The COVID-19 pandemic has undersocred the world's over-reliance on China's manufacturing capacity, and accelerated the diversification of the global supply chain, with many firms seeking to building or already building more manufacturing plants in South East Asia. Such a "China+" production diversification strategy presents the nultinational corporations (MNC) with plenty of new opportunities and challenges - in terms of operation, compliance and environment.
The China+ strategy has already been implemented by many manufacturers in order to counter increasing labor costs in China and the problems surfacing during the US-China trade war. Now the pandemic bodes a new era for manufacturing, where China and ASEAN will integrate more to a certain extent, accelerating recovery of the regional supply chain.
The ACFTA signed between ASEAN and China effectively reduces the costs of accessing Chinese suppliers from ASEAN and improves efficiency in production. Manufacturers in the ASEAN region can import raw materials and components needed without paying extra tariffs or going through unnecessary external obstacles.
The cooperation between China and ASEAN is significant because ASEAN is a main supplier of semi-finished goods that are shipped to China for final processing for exports to the Western countries. In the other way around, China provides raw material and components to ASEAN manufacturers. It's natural to that many companies, such as those from Japan, are diversifying investment risks in Asia by investing in both China and ASEAN.
China and ASEAN are now more interdependent than ever. Without trade with ASEAN and its supply chain, it's almost impossible for the Chinese economy to fully recover from the pandemic. The regional value chain connecting both sides is also on track to recovery.
ASEAN, with its geographical proximity, has been deepening its relation with China over the past two decades, and became China's biggest trade partner in 2020, with the total trade value hitting CNY4.74 trillion (US$ 731.9 billion) and growing 7% on year. China, for 12 consecutive years, has been ASEAN's biggest trade partner, too. Despite the pandemic, the great potential and resilience between the two trading partners has sent out quite a positive message to the world regarding global trade.
The Southeast Asian economy revolving around China has long been the epicenter of manufacturing and providing huge economic momentum for the global economy.
As for now, it's not easy for businesses to leave China. There's still a lack of skilled labor, supplier network, and logistics infrastructure in the ASEAN countries, which will take years to catch up. However, businesses embracing the "China+ASEAN" strategy can better accommodate themselves in the face of rising labor costs and the tension between the US and China.
Relocating the supply chain will incur some direct costs. There are also pros and cons over setting up operation in destination countries, and the production ecosystem is only getting more and more complex. The pandemic has led businesses to develop more localized production, but localization could diminish competence of business, bring up consumer prices, and render business more vulnerable to regional shocks like natural disasters or socio-political upheavals.