In just over three decades, China has become a key player in electronics. Its exports of devices and components reached 1,000 billion dollars, out of a world total of 3,300 billion. But under strong commercial and political pressure, foreign companies are beginning to consider their future growth elsewhere than in the Middle Kingdom.
In question, the cost of Chinese industrial labor, which doubled between 2013 and 2022. But above all, the growing technological decoupling between the United States and China is forcing manufacturers of high-tech products, in particular those which include semiconductors, to rethink their dependence on Beijing.
Japanese transfers
In the space of two years, the number of Japanese companies operating in China has gone from 13,600 to 12,700. In January, while Beijing celebrated the announcement by Panasonic of the development of its activities on its territory, we learned that Sony, for its part, was transferring to Thailand the production of its cameras sold in Japan and the West. Another example: in a decade, the Korean Samsung has reduced its Chinese workforce by two thirds. At the same time, the electronics and telephony giant became the first foreign investor in Vietnam.
On the American side, of course, we also fold the wing to deploy it elsewhere. Dell has thus indicated that it will stop using Chinese chips next year. The economies of Asian countries offer all these manufacturers a formidable alternative to China: a growth zone which forms, starting from Hokkaido, in northern Japan, a crescent which spreads over South Korea, Taiwan, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam, Cambodia and Bangladesh, and as far as Gujarat in northwest India.
Limited workforce
This alternative Asian supply chain – which we could call Altasie – seems to be able to compete with China. Its active population of 1.4 billion workers surpasses China’s 950 million workers. It includes 155 million people aged 25 to 54 with higher education, while China has only 145 million. And, unlike an aging China, this pool of skilled labor can only grow. Finally, in many countries of Altasia, wages are much lower than in China. The hourly rate in India, Malaysia, the Philippines, Thailand and Vietnam is less than 3 dollars, or a third of what Chinese workers are asking today.
From a geostrategic point of view, all the countries of Altasia, except India, Bangladesh and Taiwan, have signed the Regional Comprehensive Econo-mic Partnership (RCEP), of which China is also a member. This partnership has created a single market for intermediate products. Most of them are also members of a recent American initiative, the Indo-Pacific Econo-mic Framework (IPEF). Brunei, Japan, Malaysia, Singapore and Vietnam belong to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), an agreement which also includes Canada, Chile, Mexico and Peru.
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To really compete with China, which has the advantage of having a huge market and good infrastructure, Altasia is going to have to build much more integrated and efficient supply chains. As for the single market, India, whose 1.4 billion inhabitants could ultimately determine the future of Altasia, does not seem in any hurry to join the RCEP. And if on the authority of Washington, New Delhi joined the IPEF, it rejected the commercial clauses. These, in any case, are hardly attractive: America, which is going through a protectionist phase, has offered neither lower tariffs nor better access to its vast market.
American inflection
Altasia will not replace China overnight. But it is certain that the Middle Kingdom will not see the cost of its labor fall nor the number of graduates increase much. The United States will have to understand, especially in view of its deleterious relations with Beijing, that it must forge closer ties with friendly countries in the region. This would imply changing the protectionist policy and joining the CPTPP, which Donald Trump had refused in 2017. As a possible option against China, Altasia has no equivalent.
