S&P Global Ratings sees Asian emerging economies to grow foreign direct investments (FDI) and exports only moderately amid geopolitical tensions between the world’s two biggest economies, the US and China.
In its report entitled “Slow-Motion Shakeup? Asia’s Role In Global Supply Chains Is Slow To Change,” S&P data showed China’s exports market share rose to 39.8 percent by the first half of the year from 36 percent six years ago.
This is despite the higher tariff and other trade barriers, such as the ban on Chinese electronics, imposed by the US government since former president Donald Trump assumed office in 2016.
S&P said China continued to register substantial exports of “normal” goods which are massively resourced in the country and produced by domestic firms, exceeding processed goods which are re-exported to other countries.
“The landscape includes competitive firms and specialized suppliers, as well as good infrastructure and facilitating local governments. Relocation to economies with smaller, less-developed industrial sectors has sometimes led to difficulties and cost increases,” S&P said.
Only Mexico has become a clear alternative manufacturing hub for imports to the US due to their proximity.
Increased Viet shares
S&P noted Vietnam increased its share in the combined exports of Mexico and Asia to over 4 percent from 2019 to this year.
However, it said the Philippine share remained “broadly unchanged.”
Meanwhile, Indonesia has seen increased demand for the processing of metals and minerals amid the global shift to eco-friendly products. However, S&P said the country has yet to gain substantial growth in core manufacturing products.
“The uncertainty created by the proliferation of trade and investment restrictions against China will weigh on confidence and investment in the Asian region,” S&P said.
“In our view, this means there are fewer winners in Asia from the decoupling away from China than is often assumed,” it added.
In terms of overall FDI, S&P reported these investments into Asian emerging economies even declined by $24 billion in March compared to the level six years ago.
Along with new alternative manufacturing hubs Vietnam and Indonesia, Hong Kong and Singapore posted FDI growth.
“The jumps for Hong Kong and Singapore likely stem in no small part from financial flows due to relatively high (US-linked) interest rates. We expect some of these flows to be temporary. While some may flow to non-China Asian emerging markets, some may flow back to China as investment plans firm up or interest rates come down,” S&P said.