These countries could attract manufacturing away from China

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A LYRICS new portmanteaus have appeared in the pages of the The Economist a few years ago, many of them refer to phenomena in business and economics. Readers (and writers) have experienced Bidenomics, permacrisis and DeFi. This week we came up with a new one: Altasia.

Short for the alternative Asian supply chain, Altasia is a result of the widening geopolitical gap between America and China. This is forcing global manufacturers to look elsewhere in Asia for new production sites. No country in the region comes close to matching China’s importance as a major export hub. But some 14 countries together are starting to provide competition (see the map).

How does Altasia compare to China? In exports they are evenly matched. Altasia sent $634bn in goods to America in the 12 months to September 2022, a smidgen more than China’s $614bn. But China’s exports are increasingly focused on electronics, a key sector in which Altasia’s exports are not all that great.

In terms of skilled workers, the two are also close. Altasia is home to 155m people aged between 25 and 54 – widely regarded as the main working age population – with tertiary education. China has 145m.

The World Bank’s latest logistics performance index from 2018, which measures countries on their efficiency in areas such as customs, transport infrastructure and logistics management, shows the range of capabilities across of the department. China, with a score of 3.61 out of five, ranks 27th among the 160 countries evaluated. Altasia countries range from Japan and Singapore, both in the top ten in the world with scores of 4.03 and 4.00 respectively, to 2.58 for Bangladesh and Cambodia, both in the bottom half of the global ranking.

The superpower spat across the Pacific isn’t the only thing that caused the move. Labor costs in China have risen with the country’s growing wealth, and are now far higher than those in parts of South and Southeast Asia (although -work in the richest countries in Altasia, such as Singapore and Japan, earning far more). Manufacturing labor costs were $8.31 an hour in China last year, compared to less than $3 in places like India, Thailand and Vietnam. Some manufacturers of lower-priced, lower-margin electronics were moving out of China even before the Sino-American divide made it necessary.

Chinese manufacturing capabilities will be difficult to replicate, however. Altasia’s mixed economies do not work together as a single entity as China does. Infrastructure and logistics are major challenges, although several trade agreements ease regulatory barriers. But for many companies finding an alternative to China is now a priority. It looks like they will be exploring opportunities in Altasia for years to come.

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