Despite major efforts to decouple supply chains, China's role in global exports is not expected to decline significantly and fewer Asian countries will benefit from the process than commonly thought, according to a leading ratings agency.
“Overall, trends in exports and inward foreign direct investment (FDI) suggest only modest changes in the role of Asian countries, including China, in global supply chains,” S&P Global Ratings said in a report on Tuesday.
U.S.-led efforts to diversify commodity distribution outside China have intensified in recent years as trade tensions in key Western markets have put other Asian suppliers such as India and Vietnam in the spotlight.
According to S&P, China's share of imports from developed markets such as the United States and Japan has fallen over the past six years, but its overall share of the global market has remained slightly higher due to rising exports to emerging markets.
The report said China's strong market share was due to an increase in “normal” exports by domestic companies as they became more competitive, as opposed to “processed exports” in which imported parts are assembled in China and the finished products are shipped to third countries.
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US proposes new tariffs on China as trade war escalates
US proposes new tariffs on China as trade war escalates
“Exports of Chinese-branded capital goods, electric vehicles, smartphones and home appliances have expanded rapidly in recent years,” it said.
“Since about 2010, regular exports have significantly exceeded processed exports.”
The report's authors wrote that China's vast industrial environment, with “specialized suppliers,” “good infrastructure” and local government facilities, remains attractive compared with relocating to countries with less developed industrial sectors, which can bring unforeseen challenges and higher costs.
For example, there has been reportedly only a “surprisingly modest” increase in production relocation from China to Mexico and other emerging Asian countries.
India's share of combined Asian and Mexican exports rose to 5.2% in the year to June 2024 from 4.8% six years ago, but the increase was just one-tenth of the increase reported by China over the same period.
S&P said China's share in Asia has fallen sharply since 2022 and Mexico's total inward FDI has also fallen, but overall gains in emerging markets have been limited, noting that India's share has fallen over the six-year period and Mexico's has remained roughly stable.
The ratings agency said the data highlights “important and sobering points” about the impact of deglobalisation and decoupling on Asia.
While relocations from China will affect the Chinese economy and therefore demand for goods and services from Asia, the uncertainty created by expanding trade and investment restrictions also “weighs on confidence and investment in the region,” the report's authors wrote.
“This means that there are fewer Asian winners from decoupling with China than is often thought.”
In his acceptance speech for the Republican nomination for the White House, former U.S. President Donald Trump threatened to impose higher tariffs on Chinese-made cars as part of a plan to bolster the domestic auto manufacturing sector.
China is expected to be a central topic at the first debate, scheduled for September 10, between Vice President Kamala Harris and President Trump.
