Asian Countries Do business with China, Lose More Than Profit, but Still Cannot Leave China

• 19 May 2024
• International News
• 1718 Views

In a significant turn of events, the United States has surpassed China as the premier export destination for South Korea and Taiwan, marking a pivotal shift in Asia’s trade landscape. This development, observed in December, underscores a broader trend where Asian economies are exporting less to China as a percentage of their total exports, while simultaneously importing more from the economic giant. This shift is evidenced by the region’s exports to China dropping to 17.9% in February 2024, down from a peak of 22% in April 2021, representing the most substantial three-year decline in over two decades, possibly the largest ever, according to a source from Asia.nikkei.com published on 29 April 2024.

The reduction in exports to China is attributed to two primary factors: the diversification of supply chains away from China, spurred by ongoing US pressures for decoupling, and a weakening domestic demand within China, particularly from its real estate sector amidst a prolonged market downturn.

Despite these overarching trends, Vietnam and Indonesia emerge as notable exceptions within Southeast Asia, with Vietnam’s processing exports to China increasing and Indonesia ramping up exports of nickel, iron, and steel, driven by Chinese investments in Jakarta’s strategy to shift away from raw mineral exports. Indonesia is selling more nickel, iron, and steel to China. This increase is because Chinese companies are helping Indonesia change its approach from exporting raw minerals to focusing on more processed products, including those used in electric vehicle batteries.

Interestingly, while China’s imports from other Asian nations have diminished, its exports to these countries have seen an uptick, accounting for nearly 32% of China’s total exports last year, up from 28.2% in 2015. This increase partly reflects trade diversion, with China exporting more intermediate goods to countries like Vietnam, which are then re-exported to Western markets. Moreover, this trend aligns with Beijing’s strategic redirection of exports towards new markets in Asia, Africa, and the former Soviet Union, in response to heightened scrutiny from the US and Europe.

These evolving trade dynamics suggest a structural shift rather than a temporary fluctuation. With multinational companies seeking further diversification away from China and the Chinese economy grappling with structural and geopolitical challenges, a slower growth in China’s import demand seems likely. This scenario will compel Asian economies to seek new export markets and diversify trading partners to sustain their export growth, potentially leading to an increased pursuit of bilateral and multilateral trade agreements.

Additionally, the region must brace for heightened competition from China in both new and domestic markets. Increased Chinese exports of automobiles to Thailand, chemicals to South Korea, and steel and aluminium to India are intensifying competition for local manufacturers, potentially stirring trade tensions.

The changing trade dynamics also spotlight potential beneficiaries such as India and Malaysia, particularly in the electronics sector, as multinationals explore new geographies for supply chain realignment. However, attracting investment and enhancing domestic ease of doing business will be crucial for these countries to capitalise on the shifting landscape.

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• Economy and Finance