China’s industrial push may hinder Asean exports recovery
KUCHING: While exportoriented Asean economies are eagerly awaiting a long overdue rebound in global goods demand, the path to export recovery in the region may not be as smooth as expected due to China’s industrial push.
In a macro report, analysts at Maybank Investment Bank Bhd’s research arm (Maybank Research) guided that China’s tepid reopening since the pandemic has contributed to an excess industrial inventory and producer price deflation onshore.
This, coupled with a muted domestic demand in China and Beijing’s drive to build advance manufacturing prowess, have pushed Chinese manufacturers to expand in overseas markets for growth.
“Consequently, China shipped 6.9 per cent higher volumes at 10.4 per cent lower export prices in 2023.
“As China doubles down on its industrial thrust, Asean’s export-oriented economies may be impacted to varying degrees,” the research arm reported.
According to Maybank Research, Singapore, Vietnam and Malaysia are expected to be the most affected as they are the most exposed to competition in high tech exports which overlaps with the product categories in China’s industrial push and export competitiveness in key segments.
Additionally, Thailand’s auto supply chain could face acute transition pains before it manages to establish its own electronic vehicle (EV) capabilities.
Meanwhile, the Indonesian and the Philippine economies are less exposed to this risk as they lean towards being dependent on commodity export and services export, respectively.
That said, it’s not all doom and gloom for Asean exports as the analyst guides that higher foreign direct investment (FDI) in the region and the emergence of the China+1 strategy where multinational corporations (MNC) are reconfiguring their manufacturing supply chains away from China may help the region fortify its share of global manufacturing and counter China’s industrial push.
Maybank Research did not expected Asean to ramp up protectionist barriers against Chinese goods to protect export market share, but reckon that most countries will take a pragmatic approach and host manufacturing plants of Chinese firms, which are keen to expand their presence overseas.
In theory, this would be a winwin situation for both Asean and Chinese manufacturers but the analyst cautions that Asean producers should still be alert to the risk of protectionist measures from the developed markets, including the US and EU.
“If the local plants are viewed as ‘finishing’ bases for Chinese goods, the US and EU may broaden the coverage of Chinaspecific tariffs to some Asean countries on products such as solar panels,” they warned.
“Moreover, US Treasury Secretary Yellen said she would not rule out any measures, including tariffs, on China’s green energy exports. Such actions could divert excess supply to other markets, including Asean, and exert a major deflationary shock,” they added.