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Chinese companies are moving supply chains out of China to manage risks, with India, Malaysia and Indonesia benefiting

March 28, 2023

3 min

Even Chinese manufacturers are shifting parts of their supply chains out of China to manage risks, and heading to India and other nearby countries

Southeast Asian nations such as Vietnam, Thailand, Malaysia and Indonesia have benefited from the shift. So have Mexico and some European countries

China has been the world’s factory for over four decades – but that could be changing soon, as even Chinese firms are moving supply chains out of the country.

While Western countries have already been doing this since 2018 after then-president Donald Trump launched a trade war against China, home-grown companies from the manufacturing giant are now following in their footsteps.

To be sure, Chinese manufacturers aren’t moving all their production out of the mainland. But a combination of geopolitical risks – such as tensions with the US – and rising costs are pushing them to look for alternatives.

“We already see a lot of China-based manufacturers are actively looking at setting up overseas productions with anticipation of the supply chain challenges and political risks,” Shay Luo, a principal at consulting firm Kearney told Insider.

While India – which is set to overtake China as the most populous nation by mid-2023 – is likely to be a key beneficiary of the shift, much of the shuffle is headed to nearby Southeast Asia countries such as Vietnam, Thailand, Malaysia, and Indonesia.

Further away, lower-cost havens nearer key consuming markets – such as Mexico for the US market and Eastern Europe – are also proving popular, Luo said.

Here are the six countries these supply chains are moving to:

India, Bangladesh have vast lands and young populations

Bangladesh, an apparel manufacturing giant, has attracted US$770 million worth of foreign direct investment from China.

South Asian countries like India and Bangladesh are prime candidates for Chinese manufacturers to move to, thanks to their vast lands and young populations.

While India is mainly positioning itself as an alternative for international manufacturers who want to diversify away from China, it is also trying to attract Chinese companies targeting the Indian market.

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