US-China trade war set to make big winners out of Asean countries

Asean’s trade outlook is the most bullish in the world because its member states will be the big winners in the US-China trade war, according to top HSBC bankers at an economic forum in Singapore.

Attendees at the Bloomberg New Economy Forum in Singapore heard that the relocation of production out of China to lower-cost countries in the Association of Southeast Asian Nations had been taking place for a number years.

But the US-China trade war had prompted a sharp acceleration of that trend to avoid US import tariffs on Chinese goods.

Patrick Burke, chief executive officer of HSBC US, said a manufacturing client had already been thinking about moving his company’s factories to Cambodia and Vietnam, but was now pushing ahead with that process at a faster pace.

“They really decided to start moving and take action because of the [US] tariffs,” Burke told the South China Morning Post during the forum.

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Tony Cripps, CEO of HSBC Singapore, told the forum Asean countries would be the main beneficiaries of the process of supply chain diversification, although he warned that a large scale shift would not happen overnight.

Some 86 per cent of corporations doing business in Asean countries are optimistic about their foreign trade prospects, above the global average of 77 per cent and higher than any other global trading bloc, according to the findings of an HSBC Navigator survey released earlier this week.

But at the same time, 75 per cent of Asean firms admitted that governments are becoming more protectionist in their key export markets, a score that is also the highest among all trade blocs in the world, exceeding the global average of 63 per cent, according to the same survey conducted this autumn.

“This seems counter-intuitive at first glance and it certainly raises the question of whether they are underestimating the trade risks that come with rising protectionism, or are shrewdly seeing opportunity among the trade disruption,” Cripps said.

HSBC noted that the trade war between the world’s two largest economies had opened up opportunities for Southeast Asian nations in export areas including electronics, textiles as well as automobiles and parts.

Countries like Thailand and Malaysia, which already have production networks in electronics, particularly hard disk drives, could more easily benefit from a shift of supply chains, according to the HSBC report, while Vietnam and Indonesia have become increasingly competitive in light manufacturing and textile exports.

Hard disk drives shipped from China are already subject to a US import tariff of 10 per cent, scheduled to rise to 25 per cent on January 1.

Moreover, an increased use of technology in production now tops the list of changes Asean firms plan to make to their supply chains in the next three years.

“It isn’t just about labour costs, companies are moving because they want to manufacture in a different way, using more technology in the process,” Burke said.

Even though Asean countries can benefit from US-China trade war, the HSBC officials warned that companies in the region would still need to prepare for the risk that trade tensions will continue over the longer term.

In a keynote speech to the forum on Tuesday, Chinese Vice-President Wang Qishan said China was ready to talk with the US to resolve the months-long trade war.

China is ready to talk to resolve US trade war, says Vice-President Wang Qishan

But Burke does not expect there to be a rapid resolution to the conflict.

“The views of the two sides are very different from each other, and both are very determined to do what they think is the right thing,” he said.

Cripps said companies thinking of relocating should pay close attention to local conditions, including the supply of raw materials and the amount of skilled labour in the countries they were considering.

“If companies are thinking about putting supply chains in Asean, the different countries in the region have different environments and regulations, so there is still more work [for the companies] to do,” he said.

The supply chain shift is a natural economic progression, and the gain for Southeast Asia does not mean a loss for China, especially when China is moving up the manufacturing value chain and shifting to a consumption-led economic growth model, Cripps said.

Burke also noted there were other options for companies rather than changing their supply chains.

“A woman who started a luxury clothing company told me that what she should do now was to raise her prices, particularly in Asia … because Asia now has the ability to pay more for luxury goods,” he said.