The rapidly emerging manufacturing industries in Vietnam and Malaysia
The overall pattern of Asian export competition has stabilized, and Vietnam and Malaysia have sprung up. Processing trade occupies an important proportion in China's trade methods and constitutes one of the important characteristics of China's exports. Competitive countries that are similar to China’s export structure and focus on processing trade are mainly concentrated in East and Southeast Asian countries. 15 years later, the proportion of its exports in China has increased by 1.9-2.5%, which is significantly higher than that of other Asian countries, demonstrating its strong export competitiveness.
Is the devaluation the reason for the high exports of Vietnam and Malaysia? it's not true. For economies with high export growth in emerging markets, everyone's first instinct is often: Has the emerging currency just experienced a sharp depreciation, thereby promoting exports? Judging from the exchange rate performance of Vietnam and Malaysia in the past 16 years, it can be said that they are quite stable, and the devaluation is not the main reason for promoting the exports of the two countries.
The competitiveness of Malaysia's mechanical and electrical products has improved again, and Vietnam's industrialization has accelerated. Compared with other major exporting countries, Malaysia's export growth rate of mechanical and electrical products has continued to rise in the past 16 years, indicating that its export competitiveness of mechanical and electrical products has improved in recent years, which may put a certain degree of competitive pressure on Chinese-related products. Vietnam presents a universal feature of accelerated industrialization and mechanization. The proportion of electronic products and mechanical products has increased rapidly. The proportions of the three major categories of exports of telephones, mobile phones and their parts, computer electronic products and their parts, and machinery, equipment, tools and instruments have increased by 1.6, 2.4 and 1.7 percentage points respectively, accounting for the total export value. The proportion rose sharply from 33.1% to 38.8%.
China’s policy measures should focus on improving the innovation and R&D capabilities of manufacturing enterprises, promoting the development of advanced manufacturing, and promoting further manufacturing industry upgrades, so as to cope with the challenges posed by competitive Asian exporting countries that may continue for a longer period of time.
Malaysia and Vietnam continue to improve their export competitiveness, or continue to compete with China
Against the backdrop of Sino-US trade frictions, will China's mid- and long-term export competitiveness gradually weaken and gradually shift to other export competitors? We analyze the export situation of China's main export competitors.
1. The overall pattern of Asian export competition has stabilized, and Vietnam and Malaysia have sprung up
Processing trade occupies an important proportion in China's trade methods and constitutes one of the important characteristics of China's exports. "Processing trade" refers to the business activity of an enterprise that imports all or part of raw and auxiliary materials, parts, components, and packaging materials, and then re-exports the finished products after processing or assembly. Since the 1990s, under the background of the continuous refinement and deepening of the division of labor in the global industrial chain, China has rapidly formed a trade feature dominated by processing trade by virtue of its comparative advantages in infrastructure, land and labor costs, and labor technology. Before and after China's accession to the WTO in 2001, China's processing trade accounted for 55% of all exports.
Competitive countries that are similar to China’s export structure and focus on processing trade are mainly concentrated in East and Southeast Asian countries. Among Asian countries, except for Japan, which is already a developed economy, South Korea is a traditional processing trade country; Singapore used electronic product processing trade to significantly promote its own economic growth in the 1980s and 1990s; and in recent years, India, Vietnam, and Thailand , Malaysia, Indonesia, the Philippines and other countries, because they also have some economic structural characteristics similar to China’s past high export growth period, so they are gradually forming a competitive relationship with China in some related processing trade industries. Among the major Asian countries, the emerging market countries that have exported more than 5% of China’s exports are mainly South Korea (17Q4-18Q1 exports accounted for 24.1% of China's, the same caliber below), Singapore (16.5%), India (13.0%), Thailand (10.2%), Malaysia (10.1%), Vietnam (9.6%) and Indonesia (7.3%) 8 countries.
We make a brief comparison of the export competitiveness of Asian countries based on the proportion of the exports of the competing countries in the scale of China's exports. Data show that 15 years later, the overall export competition pattern of Asian countries has stabilized, while Vietnam, Malaysia and other countries have emerged as new forces, showing stronger export competitiveness. Our research focuses on changes in the export competitiveness of major Asian exporting countries relative to China.
1) Since China has been in a period of rapid export growth until 2015, and its share of global exports has continued to increase until 2015, it can be said that the competitiveness of major exporting countries in the world relative to China has weakened during this period. In Asian countries, it is manifested as a general decline in the scale of exports in the proportion of China's exports.
2) After 15 years, the unilateral appreciation of the RMB against the U.S. dollar ended, and there were two rounds of devaluation, thus denominated in U.S. dollars. The scale of China’s exports fell slightly relative to other major exporting countries. The indicators we constructed represented most Asian countries. The proportion of exports relative to China has rebounded by about 1 percentage point.
3) In this process, Vietnam and Malaysia have sprung up. 15 years later, the proportion of their exports in China has increased by 1.9-2.5%, which is significantly higher than that of other Asian countries, demonstrating their strong export competitiveness.
It’s worth noting that although Vietnam’s per capita GDP is lower than China’s, while Malaysia’s per capita GDP is higher than China’s for a long time, the high growth in exports cannot be explained simply in terms of late-comer advantages and cost advantages. We tend to observe changes in its export product structure and exchange rate.
The year-on-year growth rate of exports from various countries in recent years also shows that Vietnam and Malaysia are the two countries with the fastest continuous growth rates. Affected by the deterioration of the global trade environment in 2018, the growth rate of exports from South Korea, Indonesia, Thailand and other countries generally slowed down compared with 2017. Among them, from January to September of 2018, the cumulative export growth rate in dollar terms showed that South Korea, India, Thailand, and Indonesia fell by 13.8, 2.9, 1.2 and 7.9 percentage points respectively from the same period last year. Singapore and Malaysia’s export growth rates rose significantly, at 15.2% and 19.4%, respectively. Although Vietnam’s growth rate has fallen from the 17-year high, it has remained at a relatively high level (13.5%).
2. Is the depreciation the reason for the high exports of Vietnam and Malaysia? it's not true
For economies with high export growth in emerging markets, everyone's first instinct is often: Has the emerging currency just experienced a sharp depreciation, thereby promoting exports? From the perspective of the exchange rate performance of Vietnam and Malaysia in the past 16 years, it can be said that they are quite stable, and devaluation is not the main reason for promoting the exports of the two countries. From 2016 to 2018, the effective exchange rate of the Malaysian ringgit and the US dollar appreciated slightly by 1.8% and 2.6%, respectively. The fluctuation range of the three-year period is roughly within 5%, which is generally stable. The exchange rate of the Vietnamese dong against the U.S. dollar depreciated slightly, with a cumulative depreciation rate of only about 3.9% over the past three years. In contrast, the RMB exchange rate has depreciated even more. In the past three years, the RMB has depreciated 6.3% against the US dollar and the effective exchange rate of the RMB has depreciated by 8.8%. On the whole, just as the RMB exchange rate has not been the main reason for China's exports in a long period of time, the high export growth of Vietnam and Malaysia in the past three years can hardly be considered as the promotion of depreciation.
So, what has promoted the exports of the two countries? We further analyze the export structure of the two countries.
3. The competitiveness of Malaysia's mechanical and electrical products has improved again, and Vietnam's industrialization has accelerated
The growth rate of Malaysia's exports of mechanical and electrical products and mineral products has maintained a relatively high level for 18 years. From the perspective of the export product structure, mechanical and electrical products accounted for nearly half of Malaysia’s exports, and mineral products such as petroleum also accounted for about 16%. Over the past 18 years, Malaysia’s exports have grown rapidly, with exports accounting for more than 13% of the top five categories of products. Among them, electromechanical products, which account for the largest proportion, have a cumulative growth rate of 19.6% in the first three quarters; and mineral products’ cumulative growth rate. It also reached 13.1%.
Compared with other major exporting countries, Malaysia's export growth rate of mechanical and electrical products has continued to rise in the past 16 years, indicating that its export competitiveness of mechanical and electrical products has improved in recent years, which may put a certain degree of competitive pressure on Chinese-related products. At the same time, the growth rate of China's exports of mechanical and electrical products has also been lower than that of Asian countries such as South Korea and India in recent years. This phenomenon shows, to a certain extent, that as China’s leading export products, the category of electromechanical products needs to further increase investment and R&D investment in the future, and further improve production efficiency, in order to effectively resist the export impact of neighboring Asian countries.
Vietnam presents a universal feature of accelerated industrialization and mechanization. For an economy with rapid export growth, we can think that the category of products whose exports account for a continuous increase actually outlines the main driving force of this economy's rapid export growth.
4. Summary: The competitiveness of Asian neighbors has improved, and China's manufacturing industry needs to innovate and upgrade to meet challenges
A brief summary of our analysis: 15 years later, the stage of continuous improvement of China's export competitiveness is over, and the export competition pattern of Asian countries has become relatively stable. Affected by the conversion effect of the shock and devaluation of the renminbi 15 years later, the ratio of the export scale of major Asian exporting countries to China’s exports has generally increased by about 1 percentage point (USD denominated). Among them, Malaysia and Vietnam have a higher export growth rate than other Asian countries, showing strong export competitiveness. Among them, the increase in Malaysia’s exports is mainly due to the increase in the competitiveness of mechanical and electrical products and the high oil prices in the earlier period. The increase in Vietnam’s exports is mainly driven by mobile phones, computers and their parts, as well as machinery and equipment, showing a comprehensive Industrialization and mechanization acceleration characteristics.
China should pay full attention to the enhancement of competitiveness of Asian neighbors, and policy measures should focus on enhancing the innovation and R&D capabilities of Chinese manufacturing enterprises, promoting the development of advanced manufacturing, and promoting further manufacturing industry upgrades to cope with the possibility of a longer period of time. The challenges posed by competitive exporting countries in Asia.