded by Chinese workers have risen tenfold in nominal terms this century, to $6.20. That is still a quarter of Japanese rates but twice the pay of Thai workers, who were at parity with Chinese ones as recently as 2008. If that were not enough, geopolitical tensions are souring relations between the increasingly heavy-handed Chinese Communist Party and the world’s rich democracies.These trends help explain why China’s share of Japan’s new outbound foreign direct investment has steadily declined since 2012. The number of manufacturing affiliates that Japanese companies have in China stopped growing almost a decade ago, while new affiliates elsewhere in Asia—notably India, Indonesia, Thailand and Vietnam—have continued to mushroom. Toshiba will offset some of the forgone capacity with expansion in some of its 50 factories back home and also in Vietnam, one of its 30 overseas facilities. It is tapping the Japanese government’s year-old subsidy scheme to encourage reshoring and diversification of supply chains (and whose unspoken aim is to reduce reliance on China).Many other Japanese firms find themselves in a similar situation. This month OKI Electric Industry, a smaller Japanese electronics-maker, announced that its factory in Shenzhen, set up 20 years ago, would stop making printers. That capacity would move to existing factories in Thailand and Japan. Still, most are not rushing to exit China altogether. A survey last year for the Japan External Trade Organisation, a government body, found that 8% of Japanese companies said they were planning to reduce or eliminate their Chinese presence, less than the average for Japanese firms in other countries. Many global companies, from Hasbro (an American toymaker) to Samsung (a South Korean technology giant) are making a similar calculation. Toshiba itself will maintain a second, part-owned factory in Dalian.Even the most tub-thumpingly patriotic executive would hesitate to sever ties with the world’s second-biggest economy. This would disrupt profitable relationships with Chinese suppliers and manufacturing know-how. Such things take years to forge. But at the margin, where companies find themselves pressed by the imperatives to cut costs and guarantee stable future supplies, China no longer looks like the place to be. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Marginal revolution” More