Vietnam should be high on the radar to benefit. It has largely managed the whole pandemic extremely well.
A cheeky little story broke a few days ago that doesn’t quite seem to be getting the full attention that it should. Japan released a stimulus package that could be the start of an avalanche that will have huge ramifications for China. 220 billion Yen ($2 billion) has been pledged for Japanese companies to shift production back to Japan. A further 23.5 billion Yen is earmarked for those wishing to move production to other countries. The Japanese Government is actually funding Companies to do this and should we be surprised? Not really.
And why? Well simply put the COVID-19 pandemic has almost forced Japans hand into taking this radical step. There has been an obvious disruption in the supply chain after China literally closed its doors overnight. It doesn’t help that tensions between the 2 countries have been tested for a very long time anyway with claims on islands etc.
China is Japans biggest trading partner but that is about to change as lessons have now clearly been learnt that this relationship is no longer viable or in the best interests of Japan in its current form. Add into the equation the already ongoing trade war between China and the USA and you have the start of domino effect with who knows what other countries taking on a similar approach to diversifying their supply chains going forward.
The world is about to change and one of the first areas that will be looked at for many nations is the over dependence on China’s manufacturing and supply chains. It will force many countries to reconsider how this relationship fits in with their own ability to keep things moving back at home in times such as these.
Certain countries will certainly benefit if it snowballs into a wider group of countries considering a similar move such as India, but Vietnam is also very much on that list. It had already begun with the USA/China trade war and is only set to increase surely?
Import/Export figures released on the 9th April 2020 showed an actual increase in the Chinese numbers, but how long can we reasonably expect that to continue if there is a mass exodus? Portfolios need to be considered and potentially rebalanced with less exposure overall. But with every loser, there is always a winner. The wise investor will consider who this change in mindset and which jurisdictions/industries may end up benefitting the most. It will naturally take some time to see the full impact and how countries around the world not only react to China’s handling of the pandemic and arguably its reporting of facts to the wider world, but to its change in how it treats China as a major part of its own supply chain. The over reliance has clearly been highlighted during this awful global disaster.
The effects won’t be immediate. It takes a long time to move operations but even that is now debatable. Businesses around the world have in many cases had to learn to react at breath taking speeds to change their business models to match the current outcomes of this pandemic. How quick does a business now need to move in order to even survive with all the new changes that have been adopted? The answer is quite simple. Fast!
Vietnam should be high on the radar to benefit. It has largely managed the whole pandemic extremely well. As a border country with China, it is quite staggering the low level of cases and lack of deaths. At the time of writing there hasn’t been a single death and the curve has been flattened in new cases being reported.
I will be keeping an eye on the attitudes of other countries to see if others follow suit. I honestly think it is now inevitable. Most countries will now be looking for “home grown” for so many reasons to help stimulate their own economies. Buy goods that are ‘Made In…..” (fill in the blank with your own country). But some of it still needs to be done in countries where labour and resources are cheaper than the home country. That firmly puts Vietnam high up on the agenda. It is early days but definitely a story that needs to be watched as it develops.
Contact Lawrence Young directly at firstname.lastname@example.org if you need more advice.