Graphic: Asia seeks ways to cope with trade war's hit to China demand

Flexium Interconnect

25/09/2019 04:34

By Patturaja  Murugaboopathy  and Gaurav Dogra
    Sept 25 (Reuters) - Asian countries are looking for
catalysts beyond China to drive their economies as the Sino-U.S.
trade war forces Chinese demand for their exports to shrink.
    Luring foreign companies to their shores, finding ways to
boost domestic consumption and scouring for alternate export
markets are part of that policy mix as China's neighbours cope
with flagging demand from the mainland, hitherto a large market
for Asia in the regional supply chain.
    Thailand has unveiled a "relocation package" comprising tax
incentives and changes in laws to attract foreign firms
 urn:newsml:reuters.com:*:nL3N25X25K.
     Malaysia set up a panel to fast-track investments to woo
businesses, and  said it approved more than $500 million in
proposals this month  urn:newsml:reuters.com:*:nL3N26818S.
    Indonesia's central bank cut its benchmark interest rates
for the third time in three months last week, while also
announcing measures to prop up domestic spending. India and the 
Philippines have cut rates multiple times.    
    
    Exports to China from Asia have slowed this year, prompting
the sellers to look for substitute markets. Japan and South
Korea saw their exports to China fall in the first half, but
their shipments to the United States, United Kingdom and Russia
rose during that period.
     Malaysia and Thailand's exports to markets such as United
States, Singapore and Vietnam grew.
    "Efforts to look for unconventional markets have seen an
increase in shipments to countries like Chile, Qatar, and Sri
Lanka," Bank Indonesia deputy governor Dody Budi Waluyo told 
Reuters.
    "We have diversified our export destinations so we can cover
the disappearing shipments to China or to America." 
    
    A Reuters analysis of eight major economies including South
Korea, Indonesia and Taiwan showed the contribution of export
revenue from China to the total GDP fell to 8% at the end of
2019's first half, compared with 9.3% a year earlier. 
        
    Meanwhile, domestic demand added 0.7 percentage point to
Japan's GDP growth of 1.8% in the second quarter, more than
offsetting the 0.3 point negative contribution from external
demand. 
    Malaysia's economy saw solid growth of 4.9% in the second
quarter, on the back of strong private consumption. 
    "Economic growth is showing signs of slowing in emerging
Asia, partly due to trade tensions. However, domestic private
consumption is holding up well,"  OECD said in a July report.
        
    SUPPLY CHAIN SHIFT
    A recent trend of Asian companies shutting factories in
China and shifting them home would help lower their dependence
on China, economists said. 
     According to a Nomura note this month , Taiwanese companies
such as Flexium Interconnect  6269.TW  and Quanta Computer
 2382.TW , South Korean firm SK Hynix  000660.KS  and Japanese
firms such as Mitsubishi Electric  6503.T  and Toshiba Machine
 6104.T  are looking to move production back to home from China.
    Also, some U.S. and European companies are shifting their
factories from China to other lower-cost countries such as
Vietnam, Philippines and Cambodia. 
    German sportswear group Puma  PUMG.DE  has moved some of its
production to Vietnam and Bangladesh from China, while U.S.
retailers like Gap Inc  GPS.N , Steve Madden Ltd  SHOO.O  and
Macy's Inc  M.N  are also moving out of China.  urn:newsml:reuters.com:*:nL8N24W2UH
 urn:newsml:reuters.com:*:nL2N24Y09I  urn:newsml:reuters.com:*:nL5N2281NL
    India is targeting companies including Apple  AAPL.O ,
Foxconn  2354.TW  and Wilstrong Crop  3231.TW , according to a
document seen by Reuters. urn:newsml:reuters.com:*:nL3N25P3WE
    
    Foreign direct investment (FDI) has risen sharply in some of
these low-cost markets in the region, bolstering their current
account balances and helping give more room for their central
banks to cut policy rates this year. 
    FDI into Vietnam climbed to $12 billion in the first eight
months of 2019, from $11.25 billion a year earlier. Malaysia and
Thailand have also seen an increase in FDI. 
    
        
    Tommy Wu, senior economist at Oxford Economics, said 
production processes that require high skills would move to
economies such as South Korea and Taiwan while others would
likely go to countries such as India and Vietnam. 
    "Even before the U.S-China trade war, a lot of companies had
been looking to relocate due to rising production costs in
China. But then, the U.S.-China trade war is a stimulating
factor to speed up this whole process."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Asian exports to China    https://tmsnrt.rs/2NAmacs
Asian countries top export items to China    https://tmsnrt.rs/2NyAIcQ
Growth in Asia's exports to China and rest of the World    https://tmsnrt.rs/2NAW7Sw
FDI into Asia    https://tmsnrt.rs/2PIBzKG
Comparative advantages of Asia's supply chains     https://tmsnrt.rs/2PJxLbZ
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Patturaja  Murugaboopathy and Gaurav Dogra;
Additional reporting by Gayatri Suroyo and Maikel Jefriando in
Jakarta, Orathai Sriring in Bangkok, Rozanna Latiff in Kuala
Lumpur, and John Geddie in Singapore)
 ((patturaja.murugaboopathy@thomsonreuters.com;))