Asian governments to invest in production to take advantage of Covid-19 trade shake-up

12 Aug 20

Asian governments are expected to channel more money into domestic supply chains following Covid-19, according to ratings agency Moody’s.

 

In a report, it said that governments are expected to look towards subsidies to encourage particular industries in their own country, making trade less reliant on geopolitical stability and smooth conditions, according to a report from ratings agency Moody’s.

The Japanese government, the paper pointed out, recently earmarked $2.2bn to help companies shift production back to Japan.

Potential shifts in the shape of supply chains follow several years of tense trading conditions, including a trade war between the US and China.

In most country’s cases, Moody’s suggested a shortening of supply chains will be limited to strategic industries such as medicines, memory chips and power modules.

Supply chains have been moving away from China for several years, partly due to rising labour costs as the Chinese economy develops, exacerbated by trade conflict with the US since the election of Donald Trump as president, and now compounded by Covid-19.

However, the pandemic “will likely accelerate fundamental shifts in trade relationships globally and particularly in Asia”, the report said.

“Asian countries ex-China will stand to benefit from diversification away from China provided that these countries have sound economic fundamentals, reliable infrastructure, sufficient human capital stock and low geopolitical and supply security risk.”

Moody’s predicted that supply chains will become shorter and less “just-in-time”, which is likely to lead to increased regionalisation, with countries becoming more reliant on their near neighbours.

It suggested that the biggest beneficiaries from such a shift will be Thailand, Vietnam, Taiwan and Malaysia.

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