The coronavirus pandemic is accelerating diversification of the supply chain away from China, reports the latest economic research by trade credit insurer Atradius.
The new economic outlook by Atradius reveals how a myriad of factors, including China’s ‘dual-circulation’ agenda, global protectionism and the pandemic, are resulting in a gradual decoupling of China with worldwide economies.
Entitled ‘Decoupling of economies affects Asian trade developments’, the Atradius report is part of a suite of economic research and insights to support businesses trade worldwide. It details how the latest iteration of China’s Five Year Plan will reduce China’s dependence on other countries by seeking technological self-reliance, dual circulation and a move to a sustainable, resilient economy. By pursuing a shift from an export-oriented economy towards one that is consumption based, China’s dual-circulation concept aims to improve the domestic circulation of demand and supply, making the Chinese economy more immune against shocks.
Alongside this, rising global protectionism and the fallout from the US-China trade war has already seen the start of China’s gradual decoupling from a range of countries with companies adjusting their supply chains by relocating production outside of China. However, the coronavirus pandemic has been a further catalyst for diversification.
Richard Reynolds, Head of Strategic Accounts for Atradius UK, explained: “Following the protectionist tendency in global trade over the last couple of years, stringent lockdowns and containment measures triggered by Covid-19 made many international companies more aware of the vulnerabilities to supply-chain disruption arising out of dependency on single markets. The interruption of supply in 2020 led to global problems, particularly in the automotive industry, pharma sector and in electronics manufacturing. While the pandemic is a temporary phenomenon, it will have a lasting impact, accelerating the change of supply chains in east and southeast Asia. That said, as long as many multinational companies are keen on having access to China’s huge consumer market, it will only be a partial decoupling and we are most likely to see specific operations moved rather than entire supply chains.”
As the supply chain diversifies, Atradius reports that while Bangladesh and Cambodia stand out as countries able to raise their share of the global production of textiles, Vietnam is often the destination of companies relocating parts of the supply chain out of China due to low wage costs, participation in several trade agreements and favourable policies for incoming foreign direct investments. Meanwhile, Malaysia is also benefiting from the supply chain adjustment thanks to its rising production capacity for electronic manufacturing while Singapore is increasingly attractive for the financial sector.
Richard Reynolds continued: “Going into 2021, Asia offers an attractive proposition to businesses. With a fairly positive outlook, the recession in most Asian economies was less severe than in the rest of the world and the recovery forecast more robust. However, in embracing new markets and new opportunities it is important for exporters to ensure that they have access to the right knowledge and understanding of their new market, including awareness of any differences in regulations, customs, cultural nuances and economic risks. As a trade partner, Atradius has unrivalled insights and experts on the ground around the globe, acting as a partner to businesses to navigate risk and seize opportunity in a global environment which is ever changing.”