China is the largest source of imports (2018) for 9 of the 10 Southeast Asian economies and the largest or second largest export market (2018) for seven of the countries in the region, Indeed, as an economic bloc, Southeast Asia is China’s second largest overall trading partner, trailing the EU but ahead of the USA. However, the extent of impact on the manufacturing sector of each country (see below for analysis of the six major economies) varies depending on the makeup of the individual economy and the nature of its trading relationship with China.
In the longer term, Southeast Asia is set to benefit as more multinational companies increasingly look to the region as an alternative manufacturing destination to China. Apple, Microsoft and Google are among the US technology giants that are reportedly looking to move more production of their hardware products away from China to Southeast Asia.
Coronavirus and Vietnam
Vietnam is the most vulnerable country in Southeast Asia to a coronavirus supply shock in China, with many of its assembly plants at risk of various degrees of slowdowns as component supplies dry up if the adverse situation in China continues. A Feb 24 announcement from the Ministry of Industry and Trade cited automotive, electronics and mobile phone manufacturers all experiencing difficulty in acquiring supplies and materials due to disruptions from the virus. Samsung, which is Vietnam’s largest single foreign investor, has not commented on reports that one of its smartphone factories is running at a capacity as low as 50 percent. Aside from Samsung, other multinational companies including Nestle, and Proctor & Gamble are at risk of running out of supplies by mid-March. Still, thus far, Vietnam has not altered its full-year GDP growth forecast of 6.8 percent.
Coronavirus and Thailand
As the second largest importer of Chinese goods in Southeast Asia, Thailand is vulnerable to coronavirus related supply disruptions to its manufacturing industries, which notably include the supply chain dependent automotive and electronics sectors. With the economy already suffering from a high Thai baht and continuing weak domestic consumption, at 1.9 percent, 2020 growth is forecast to be even lower than 2019’s 2.4 per cent, which was already the lowest in five years.
Coronavirus and Singapore
While Singapore is the third largest importer of Chinese goods in Southeast Asia, it is relatively less vulnerable to Chinese supply chain disruptions as, according to data from DBS bank, only five percent of total imports are semi-finished goods compared to the regional average of 19 percent. Still, in February, Singapore’s manufacturing sector, as measured by the Purchasing Managers’ Index (PMI), hit the lowest level in four years and many factories that rely on China for raw materials supply have had to look at alternative sources and likely more expensive sources of supply. With many Singapore factories relying on imported labor from China, travel restrictions imposed after the Chinese New Year also had some impact on production operations. Overall, for the economy, and as a result of the coronavirus, the Singapore government now forecasts 2020 growth to between -0.5 and 1.5 per cent, down from the previous 0.5 to 2.5 percent.
Coronavirus and Malaysia
Malaysia’s PMI fell to 48.5 in February, with the manufacturing sector’s contraction put down to the twin effects of raw material supply shortages from China and major decline in new export orders, which hit an almost eight-year low on the back of falling Chinese demand. Any manufacturing sector improvement in Malaysia will depend heavily on a recovering coronavirus situation in China from Q2 onwards. Additionally, with the oil & gas sector a major contributor to government coffers, a continuing slide in oil prices in 2020 is a pronounced negative for the economy. On Feb 27, the government announced a US$4.75 billion economic stimulus package as a direct response to the coronavirus outbreak.
Coronavirus and Indonesia
While Indonesia is a significant destination for Chinese exports, most of these are finished goods rather than components, which means relatively less disruption to its manufacturing industries. Still, the country will not escape unscathed and there are concerns that the impact will not be become apparent until late March or into April when existing raw materials inventories are likely to be depleted. With exports and tourism also affected, 2020 Q1 growth is expected to come in at 4.7 percent, which would be the slowest in more than a decade. On Feb 25, Indonesia announced a US$743 million stimulus package to help protect its economy from the impact of the coronavirus outbreak.
Coronavirus and Philippines
While the Philippines bucked the trend and recorded an expansionary PMI of 52.3 in February and its China imports are less than half the value of its major Southeast Asian neighbors, manufacturing vulnerabilities do exist, particularly for highest for textile intermediates. And disruptions in steel supply from China could potentially have an impact on the execution of infrastructure projects in the country. In a positive development, Honda Motor’s major car parts supplier, Ftech, moved its brake pedal production from Wuhan to the Philippines at the end of January.