Citi: Vietnam and India may benefit most from supply chain shifts

The report titled 'Global Trade in Flux: Politics, Policy, and the Reconfiguration of Supply Chains' published in November offers insights from Citi’s experts around the world on how the very nature of global trade is changing, providing clear and present evidence of a rapidly shifting world order.

Accordingly, manufacturing supply chains are undergoing a worldwide reshaping. Underpinning this is a growing desire to build resilience to shocks by reducing concentration risk.

Various factors are likely to lead to increased demand to diversify, providing an opportunity for some Latin American and Asian economies to take market share. Beyond such broad-based manufacturing relocation, another important shift in global supply chains relates to semiconductors.

There are clear signs that accelerated supply chain shifts are materialising in parts of ASEAN and India. ASEAN’s success in attracting supply chains comes from its own efforts to boost competitiveness, where there is already a deep manufacturing ecosystem built over many decades that can’t be replicated elsewhere, especially in electronics. ASEAN also has pursued structural reforms to improve the domestic investor climate and provide various fiscal and tariff-reducing policy inducements.

Foreign direct investment (FDI) into China fell below that into ASEAN and India for the first time, since late 2023. While FDI into China was four times larger than that into ASEAN (excluding Singapore) and five times larger than that into India between 2012-2021, it had fallen to less than a quarter of ASEAN’s by the first half of 2024, and just half of India’s.

According to the Citi GPS report, Vietnam received the lion’s share of production relocations citations. Supply chain shifts have already enabled the rest of Asia to gain global export market share since 2018, especially in electronics. ASEAN’s market share gains have been most evident in the US import market for computers and electronics, where China’s share fell 24 per cent since the start of 2019, and Vietnam’s increased by 8 per cent in the same period. Vietnam reflects a particularly interesting dynamic. Around 37 per cent of all Chinese relocations since 2018 went to Vietnam, which led to a surge in imports from China.

India and Vietnam have the greatest similarities in industrial structure, and could therefore benefit most from supply chain shifts out of China. However, in general, China is likely to hold its ground in the near term with products it has been overwhelmingly dominant in, with an over 70 per cent market share.

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