The diversification of China’s supply chain has created significant opportunities for ASEAN economies, particularly Vietnam, Malaysia, and India, with key benefits seen in the textiles and electronics sectors, according to Moody’s Ratings.
Despite ongoing US-China trade tensions, the global credit rating agency noted that the relocation of supply chains away from China remains limited due to China’s dominance in the global value chain. This dominance makes it challenging for producers to reduce dependence on Chinese inputs, although multinational corporations are steadily shifting production closer to alternative suppliers.
However, the trade and investment gains across ASEAN and India have been uneven. Imports from these regions remain relatively low, comprising only about 9% and 3% of total US imports in 2024, respectively. At the same time, China has been redirecting its exports to ASEAN, Russia, and the European Union.
Moody’s also highlighted that foreign investment patterns are aligning with these shifts, with Vietnam and Malaysia emerging as key destinations for greenfield investments as China’s share declines. However, trade policies continue to shape these developments. In October 2024, the US imposed preliminary countervailing duties on solar cells imported from Cambodia, Malaysia, Thailand, and Vietnam, targeting Chinese-owned firms operating in the region that were allegedly benefiting from unfair subsidies.
The agency warned that ASEAN’s increasing dependence on China could pose economic risks, particularly as indirect impacts of tariffs might disrupt trade dynamics. This could have negative ripple effects on economies heavily reliant on Chinese demand, such as Vietnam, Thailand, and Malaysia. Furthermore, as global trade policies become more interventionist, economies aiming to replicate China’s export-led growth model may face greater challenges.
To strengthen their competitive edge, ASEAN and India must focus on enhancing their domestic value-added capacity. The lack of robust local supply chains and gaps in trade policies remain key obstacles to establishing new manufacturing hubs.
To boost investment attractiveness, Moody’s recommended improvements in infrastructure, connectivity, and trade liberalization to attract foreign direct investment (FDI). Regional governments have already taken strategic steps, such as adopting Industry 4.0 technologies, upgrading infrastructure, and implementing proactive FDI policies to strengthen their positioning in global supply chains.
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