A Market Larger Than China Opens... Now the World's Factory is 'Intae' [Korea-China Supply Chain Diagnosis]

Supply Chain Analysis Report⑥ Rise of India-ASEAN Export and Production Bases
South Korea's Exports to India-ASEAN Increased from 41.8% in 2015 to 47.1% in 2021...Exports to China Stagnate at 31%
Acceleration Expected in Semiconductor and India-ASEAN Regional Supply Chain Cooperation System

[Asia Economy Sejong=Reporter Kwon Haeyoung] With the launch of the Indo-Pacific Economic Framework (IPEF) led by the United States, the market value of the Indo-Pacific region, including ASEAN and India, is once again drawing attention. As supply chain cooperation aimed at countering China is expected to strengthen around the Indo-Pacific bloc, ASEAN and India, which have high growth potential, are likely to emerge further as major export and investment markets that can replace China.

According to the Korea International Trade Association on the 9th, the Indo-Pacific region accounts for 44.8% of the world's Gross Domestic Product (GDP) and 35.3% of global merchandise trade.

The growth potential of emerging Indo-Pacific countries is also high. According to the International Monetary Fund (IMF), India and ASEAN are expected to surpass China's economic growth rate from 2020, with Vietnam and the Philippines projected to have growth rates of 6-7%. India's population is 1.4 billion this year and is expected to surpass China in 2024, while the population of six ASEAN countries (Malaysia, Vietnam, Singapore, Indonesia, Thailand, and the Philippines) is expected to reach 600 million in 2023.

The share of the Indo-Pacific region in South Korea's exports also increased by 5.3 percentage points from 41.8% in 2015 to 47.1% in 2021. Compared to exports to China, which stagnated at 31% during the same period, the importance of the Indo-Pacific region is gradually increasing.

The value of the Indo-Pacific region as a global production base is also rising. Looking at the share of global foreign direct investment targeting ASEAN and India, it increased significantly from 7.5% in 2015 to 19.3% in 2020. Low labor costs are also accelerating the 'ASEAN shift' as a major production base replacing China. According to the 2020 manufacturing labor cost statistics by country in Asia compiled by the Japan External Trade Organization, China’s monthly labor cost is $484, while Thailand and Malaysia are $359 each, Indonesia is $340, India is $255, the Philippines is $246, and Vietnam is $237, showing relatively low costs.

Regarding the new supply chain construction targeted by IPEF, major Indo-Pacific countries have already firmly established regional cooperation systems. In the case of semiconductors, a key advanced industry at the center of the U.S.-led supply chain restructuring, the U.S. handles most processes including manufacturing equipment, wafer production capacity, and post-processing; South Korea leads in memory semiconductor design and production; Taiwan excels in system semiconductor design and production; and Japan has an advantage in manufacturing equipment. ASEAN and India are also actively engaged in assembling and producing various electronic devices and are becoming increasingly important as major demand markets for semiconductors.

Park Sunmin, a research fellow at the Korea International Trade Association, emphasized, "Considering the scale of the Indo-Pacific economy, trade, investment, and geopolitical importance, U.S. economic cooperation with the Indo-Pacific, including IPEF, will continue," adding, "We need to pay attention to the changing international trade environment, which is shifting toward supply chain and value-centered economic cooperation, and seek countermeasures beyond just market access."