[Asia Economy Reporter Kim Hyunjung] As American companies operating in China face potential setbacks due to the country's economic slowdown, Southeast Asia is emerging as a possible alternative, according to an analysis.
On the 22nd (local time), Hong Kong's South China Morning Post (SCMP) reported this, citing a related diagnosis from investment bank Nomura. SCMP stated, "In recent months, there has been a sharp increase in COVID-19 outbreaks in Chinese cities, adding pressure to the economy," and noted, "There is a possibility of construction project and manufacturing disruptions."
China had set its gross domestic product (GDP) growth target for this year at 5.5%, higher than the market consensus of 5.2%. However, experts warn that with the resurgence of COVID-19 causing employment instability and a decrease in disposable income, consumer spending capacity may deteriorate.
Zenon Capron, Managing Director of Capron Asia, a consulting firm headquartered in Singapore, explained, "Over the past decade, China has generally been a core business source for American companies ranging from Starbucks to Apple. If growth in the Chinese market slows down, it will significantly impact these companies' revenues, which will be difficult to offset in any other global market."
According to China's National Bureau of Statistics, the size of the Chinese consumer market last year was approximately 44.8 trillion yuan (about 8,523.2 trillion won), marking a 12.5% increase compared to the previous year. At the end of last year, the Chinese State Council predicted that China would become the world's largest consumer goods market between 2021 and 2025. Annual retail sales were projected to reach about 50 trillion yuan by 2025. However, since the spread of COVID-19, China has clearly shown signs of sluggish growth. The U.S. Conference Board forecasted that this trend would continue for six months following the decline in consumer confidence through the second half of 2021.
There is also a forecast that the breakthrough for China's manufacturing slump this year will be found in Southeast Asia. Rajiv Biswas, Chief Asia-Pacific Economist at market research firm IHS Markit, suggested that shifting factory orders to Southeast Asia could help alleviate supply chain disruptions. Indonesia, Malaysia, Thailand, the Philippines, and Vietnam are major industrial countries within the 10-member ASEAN region, with a combined economic size of $3.8 trillion (about 4610.54 trillion won). Biswas explained, "Southeast Asia's manufacturing industries, such as apparel, textiles, electronics, and automotive parts, could serve as alternatives if Chinese manufacturing experiences prolonged significant disruptions."
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