BEIJING — China still holds the cards for global supply chains, whether or not Covid lockdowns frustrate businesses in the near term.

Companies and analysts have discussed moving factories out of China for years, especially since labor costs have climbed and U.S.-China trade tensions worsened.

The pandemic has reignited those conversations. Foreign businesses talk about how executives can easily travel to Southeast Asia factories, but not China. Some point to surging exports from Vietnam as an indicator that supply chains are leaving China.

“Supply chain diversification is quite tricky because people always talk about it, and boardrooms love to discuss it, but often at the end of the day people find it’s difficult to implement,” said Nick Marro, global trade leader at The Economist Intelligence Unit.

When businesses had those discussions in 2020, it turned out that “China was able to remain open, while Malaysia, Vietnam were going offline,” Marro said. “Really, the critical factor right now is how China plans on maintaining these [Covid] controls as the rest of the world opens up.”

China’s so-called zero-Covid strategy of swift lockdowns helped the country quickly return to growth in 2020. However, implementation of those measures has since tightened, especially this year as China faces a resurgence of Covid in Shanghai and other parts of the country.

By the numbers, China’s exports rose by 3.9% in April from a year earlier, the slowest pace since a 0.18% increase in June 2020, according to official data accessed through Wind Information.

Vietnam in contrast saw exports jump by 30.4% in April from a year ago, following a nearly 19.1% year-on-year increase in March, Wind showed.

The level of manufacturing interest in Vietnam is “very significant,” Vishrut Rana, Singapore-based economist at S&P Global Ratings, said in a phone interview. “Vietnam has emerged as a very key supply chain node for consumer electronics.”

But Vietnam’s exports totaled $33.26 billion in April, or about one-eighth of China’s $273.62 billion in global exports that month, according to Wind.

“From China’s perspective, the movement out of local manufacturing is not going to be significant enough to really alter the nature of China’s role in the overall supply chain,” Rana said. “China still remains at the very center of the electronics network in APAC.”

For the first four months of the year, foreign direct investment into China rose by 26.1% year-on-year to $74.47 billion, China’s Ministry of Commerce said Thursday. During that time, investment from Germany jumped by 80.4%, while that from the U.S. rose by 53.2%.

In contrast, Vietnam saw a 56% year-on-year drop in foreign direct investment to $3.7 billion in the first four months of the year, Wind data showed. Foreign direct investment from the U.S. fell by 14%.

“It is very difficult to match the scale and scope of China’s supply chains outside China at the moment,” Rana said. Only supply chains for very specific products — like semiconductors or electric vehicle parts —might be moving to Vietnam, Malaysia or other countries, he added.

China’s supply chain dominance, built up over the years, is also supporting new business models.

One of the better known is Shein. Backed by funds such as Sequoia Capital China, the company has combined big data analytics and its supply chain network in China to become an international e-commerce giant in low-cost fast fashion.

“China’s supply chain advantage is not just based on labor cost,” James Liang, managing partner at Skyline Ventures, said in Mandarin translated by CNBC.

According to his analysis, at least 20% of the selling price of apparel and furniture producers go into labor costs, versus just 5% for electronics producers.

China’s advantage is the benefit of having supply chain hubs, which in Liang’s view pave the way for businesses to boost efficiency by integrating all their suppliers onto one digital system.

He said his firm invested $5 million in October into a furniture company called Povison, which is trying to replicate Shein’s model for clothing. Additional investment plans have been delayed due to Covid-related travel restrictions, he said.

The latest Covid lockdowns have also slowed the ability of trucks to transport goods throughout China, while keeping many factories in the Shanghai region at limited or no production for weeks. That’s on top of Beijing’s policy since 2020 requiring two- or three-week quarantine upon arrival in China — if the traveler can book one of the few flights in.

Shifting operations out of China is difficult, but “what our survey is indicating is there will be less investment into China and more investment into Southeast Asia,” Joerg Wuttke, president of the EU Chamber of Commerce in China, said during a webinar.

He noted how it is now far easier to fly executives to Singapore or other countries in the region, than to China.

As a result of the latest Covid controls, nearly a quarter of 372 respondents to the EU Chamber of Commerce in China’s survey in late April said they were considering shifting current or planned investments to other markets.

But 77% said they didn’t have such plans. A survey of U.S. businesses in China found similar trends.

Those survey results indicate that “companies don’t want to quit the market, but they don’t know what to do,” said the EIU’s Marro. “Right now it’s more a story of hesitation.”

“Foreign companies are going to be upset about these [zero-Covid] policies, but at the end of the day there’s not many companies that are going to jeopardize their position in a decades-long market based on a temporary shock,” he said.

Even companies like Starbucks, which suspended guidance due to Covid unpredictability, said it still expects its China business will become bigger than the U.S. in the long term.

Many analysts expect China may begin to relax its zero-Covid policy after a political reshuffle in the fall.

When asked Thursday about the EU Chamber’s survey findings, China’s Ministry of Commerce only noted the global impact of the pandemic to supply chains. The ministry also said China would improve its foreign investment services and increase opportunities for foreign businesses.

“Reconfiguring supply chains is not as easy as flipping a light switch on and off,” said Stephen Olson, senior research fellow at the Hinrich Foundation.

“Of course, the chessboard would be reconfigured if lockdowns drag on indefinitely,” he said. “In that case, pressure will build on companies to consider shifting supply patterns, and the economic and commercial implications of doing so will look a lot more favorable.”