Moody’s Investors Service says in a new report that shifting supply chains as countries reconfigure trade relationships following the coronavirus crisis will have mixed credit implications for the Association of Southeast Asian Nations (ASEAN).
- Risk mitigation will lead to reduced dependence on China in global value chains
- Diversification will benefit ASEAN, but localisation of production will have negative effects for ASEAN producers
Specifically, trade diversification is likely to favour ASEAN economies over time, while the reshoring of supply chains closer to consumer markets – especially in sectors with heightened security requirements such as pharmaceuticals – could move productive capacity away.
“While the technological capabilities of the ASEAN region still lag those of more advanced Asian economies, particularly in electronics, a general openness to foreign direct investment and lower production costs will offer some advantages,” adds Tan.
Recent events will accelerate the offshoring of activities to ASEAN at the expense of trade with China, although an exodus of foreign companies from the Chinese markets is unlikely even as companies step up efforts to mitigate risks.
While the ASEAN economies stand to benefit from the efforts of producers to diversify their sources of supply, they will be negatively affected if reshoring trends become more pronounced.
Yet, there are three ways in which the ASEAN economies might mitigate the impact of a possible reshoring trend and the associated fragmentation of the global trading system: (1) enhancing free trade agreements with advanced economies, (2) deepening regional trade agreements, and (3) developing ASEAN further as a trading bloc in its own right. However, for the latter, ASEAN will first need to address structural challenges to harness the bloc’s full potential.
The Latest on Covid-19 in Southeast Asia
Thailand has largely avoided widespread community transmission of Covid-19, but the kingdom is not faring well on the economic front, with a projected contraction of 7.1 percent this year.
China’s debt-trap diplomacy: Laos’ credit rating downgraded to CCC
Laos’ debt challenge is deeply concerning, with some media commentators suggesting the country is falling into a debt trap as a result of Chinese infrastructure investments connected to the Belt and Road Initiative (BRI)
Foreign capital still heads to Vietnam
As many as 798 projects added a combined over 5.11 billion USD to their investment capital, down 23 percent year-on-year in project number but up 6.8 percent in value.
Hanoi (VNA) – The total amount of foreign investment poured into Vietnam this year to September 20 reached 21.2 billion USD, equivalent to 81.8 percent of the same period last year, reported the Ministry of Planning and Investment.(more…)
Thailand to roll out more economic measures for New Year
Thai economy next year is expected to grow by 3.5-4.5 percent, while the Ministry of Finance has prepared more measured...
Raising inequality posing credit risks for sovereign in APAC countries
Governments with weaker social protection systems and tighter fiscal positions will face tougher challenges in tackling income inequality
Salary increases in Thailand and Singapore expected to be among the world’s highest in 2021
Few countries are expected to see a significant rise in the level of real salary increases in 2021, but there...
Bank of Thailand steps in to curb recent baht strength
Bank of Thailand accelerates measures to advance the development of the new Thai FX Ecosystem and to limit excessive currency...
Standard and Poor’s maintain Thailand’s credit rating at BBB+
The agency is confident in Thailand’s finances, in spite of measures needed to respond to COVID-19, resulting in a deficit...
Will RCEP help drive South-east Asia’s Covid-19 recovery?
The Regional Comprehensive Economic Partnership (RCEP) was finally signed on Sunday November 15, on the sidelines of the annual summit...
Subscribe via Email
Economics1 week ago
EXIM Bank forecasts Thai exports growth as high as 4 per cent in 2021
Banking1 week ago
Thailand borrows US$ 1.5 billion from ADB to fight Covid-19
Banking7 days ago
Bank of Thailand keeps policy rate at 0.50 percent
Banking1 week ago
Thai banks remain resilient in Q3 2020 but profits declined