Vietnam not yet a ‘net winner’ of production relocation from China: S&P Global

Vietnam and other emerging markets in Asia are not yet major net winners of production relocation from China, whose role in global trade will not diminish drastically as global supply chains continue to evolve, an S&P Global report says.

China's consistency in global supply chain

In a recent commentary, S&P Global noted geopolitical friction, trade barriers, and industrial policy are challenging Asia's dominant supply chains, especially businesses' operations in China.

Before the trend, firms in the textile and footwear sectors relocated their production lines away from China due to higher costs and wages. The trend has intensified and broadened the relocation to other industries, including semiconductors and smartphones. In addition to moving out of China, multinationals are now more likely to install new capacity elsewhere.

However, trends in exports and foreign direct investment (FDI) show that, overall, the role of Asian economies, including China, in the global supply chains is changing only modestly.

S&P Global pointed out that China's share of U.S. goods imports has shrunk since the Trump administration increased tariffs on most imports from China, with other Asian emerging markets and Mexico filling most of the gap. Similar developments were noted in Japan and Europe.

Meanwhile, China's exporters have expanded their share of the imports in emerging markets. This matters as emerging markets' imports make up a large and rising proportion of the global total. S&P Global attributed the changes to China's growth in exporting "normal" goods, which outpaced the growth of exporting components assembled in China for re-export to third countries.

China's export market share rose to 39.8% in the year to mid-2024, from 36% six years earlier, S&P Global highlighted.

Asia's emerging markets grow modestly at changes in China

As data show, the supposed change is far less than the common understanding, and China's share has improved in the global export market, S&P Global pointed out that Asian emerging markets and Mexico have only made modest gains.

In particular, for Vietnam, the country's share of total Asian + Mexico exports expanded impressively in the 15 years through early 2020. Its rise was subsequently disrupted for several years amid the Covid-19 pandemic. While recent trends suggest the growth may have resumed, Vietnam doesn't seem to have been as much of a winner in the recent global supply-chain shifts as is sometimes assumed, according to S&P Global.

Regarding FDI into Asia and Mexico, the plunge in China since 2022 suggests some emerging markets would benefit from the trend. In fact, S&P Global data shows that only Vietnam and Indonesia reap benefits with higher shares of the total FDI in Asia and Mexico than six years ago. Vietnam is the only "manufacturing" economy that has a significant increase of 1.7 percentage points in progress, according to S&P Global.

For absolute figures, FDI into Asian emerging markets excluding China was $24 billion lower in the year to March 2024 than six years earlier. The total for Asia-Pacific excluding China rose. But that was more than driven by Australia, Hong Kong, and Singapore, S&P Global stressed.