Supply chains may return to China amid Covid resurgence in India, Vietnam

According to an economist, the Covid-19 resurgence in some parts of Asia could transform China’s wealth.

Previously, the US-China trade war had resulted in companies moving their supply chains out of China and relocating their production and distribution networks for products and services. As a result, countries like Vietnam and India benefited when companies opened stores in their countries.

However, according to Zhang Zhiwei, chief economist at Pinpoint Asset Management, the situation appears to be changing and supply chains may return to China as cases increase in India and Vietnam.

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“Before the pandemic, we saw factories move out of China – Samsung, Foxconn, these big names – and establish factories in Vietnam, India,” he told CNBC’s Street Signs Asia on Monday.

The surge in cases in these two countries has forced the factories of Taiwanese contract manufacturer Foxconn, a major Apple supplier, to shut down facilities in India and Vietnam, he said.

“This could put the supply chain shift on hold for some time. The main problem with this is that international travel is suspended so multinationals cannot send their employees to India and Vietnam to build new factories,” added Zhang.

The cases in India reached record highs in April and showed little sign of significant easing. Economists have predicted that the South Asian economy is likely to contract this quarter.

In Vietnam, northern Bac Giang Province on Tuesday temporarily shut down four industrial parks – including three that house Taiwan’s Foxconn production facilities – due to a Covid-19 outbreak.

The situation could benefit China, suggested Zhang. However, he noted that the extent to which China can win will depend on how long the situation in India and Vietnam lasts.

Currently, export growth in China is between 20% and 40% per month, he said. If factories in India and Vietnam go back to production very soon, China’s exports are likely to slow in the second half of the year as companies move production to these two countries.

“But if the supply chain (in India and Vietnam) is interrupted for an extended period of time, that export growth of 20% to 30% (in China) could continue into next year,” said Zhang.

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