China to remain embedded in supply chains and attract FDI despite security concerns – Moody’s
China to remain embedded in supply chains and attract FDI despite security concerns – Moody’s

China to remain embedded in supply chains and attract FDI despite security concerns – Moody’s

 

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China’s large domestic market, supply chain resilience, advanced infrastructure, rich labor supply and vibrant innovation ecosystems will still attract foreign direct investment (FDI) from multinational companies (MNCs) in the near term despite disruptions and security concerns, says Moody’s Investors Service in a new report.

While MNCs have indicated intention to relocate more manufacturing businesses elsewhere, the escalating security concerns have by far not accelerated a big supply chain shift away from China. Beijing’s trade and FDI data have remained solid to date, it said.

The Russia-Ukraine military conflict and potential for secondary sanctions on China by the US and other countries, combined with China’s strict COVID-19 restrictions and tariffs imposed by the US since 2018, have highlighted MNCs’ reliance on some Chinese supplies. “Southeast Asian countries will increasingly benefit from supply chain diversification. More MNCs are adopting “China+1″ strategies involving the construction of parallel or supplementary production capacity, reducing supply-chain security risk while maintaining their presence in China,” it said.

Electronics and critical materials manufacturing are the Chinese sectors most vulnerable to supply-chain security concerns if the uncertainty persists. Companies in sectors that are vulnerable to US and EU strategic concerns with China and grappling with rising costs in China will likely diversify or reshore manufacturing activity.