Tang Yao, Associate Professor, Department of Applied Economics, Guanghua School of Management, Peking University Over the past 30 years, global technology, trade and investment have developed rapidly, promoting the decentralization of production to many countries. For example, the research and development of a product can be completed in America, the industrial design in Germany, the production of various components in East Asian countries, and the assembly in Vietnam. The final products are distributed in countries where there are consumers, while the customer service call center is located in Canada. The cross-border distribution has produced a chain and network of production activities. From the perspective of countries and industries, this is a global value chain that can create added value. From the perspective of businesses, this is a supply chain connecting upstream and downstream enterprises. With deepened opening up to the outside world, China is relatively more involved in the global value chain than other major open economies. China, America and Germany are the three cores of global value chain in terms of scale, as well as centers of global manufacturing industry. Meanwhile, China has been committed to moving upwards along the value chain through industrial upgrading, improving its participation in the global value chain, and consolidating its comparative advantage in the international division of labor. The COVID-19 epidemic affected China’s participation in the global value chain and supply chain in several ways. First, domestic production capacity. In the early days of the outbreak, global manufacturers worried about supply disruption in China, while Chinese companies feared that failing to complete foreign trade orders would cause long-term business losses. Some observers believed that the emergency may divert the supply chain away from China, and China will no longer be the global manufacturing center. Historically, after the earthquake in 2011, Japan’s long-term upward trend in manufacturing output was interrupted and began to decline, which showed that long-term supply disruption brings serious economic consequences. However, unlike the earthquake shock in Japan, the epidemic did not damage China’s economic production capacity. As large and medium-sized industrial enterprises generally resume work and production, the risk of long-term supply disruption has been significantly reduced. Second, overseas production capacity. With the fast spread of the epidemic in other countries, economic activities have greatly slowed down or even stopped. Given China’s deep participation in the international division of labor, Chinese companies have to worry about supply disruption of upstream products, affecting the normal operation of China’s manufacturing industry. Meanwhile, orders from overseas manufacturers using components produced in China also have declined due to the rapid economic slowdown in other countries. Third, consumer demand at home and abroad. Since the epidemic is highly likely to drive down the global economic output in 2020, the world economy may fall into a deep recession. China’s manufacturing industry is highly export-oriented, and about 30% of its added value are exported. Therefore, the global recession means rapid shrinkage of external demand for China. Besides, China’s economy had been hit by the epidemic in the first quarter, leading to a rapid decline in both domestic and foreign demand in the manufacturing industry. After the epidemic, countries will review the supply security of various emergency and other important materials. However, there won’t be obvious breaks in the global value chain and supply chain, the international division of labor won’t suffer serious retrogression, and China will remain the center of global manufacturing industry. The fundamental reason is that division of labor has always been an important source of economic efficiency, and the development of global value chain and supply chain represents the internationalization of division of labor. Compared with the uncivilized era, modern people’s ability to survive in the wilderness is extremely weak. Their survival depends greatly on cooperation with each other. In the process of pursuing prosperity through continuous division of labor in modern society, it is also necessary to cope with the problems caused by a wide range of economic and social interactions, and the epidemic is only one of them. After the epidemic, countries need to think about how to achieve collective economic and health security in an interdependent international economic environment, rather than retreating to inefficient economic “isolated islands”. China’s manufacturing industry has a systematic advantage in dealing with potential future emergencies. It is no accident that China has become the center of global manufacturing industry. In addition to its high-quality workforce, complete industry layout, advanced supply chain, convenient infrastructure, and regional clustering effects, its high efficiency in responding to sudden shocks is also an implicit advantage of China’s manufacturing industry. After the central government decisively mobilized the whole country to prevent the spread of the epidemic, local governments, society, enterprises and individuals have cooperated effectively and made significant progress in the prevention and control of the virus. Now, as the epidemic has come to an end in this stage, localities are actively promoting the resumption of work and production. After the Wenchuan earthquake in 2008, China also demonstrated similar efficient mobilization and execution capabilities, which fully highlighted its ability to respond to emergencies systematically. From the perspective of industry and environment, most overseas companies cannot afford large-scale redeployment of the supply chain. On the one hand, SMEs and even large enterprises are small buyers in some parts markets. One enterprise can optimize its supply chain to a certain extent, but it is difficult to achieve large-scale cross-border adjustment of the entire supply chain. On the other hand, the development of global value chain and supply chain requires the support of long-term investment and trade financing. Currently, overseas financial markets are in shock during the predicted recession, and America may experience a liquidity crisis. Therefore, the financial market cannot provide financing support for the large-scale redeployment of the supply chain. To cope with the current demand disturbances, China needs to actively explore domestic demand, strive to stabilize employment, and scientifically plan, integrate, and optimize production capacity in related industries. First, increasing R&D and investment in upstream links of the industry and strengthening import substitution can both improve the resilience of the supply chain and meet the long-term goal of industrial upgrading. Second, in the context of turbulent international investment, efforts to globalize some downstream production should be put off, helping enterprises avoid risks and stabilize employment. Third, strengthen core enterprises in all links of the industrial supply chain, properly increase industry concentration, accelerate the removal of excessive and outdated production capacity, and restrain from protecting inefficient enterprises that should be eliminated in market competition in the process of stabilizing the economy. While pursuing high-quality growth, China’s economy must insist on expanding opening up to the outside world and enhancing international economic cooperation. Over the past two years, China has launched a series of policies for the purpose, and such determination will not and should not change. In the process of opening up to the outside world, China should first of all rely on strengthening cooperation with neighboring countries and countries along the “Belt and Road” in the global value chain and supply chain to enhance the collective ability to resist risks. East Asia and Southeast Asia will be the core regions in the future, with the largest production capacity and fastest growing market. Based on the Regional Comprehensive Economic Partnership Agreement (RCEP), China and other countries in the region should strengthen cooperation in the value chain and supply chain, reject trade protectionism, strive to achieve mutual benefit and win-win results, and promote inclusive economic growth, thus making positive contributions to the reform and improvement of international economic governance mechanism after the epidemic.