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From China to ASEAN: the new productive reorganization in the post Covid-19

From China to ASEAN: the new productive reorganization in the post Covid-19

In this scenario of crisis due to the pandemic, emerging Asian markets they are the ones for whom one is expected quicker restart, with forecasts in 2021 of +8.0% growth. These very optimistic estimates are mainly due to the strong revival of economic activity in China, especially at resumption of the supply of intermediate goods in the productions of the other economies of the region.

In addition to the economic consequences, the Covid-19 indeed has highlighted the problem of concentrated production of many intermediate goods excessively in a few geographical areasfirst of all the China

The Asian region, characterized by the presence of numerous emerging economies, represents an almost natural choice for businesses looking for investment alternatives to China. It is one of reasons that leads entrepreneurs to opt for these countries is precisely proximity to the Chinese market and the possibility of taking advantage of the tariff advantages created by the free trade area between China and the ASEAN countries. Despite, therefore, China's still relevant position, the other major markets in the region are attracting more foreign investment thanks to favorable demographic and economic characteristics

The SACE Research Office carried out an evaluation of the ASEAN countries who can benefit most from the reduction in business investment in China. Each country was analyzed through an indicator of “attractiveness”, based on different components such as the degree of similarity of the basket of exported goods compared to the Chinese one, the size of the economy, the average level of wages, the quality of the workforce, infrastructure and governance, the level of openness to international trade. 

Vietnam presents itself as the most attractive destination for those companies looking for destinations other than China, with a significant gap compared to the rest of the group. The country has the best quality of workforce against a level of wages 60% lower than those in China, a developed infrastructure network which allows the correct functioning of the entire production process, and effective governance with a strong political stability and a regulatory environment open to foreign investment.

Furthermore, thanks to the high degree of similarity of the basket of goods exported from Vietnam to China, the country already has all it takes to become part of typically Chinese production, especially in some sectors such as textiles and electronic products

The result of this analysis it merely confirms the phenomenon that has already emerged in recent years which sees an ever-increasing number of companies transferring part of their production capacity to Vietnam. Not to be overlooked Then the recent entry into force of two free trade agreements: that between Vietnam and the European Union (EVFTA), and the Regional Global Economic Partnership signed Between the ten states ofASEAN and five of their free trade partners: Australia, China, Japan, New Zealand and South Korea.

Entered into force on 1 August 2020, the EVFTA immediately reset the 85.6% of the tariff lines of Vietnamese exports to the EU. Within 7 years, 99.2 % of tariffs for Vietnamese products will be reduced to zero and the remaining percentage will be tax-free within the next 11 years. 

According to recent statistics, Vietnamese businesses are already quickly adapting to the new measures and organizations authorized have already issued 15,000 sets of certificates of origin, necessary to take advantage of the benefits of the agreement.

Lsigned by the Global Regional Economic Partnership (RCEP) instead gave birth to the largest free trade area in the world. One of the main advantages that this agreement brings is the standardization of rules of origin which will allow companies, even those already present in the region, to ship goods without having to adapt to different criteria for each country. 

The agreements therefore have already shown the first benefits on the region's economy, and they will have important implications also for all European companies.

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