Philippine , Asean to benefit from shifting supply chains

MANILA, Philippines — The Association of Southeast Asian Nations (ASEAN) is expected to benefit from shifts in the manufacturing supply chains amid the US-China trade spat as well as the global outbreak of the novel coronavirus disease (COVID-19), a Malaysia-based bank economist said.

Chua Hak Bin, senior economist at Maybank Kim Eng, said in its regional economics report, titled “Cross-border bank lending and shifting supply chains,” that foreign direct investment (FDI) applications and commitments to ASEAN have surged.

He said the US-China trade war is prompting multinational companies to reconfigure their supply chains and reduce their overdependence on China.

He added the COVID-19 outbreak would likely reinforce the shifts in manufacturing supply chains from China, with Japanese automakers speeding up their relocation plans.

“FDI applications and/or commitments to ASEAN countries have surged, supporting this thesis, although actual FDI have shown less of an improvement,” Chua said.

He said data is mixed in the Philippines as FDI approvals surged while actual FDI inflow fell sharply last year.

Latest data from the Philippine Statistics Authority (PSA) showed foreign investment pledges approved by main investment promotion agencies in the Philippines more than doubled to an all-time high of P390.11 billion last year from P183 billion in 2018.

However, data from the Bangko Sentral ng Pilipinas (BSP) showed net FDI inflow fell 30 percent to $6.4 billion from January to November last year compared to $9.2 billion in the same period in 2018.

“This may be because actual FDI tend to lag FDI approvals by up to five years. Despite the slow FDI inflows, other indicators seem to support the supply chain shift thesis,” Chua said.

Construction of industrial buildings in the country surged by 30 percent in 2018 and extended the pace into the first nine months of 2019.

Likewise, capacity utilization in the Philippines is also climbing to historical levels, boosted by clusters such as petroleum products, basic metals and electrical machinery.

Chua said rising foreign bank claims on ASEAN members is consistent with the shifts in supply chains toward the region.

He added most multinational companies are relying on foreign banks, rather than domestic banks, to fund their capacity expansions.

Data showed foreign bank claims to the Philippines increased by 26 percent in the third quarter of last year, while domestic loan growth remained sluggish picking up only by 8.1 percent in the fourth quarter despite the series of rate and reserve requirement ratio cuts by the BSP.

The central bank’s Monetary Board has slashed interest rates by 100 basis points since May last year amid the benign inflation environment and slower than expected gross domestic product (GDP) growth.

It also lowered the reserve requirement ratio for big and mid-sized banks by 400 bps and for small banks by 200 bps, freeing up P450 billion into the financial system to boost economic activity.