As exporters across Asia re-examine their trade strategies amid a potential escalation of the global trade dispute, an HSBC poll of companies on expectations around future growth in trade and strategic business plans shows a region divided.
HSBC’s Navigator: Now, next and how for business reveals results from a survey of more than 8,500 corporates in 34 markets around the world, and 3,300 in 12 Asia Pacific economies. Released last week, it was conducted between late July and mid-September, when the first US$34bn tranche of tariffs in the US-China trade war had been implemented, the second tranche of US$16bn took effect, and the third tranche of US$200bn was announced.
Although the survey shows 77% of companies in Asia have a positive outlook on trade – roughly in line with the global figure of 78% – a deeper dive into the numbers reveals huge intra-regional variation as winners and losers emerge from China’s trade spat with the US.
It’s all smiles in South Asia, with India and Bangladesh scoring the highest in the world in terms of trade outlook at 96% and 94% of companies polled respectively. In a 15-page whitepaper published last week, the Economist Intelligence Unit said that Bangladesh – which is the world’s second-largest readymade garment exporter after China – is an easy location for global brands to divert orders to if tariffs on imports from China make products more expensive in the US, while India’s industrial sector has the upper hand when it comes to integration of production processes involved in the manufacture of apparel, from weaving to spinning to final product.
Asean, another potential beneficiary of the trade war as corporates weigh shifting lower value-added manufacturing activities from China, also scores highly, with Thailand, Vietnam and Malaysia all at the top of the league tables in terms of outlook and confidence of business success in the current environment.
Speaking to GTR, Ajay Sharma, regional head of global trade and receivables finance, Asia Pacific for HSBC, says: “Some of the trends are already visible to us in the business. If you look at lower-end manufacturing, people are doing additional capital investment in places like Vietnam or Cambodia and Bangladesh. In our Bangladesh business and our Vietnam business, we’re already seeing quite rapid growth in terms of what the customer is asking us around long-term capital investments and trade flows.”
Over in East Asia, however, a different story emerges. Just 60% of companies in Japan feel confident about their chances of success, versus the global average of 81%, and only half of South Korea’s companies and two-thirds of Hong Kong’s companies have a positive outlook on international trade. In South Korea and Hong Kong, 85% and 83% of firms respectively identified geopolitical factors such as increased protectionism and tariffs as having a negative impact, higher than the 78% average for the APAC region.
“Hong Kong is somewhat logical in a sense. It’s a big trading hub and I think that’s why businesses there might be feeling a bit uncertain,” says Sharma. “Our interpretation on South Korea and Japan is that they’re countries that have big investments in both sides, so they’re potentially getting caught between China and the US. They’re also in the high-tech electronics space, and that’s where there is the feeling that they are the industries that might get impacted by trade wars. Commodities can be moved quite easily, but technology manufacturing is a different kettle of fish.”
But despite market volatility and geopolitical pressures, the overarching Asia narrative is a positive one. “It’s important to remember that protectionism is not a new phenomenon – trade always finds its equilibrium,” says Sharma.
As Asia’s free trade banner continues to fly high amid further Asean integration, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and Regional Comprehensive Economic Partnership (RCEP) negotiations as well as the signing of free trade agreements between Japan and Singapore and the European Union, Asia’s pockets of negativity are outnumbered by its areas of optimism. “Asia’s rising middle class and their increasing level of consumption are long-term structural trends that will power economic growth in the region for years to come. The key is for businesses in this region to adapt their approach and market reach to stay fit for growth,” says Stuart Tait, HSBC’s Asia Pacific head of commercial banking.