ASEAN countries have mostly benefited from the diversion of electronics trade between the US and China through increased foreign direct investment (FDI) inflows, which have built up their production and export capabilities, the Monetary Authority of Singapore (MAS) said in its half-yearly macroeconomic review on Monday (Oct 28).
Global merchandise exports continued to fluctuate around a range of 20 to 25 per cent of global gross domestic product from 2018 to 2023, after the onset of the US-China trade war. This is similar to that in the preceding period of 2009 to 2017 – but important compositional effects have occurred.
US’ bilateral trade with China has diverged further from its other trade partners in recent years, following a brief convergence during the pandemic, the central bank said.
By major commodity groups, electronics was the main drag on US-China bilateral trade between 2017 and H1 2024.
Said MAS: “Concomitantly, trade diversion to ‘connector countries’ gained traction in the electronics value chain.”
It noted that China has been exporting more electronics to Asean countries such as Vietnam, Thailand and Malaysia, as well as India; and US imports similarly recorded an uptick from Asean and India.
Playing middleman
Asean and India are playing an intermediary role, as foreign firms de-risk and pursue a China+1 strategy, MAS explained.
“The emergence of the ‘connector’ economies stems from the adoption of a dual supply chain strategy by many large global firms,” it continued. ”In essence, these firms are producing in China for the domestic market, and outside of China for the rest of the world.”
This is a shift from how multinational firms previously channelled investments into production in China for both domestic and global markets.
MAS highlighted that while the announced greenfield investments value in the global electronics sector quadrupled to an average of US$200 billion in the 2021 to 2023 period, from 2015 to 2020 levels, this value has generally trended down over the period for China.
The Asean economies and India, however, marked substantial FDI inflows in recent years, particularly in the electronics industry. International companies such as Foxconn, Samsung, LG Electronics and Apple expanded their operations, made significant investments or ramped up production.
These increased inflows bolstered Asean and India’s production capabilities and contributed to their greater electronics exports.
China supplies intermediate electronics inputs to these regions for production into final goods for the rest of the world.
Asean and India’s shares in China’s intermediate electronics exports have grown in recent years, and they have consequently gained market shares in US’ final electronics imports, MAS said.
It added: “Amid these trade reconfigurations, Asia has retained its centricity in the global electronics value chain, with Asean gaining prominence.”
As at 2023, Asia’s share of global electronics exports remained broadly unchanged from 2015, at around 70 per cent. Meanwhile, Asean in 2023 accounted for 18 per cent, up five percentage points over the same period.
Playing to strengths
The region can continue to gain by specialising in different parts of the value chain, MAS said. “To fully capitalise on new growth opportunities, regional economies could deepen trade agreements, press on with structural reforms, and invest in human capital and infrastructure, including by adopting artificial intelligence technologies.”
As for Singapore, it should see indirect spillovers from increased electronics production in the region, as foreign multinationals continue to pivot towards Asean.
It can complement the regional economies, leveraging its comparative advantage in the production of upstream and midstream electronics goods and providing intermediation services.
The Republic remains attractive for high-value-added semiconductor manufacturing, such as recent projects by Siltronic and VisionPower Semiconductor Manufacturing Company. Furthermore, it could leverage its strategic re-export role and provide supporting services such as transportation, financial and consulting services.
MAS said: “This collaborative approach bolsters regional connectivity and efficiency, positioning Asean as a key player in the evolving global manufacturing and trade landscape.”
Singapore’s shares in China’s exports and US’ imports have largely been unchanged between 2017 and H1 2024.
Source: The Business Times
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November 22, 2024
