Extract from our "On the Prospective Manufacturing Divestment from China" research paper, published on the 15th March 2023. Register for a free trial* to access the full paper.
What are the implications of the world divesting from China’s manufacturing sector? We have a few guesses. Our thoughts can only be ‘guesses’ and not ‘market calls’ because of the confluence of uncertainties entailed.
- There will not likely be a wholesale de-globalisation – a significant reversal of the trend witnessed during 2001-2020: outsourcing from the US and Europe could slow but will not likely reverse, in our view.
- The bulk of the manufacturing capacity divested out of China in the coming years will likely stay in Asia, because of the strong and tightly-knit industrial ecosystem in Asia.
- While re-shoring will also no doubt take place, it will likely form a modest portion of the relocation of production in the world. Many more jobs will migrate from China to India or Vietnam than new jobs created back in the US or to Mexico. Re-shoring will likely be minimal in Europe, because its labour force and population in Western and Central Europe are already shrinking, and the latter is more expensive than many other EM Asian alternatives.
- If we are right that industrial divestment from China will be more modest than some predict, and much of the divestment will go to even cheaper jurisdictions in Asia, globalisation ought to continue to exert downward pressure on inflation.
The full report contains the following sections:
- Thought 1. A wholesale de-globalisation does not seem likely.
- Thought 2. Most of what leaves China will stay in Asia, we think.
- Thought 3. Re-shoring will likely be modest in size.
- Thought 4. Globalisation still disinflationary.
- China versus India.
- Bottom line
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This communication is issued by Eurizon SLJ Capital Limited (“ESLJ”), a private limited company registered in England (company number: 09775525) having its registered office at 90 Queen Street, London EC4N 1SA, United Kingdom. ESLJ is authorised and regulated by the Financial Conduct Authority (FRN: 736926). This communication is treated as a marketing communication intended for professional investors only and is provided only for information purposes. It has not been prepared in accordance with legal and regulatory requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. It does not constitute research on investment matters and should not be construed as containing any recommendation, advice or suggestion, implicit or explicit, with respect to any investment strategy or financial instruments, or the issuers of any financial instruments, or a solicitation, offer or financial promotion relating to any securities or investments. ESLJ and its affiliates do not assume any liability whatsoever for the contents of this communication, save to the extent agreed in any written contract entered into between ESLJ and the recipient, and do not make any representation or warranty as to the accuracy or completeness of any information contained in this communication. Views are accurate as at the time of publication. Opinions expressed by individuals are their own and do not necessarily reflect those of ESLJ or any of its affiliates. The value of any investment may change and an investor may not get back the original amount invested. Past performance is not an indicator of future performance. This communication may not be reproduced, redistributed or copied in whole or in part for any purpose. It may not be distributed in any jurisdiction where its distribution may be restricted by law and persons into whose possession this communication comes should inform themselves about, and observe, any such restrictions.
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