Global Value Chain Competition in the New Geopolitical Landscape: A Three-Dimensional Game Based on Efficiency, Security, and Rules

(The author, Liu Gongrun, is the Deputy Dean of the China Europe Institute of International Finance (CEIIF) and the Secretary-General of the China Europe Lu Jiazui Finance 50 Forum.)

Today’s world is undergoing a profound restructuring of globalization. Geopolitical conflicts, technology embargoes, and policy games over industrial policy are overlapping, driving a fundamental shift in the paradigm of global value chain competition: the traditional one-dimensional competition centered on cost and efficiency has given way to a three-dimensional game of “efficiency, security, and rules.” Under this new landscape, countries are not only vying for market share, but also engaging in intense contests over supply chain resilience, technology standards, and trade rules. As a global manufacturing and trade hub, China’s value-chain position faces systemic pressure amid regional differentiation, technological decoupling, and corridor risks; at the same time, it is also giving rise to new strategic opportunities in the green transition and the digital revolution.

“Upgrading” the paradigm of global value chain competition

The evolution of the global value chain has entered a structural turning point. The globalization logic of the past several decades, centered on “minimizing costs and maximizing efficiency,” is being reshaped by geopolitical and national security considerations. The efficiency dimension has not disappeared, but its meaning has shifted from pursuing the “lowest cost” to pursuing the “optimal cost” that takes into account political risks and supply chain resilience. Industrial layout is exhibiting distinct features of “regionalization + diversification.” Models such as “nearshoring” and “friendshoring” are emerging, reflecting countries’ renewed balancing between efficiency and security. With its ultra-large-scale market, complete industrial supporting capabilities, and continuously upgraded infrastructure, China still maintains clear advantages in “regional efficiency” competition, as fully demonstrated by industrial clusters formed in East Asia and Southeast Asia.

Meanwhile, the security dimension has risen from a supplementary consideration to a priority option for national strategy. Supply chain security has become a core concern in each country’s industrial policy-making, manifesting in a systematic “de-risking” strategy. In practice, this strategy is reflected in three layers: first, building backup production capacity for key products to achieve supply chain redundancy; second, pulling production capacity back to the home country or nearby regions to shorten the supply chain; third, implementing export controls in key technology areas to strengthen supply chain governance. The policy combinations adopted by the U.S. and Europe in areas such as semiconductors, new energy, and critical minerals are clear evidence that the security dimension is being continuously reinforced in industrial competition. For China, this trend not only implies “breaks in the chain” pressure in high-end value chain segments, but also compels China to accelerate the building of an industry system that is independently controllable.

More deeply, the rules dimension is becoming the new high ground for great-power games. Competition has expanded from the traditional market-and-product level into the deep structural architecture of standards, protocols, and governance systems. New-generation international trade and investment mechanisms represented by CPTPP, IPEF, and the U.S.-EU trade and technology council are shaping digital trade rules with exclusivity, green environmental standards, and labor clauses, with the intent of building “rule fences” targeting specific countries. For China, the challenge is not only the technical question of whether it can meet these high standards; it is also whether, amid changes in the global governance system, it can offer new rule options that are more inclusive and better aligned with the interests of developing countries through multilateral platforms such as the Belt and Road Initiative, BRICS cooperation, and RCEP—thereby facing a foundational challenge in competing for the standard-setting power in emerging fields.

China’s challenges, differentiation, and new momentum in global value chains

Under the intertwined effects of the three forces—efficiency, security, and rules—China’s position in foreign trade and the value chain in 2025 shows a profound feature of “structural differentiation.” Judging from market structure, China’s reliance on traditional markets in the U.S. and Europe has undergone a strategic adjustment, while efforts to open up “the Global South” markets such as ASEAN, the Middle East, and Latin America have accelerated markedly. This differentiation is by no means a simple shift of trade shares; behind it lies the logic of the reshaping of the global value chain geography. China and ASEAN have already formed a deep network of intra-industry division of labor, while economic and trade relations with the Middle East are undergoing a transformation and upgrading—from traditional energy trade to full-chain cooperation covering energy, infrastructure, and finance. Judging from export structure, the share of traditional labor-intensive products has declined somewhat, while exports of high-tech, high-value-added, green and low-carbon products represented by the “new three”: electric vehicles, lithium batteries, and solar cells, have continued to grow rapidly and are becoming the core momentum driving China’s trade growth and reshaping the global value chain. This structural change signals that the foundation of China’s participation in global competition is shifting from a composite competitive strength that is based on “cost advantages” plus “technology advantages” plus “green advantages.”

At the same time, China in global value chains still faces dual pressure from the security and rules dimensions. In the technology field, the West is trying to build an exclusive “technology alliance.”

However, amid the challenges, new strategic opportunities are also emerging. The unique “innovation magnetism” created by China’s ultra-large-scale market generating strong domestic-demand pull, rapidly iterating application scenarios, and increasingly well-developed digital infrastructure still forms a distinctive gravitational field that attracts global high-end factors and incubates frontier technologies. The “catfish effect” brought by Tesla’s Shanghai super factory and the cluster-based breakthroughs it has catalyzed in local new-energy industry chains are a vivid demonstration of this advantage. More importantly, through infrastructure connectivity and capacity cooperation under the Belt and Road Initiative, as well as institutional dividends such as regional rules of origin accumulation under the RCEP framework, China is proactively shaping an Asian production network with itself as the hub and radiating to surrounding areas. The resilience and vitality demonstrated by this network not only bring development opportunities to countries within the region, but also provide strategic depth for China to maintain its central position in global value chains. New momentum driven jointly by endogenous advantages and regional integration is redefining China’s coordinates in the global division of industrial labor.

Key pressure test: the spillover effects of the Middle East conflict on the three-dimensional game

Ongoing geopolitical conflicts in the Middle East—especially the security crisis in the Red Sea shipping route—provide a realistic pressure-test scenario for observing the resilience of global value chains under a three-dimensional game. The spillover effects of this crisis precisely impact the efficiency, security, and rules dimensions at the same time, posing complex and severe challenges to China’s participation in global division of labor. In the efficiency dimension, the disruption of the Red Sea shipping route forces the main Europe-Asia line to detour via the Cape of Good Hope, with the average voyage length increasing by 10 to 15 days and comprehensive logistics costs rising sharply. This shock not only directly erodes the profit margins of import-export enterprises, but also, at a deeper level, changes the economic-geographic calculations used to arrange global supply chains. When logistics timeliness and reliability—the conditions on which “just-in-time” production models depend—are challenged, enterprises must reassess centralized, long-distance supply chain models, forcing the meaning of “efficiency” to incorporate considerations of geopolitical risk. In the long run, this may prompt more industries to shift toward regions closer to consumption markets, thereby affecting, to some extent, the scale-efficiency advantages China relies on as a global manufacturing center.

In the security dimension, the Middle East conflict expands the scope of supply chain security from “technology cutoffs” to “resource and logistics cutoffs.” The Strait of Hormuz and the Strait of Mandeb are the “choke points” for global energy transport; their passage safety directly relates to nearly half of China’s crude oil imports. With the shipping-route threats and energy price fluctuations caused by the crisis, the concept of supply chain security therefore needs to be redefined—it must not only focus on independent control over core technologies, but also cover the safe acquisition of strategic resources and the smooth, uninterrupted operation of critical logistics corridors. This expansion of security content raises higher systemic requirements for a country’s far-sea escort capabilities, its energy reserve system, and the construction of alternative corridors.

In the rules dimension, the Red Sea crisis highlights the limitations of the existing international maritime governance system in dealing with non-traditional security threats. When multilateral mechanisms and existing international law cannot effectively guarantee freedom of navigation for merchant ships, countries have no choice but to rely on temporary “escort alliances” or bilateral security cooperation, which in practice reflects a certain “degeneration” tendency in global governance. In such a situation, major trading countries—including China—are compelled to think deeply: should they continue relying on a global rules system that may fail, or should they develop more independent security capabilities and frameworks for regional security cooperation? The crisis tests not only a country’s ability to respond to crises, but also its willingness and capacity to participate in drafting and shaping international security rules and to provide global public goods. The Middle East conflict shows that in the context of a three-dimensional game, any risk arising in one dimension may quickly transmit to other dimensions, forming a compound shock. This requires countries to establish an integrated value-chain risk management system capable of simultaneously addressing efficiency losses, security threats, and rules failures.

China’s path choices for building a balanced value chain system

Facing the new reality of the three-dimensional game and the pressure test from the Middle East crisis, China’s response measures must go beyond short-term, passive crisis management and shift to building a systematic and forward-looking strategic framework. The core goal is to seek dynamic balance among efficiency, security, and rules, and to push China to transform from a “deep participant” in global value chains into a “key shaper.”

In the efficiency dimension, China’s fundamental way forward lies in strengthening core competitiveness through technological innovation and industrial upgrading, thereby defusing risks in the security dimension. This requires us to implement a more ambitious “Manufacturing Power 2.0” strategy, focusing on key weak links such as integrated circuits, industrial machine tools, and basic software, and achieving breakthroughs in core technologies via a new whole-of-nation system. At the same time, we must consolidate and expand existing advantages in areas such as new energy and the digital economy—expanding the successful experience of the “new three” to more strategic emerging industries to form a number of “industry strongholds” that are hard to replace. More importantly, we should fully leverage digital technologies to comprehensively transform traditional industrial chains, enhance total-factor productivity to offset pressures from rising factor costs, and maintain China’s manufacturing competitiveness in a new form of “digital efficiency” and “green efficiency.”

In the security dimension, China needs to build an elastic “security depth” through diversified and regionalized layout, while also taking into account the operational efficiency of supply chains. Market diversification requires that, while strengthening economic and trade ties with developed economies, we further cultivate emerging markets such as ASEAN, Central Asia, the Middle East, Latin America, and Africa more deeply. We can deepen trade relations into deep integration of industrial chains and supply chains by upgrading free trade agreements, building capacity cooperation industrial parks, and other approaches.

Supply chain backup requires that in strategic and critical areas, we deliberately cultivate domestic replacement capabilities, and diversify supply sources abroad to form an elastic network of “China as the main driver with global allocation.” For corridor risks in geopolitical hotspot regions such as the Middle East, we should adopt a combination of the near and the far—an integrated strategy. In the near term, we may consider participating in international escort cooperation to ensure the safety of merchant ships’ navigation; in the medium to long term, we need to accelerate the construction of “new land-sea corridors,” improve alternative routes such as China-Europe freight trains, the Trans-Caspian transportation routes, and the China-Pakistan Economic Corridor, and work with friendly countries to invest in and build strategic port facilities, gradually reducing excessive dependence on a single sea shipping corridor, so as to achieve “multi-route redundancy” for logistics corridors.

In the rules dimension, China should participate in—and even help lead—international rules games with a higher level of openness and a more proactive posture, reshaping a competitive environment favorable to its own development. By proactively aligning with high-standard trade and investment rules such as CPTPP and DEPA, and using openness to drive institutional innovation in China’s domestic “deep-water zones” such as intellectual property protection, opening up the services sector, and state-owned enterprise reform, we can improve the level of institutional openness. In emerging fields such as the digital economy and green low-carbon development, based on China’s successful practices, we should propose rule plans and standard system frameworks that both align with international development trends and take into account the real conditions faced by developing countries.

On multilateral platforms such as the Belt and Road Initiative and BRICS cooperation, we should actively promote tested technology standards and cooperation models. In addition, we need to innovate mechanisms for dispute resolution and risk mitigation, and establish more effective supply chain risk early-warning and consultation dialogue channels with major trading partners. At the same time, seize the timing to expand the use of the RMB in cross-border trade, investment, and commodity pricing; develop an energy and derivatives market denominated in RMB; and enhance the capacity of the financial system to hedge geopolitical risks, providing diversified currency public goods for the stable operation of global value chains.

Overall, competition in global value chains under the new geopolitical landscape is a comprehensive contest concerning the future development of nations. Efficiency is the foundation for a country’s participation in international division of labor; security is the guarantee for a supply chain’s survival; and rules determine the space and direction for future development. Looking ahead, we need to maintain stronger strategic resolve and historical patience: consolidate efficiency advantages through technological innovation, strengthen the security bottom line through diversified layout, and leverage proactive leadership to expand rule space. The warning from the Middle East crisis is that no single advantage is sufficient to cope with shocks to a complex system; only by establishing a value chain system with dynamic balance and resilience across the three dimensions of efficiency, security, and rules can we steer the ship of the times steadily and far in the turbulent seas of a once-in-a-century transformation.

Caixin First Finance’s Caixin ihao platform has an exclusive first release; this article only represents the author’s views.

(This article comes from Caixin First Finance)