China’s decoupling from world's economies gains pace

The coronavirus pandemic, global protectionism and China’s ‘dual-circulation agenda’ are together accelerating diversification in the global supply chain away from the world’s largest exporting country.

This is according to Atradius, whose latest economic outlook shows China’s gradual decoupling from worldwide economies gaining pace.

And while Bangladesh and Cambodia stand out as countries able to raise their share of the global production of textiles, Vietnam is the destination of choice for companies relocating parts of the supply chain, thanks to low wage costs, participation in several trade agreements and favourable policies for incoming foreign direct investments.

Malaysia is also benefiting, thanks to its rising production capacity for electronic manufacturing; and Singapore’s increasingly attractive financial sector means it will pick up business as China continues to fall out of favour.

Richard Reynolds, head of strategic accounts for Atradius UK, said a 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,” he explained. “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.

“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."

China’s Five-Year Plan aims to reduce its dependence on other countries by seeking technological self-reliance, dual circulation and a move to a sustainable, resilient economy.
Alongside this, rising global protectionism and the fallout from the US-China trade war triggered the start of China’s gradual decoupling from a range of countries long before the arrival of COVID-19.

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