Focus: Manufacturing supports the future of developing Asian countries-China Titanium

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Focus: Manufacturing supports the future of developing Asian countries

With the gloomy economic prospects in the US and Europe and the potential decline in exports, Asian manufacturing's further upgrading is facing a severe test. Recently released global and national manufacturing Purchasing Managers' Indices (PMI) all show that global manufacturing output and orders are declining. JPMorgan Chase's newly released global PMI index fell from 50.7% in July to 50.1% in August.

Publish Time:

2020-05-10

Focus: Manufacturing supports the future of developing Asian countries

　　With the gloomy economic prospects in the US and Europe and the potential decline in exports, Asian manufacturing's further upgrading faces a severe test. Recently released global and national manufacturing purchasing managers' indices (PMI) show that global manufacturing output and orders are declining. JPMorgan Chase's newly released global PMI index fell from 50.7% in July to 50.1% in August. Conventionally, an index above 50% indicates overall manufacturing expansion, while below 50% indicates contraction. Clearly, global manufacturing is at a critical juncture of whether to continue rising or falling.

　　Increased domestic demand is expected to offset the adverse effects of the external environment.

　　Asia is the base of global manufacturing. The manufacturing sector in most Asian countries is more developed than the service sector, and ASEAN and China, Japan, and South Korea (10+3) rely on manufacturing as their export pillar. Data from the Asian Development Bank shows that in 2009, China accounted for 13% of global manufacturing exports, the 10 ASEAN countries accounted for 6.1%, Japan accounted for about 6%, and South Korea accounted for 3.7%, with "10+3" totaling about 29%. In global exports of machinery and transport equipment, "10+3" accounted for 31%.

　　Analysts believe that Asian manufacturing was significantly impacted by the 2008 international financial crisis. Subsequently, major Asian manufacturing countries adjusted their export structures, focusing on developing new export markets. Domestic demand in Asian countries has also increased rapidly in recent years, increasing the region's capacity to "absorb" manufactured products. Recently released purchasing managers' indices from various Asian countries show that although new export order data has fallen, new orders and employment data are growing simultaneously, indicating that new orders are mainly from local sources. The increase in domestic demand is expected to offset the adverse effects of the external environment.

　　The development of manufacturing has become an important reason for improving the living standards of people in Asian countries, and the improvement in living standards helps expand manufacturing. Kiyoshi Usui, Senior Economist at the Asian Development Bank's Philippines Country Office, said in an interview with this reporter that manufacturing is the pillar of a country's economic development, and the main path for most developing countries in Asia to improve their economies and reduce poverty is to rely on the continuous development of manufacturing.

　　Large multinational corporations may increase investment in Asia.

　　Zhuang Juzhong, Deputy Chief Economist of the Asian Development Bank, told this reporter that compared with Latin American countries, Asian manufacturing has advantages such as low labor costs, high quality, abundant human capital, and a generally stable political and investment environment. Coupled with the vast markets of China and India, these factors make Asia a major investment target for global manufacturing companies.

　　The United Nations Conference on Trade and Development recently released the "World Investment Report 2011," which stated that in 2010, foreign direct investment into South Asia, East Asia, and Southeast Asia increased by 24%, reaching US$300 billion, accounting for nearly 1/4 of the global total. In 2010, foreign direct investment into ASEAN more than doubled, reaching US$79 billion. The report predicts that Asian economies have made significant progress in regional economic integration, and the overall regional development environment will be more conducive to attracting foreign investment.

　　Analysts believe that Asia's advantages in manufacturing are currently difficult to replace by other regions globally. Although developed economies will focus on boosting manufacturing in the future to improve domestic employment rates, it is unlikely that large multinational corporations in these countries will move factories already established in Asia and other parts of the world back to their home countries, especially labor-intensive industries. On the contrary, due to the uncertain economic prospects in their home countries, Asia's manufacturing and market advantages are even more prominent, and large multinational corporations are likely to increase investment in Asia. This trend has been very obvious since last year.

　　Overall, the problems faced by developed economies have not weakened the profitability of their companies. In the future, these companies' global investment and mergers and acquisitions activities will become more active, which may be an opportunity for Asian countries with manufacturing advantages to attract more foreign investment.

　　The Federal Reserve's report released on the 16th shows that in the second quarter of this year, US companies continued to accumulate profits and cut expenses. The total amount of cash and other liquid assets held by companies increased to US$2.047 trillion, a 4.5% increase quarter-over-quarter. Corporate cash holdings are at their highest level since the Federal Reserve began this survey in 1945. Bloomberg's previous forecast showed that Japanese companies holding a total of US$2.4 trillion in cash will seek overseas acquisitions to improve their returns.

　　The development of Asian manufacturing is also accelerating regional interaction, creating a situation where the production chain is continuously strengthened through competitive complementarity. For example, in manufacturing, countries like Vietnam and Indonesia have a greater cost advantage in producing clothing and shoes than China, but the related machinery and equipment need to be imported from China. In China's processing and manufacturing exports to the US and European markets for every US$100, about US$35 to US$40 flows to Southeast Asian countries. This situation has effectively promoted the upgrading of manufacturing in the region.

　　At the same time, companies in the region are increasing their investment in each other. Many Chinese clothing and footwear companies are moving their factories to Southeast Asia. Investment in manufacturing among the 10 ASEAN countries reached a record US$21 billion last year.

　　Developed economies' revitalization of manufacturing poses a challenge to Asian industrial upgrading.

　　Asian manufacturing still faces some challenges. Zhuang Juzhong believes that firstly, it is necessary to continue expanding domestic demand and reduce dependence on developed country markets; secondly, developed countries are currently actively revitalizing manufacturing to create more jobs, which will pose competition to Asian countries' manufacturing upgrades; thirdly, in some emerging Asian economies, processing trade still accounts for a high proportion, with low added value, and future industrial upgrading is the trend.

　　Analysts believe that if developed countries revitalize manufacturing, they will first increase investment and R&D in the mid-to-high-end, and secondly, occupy the global market for mid-to-high-end products, which will be unfavorable to the further expansion and upgrading of Asian manufacturing.

　　Quande Jian, an economist at Oversea-Chinese Banking Corporation, told this reporter that boosting domestic consumption can make up for the export shortfall caused by weak demand in Europe and the US, but Southeast Asian countries have low income and consumption levels, and the consumer market has shifted from a high-income market to a low-income market, which will reduce corporate profits. However, income increases and market expansion take time. At the same time, Asian currencies may continue to appreciate. Therefore, companies need to raise their awareness and adjust themselves, actively develop the Asian regional market, and gradually reduce their dependence on developed country markets. In addition, Africa and Latin America are non-traditional markets, with high risks and high returns, great potential, and broad prospects.

　　Experts interviewed by the reporter all believe that since the magnitude of the economic downturn in developed countries in Europe and the US will not exceed the 2008 international financial crisis, as long as Asian manufacturing can seize this favorable period to further expand and upgrade its industrial level, it is possible to turn "crisis" into "opportunity".

keyword： Manufacturing,Potential

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