May Arthapan, Director, Asia Pacific Forecasting
28 June 2018
28 June 2018
As exporting becomes tougher, Asia feels the pinch
There can be little doubt that the growth in Asian economies over the past decades has been driven in large part by exports. Goods and services exports represented more than 70% of GDP in 2017 for leading exporters such as Malaysia, Taiwan and Thailand, 54% for Korea, and 17% for Japan.
The auto industry is among Asia’s most export-dependent sectors. Major exporting countries like Japan, Korea and Thailand shipped between 50% and 60% of their Light Vehicles overseas last year. But as exporting becomes increasingly more challenging, the picture is changing. For one thing, the tendency to ‘build where you sell’ is on the rise. While certainly not new, this trend is gathering pace – with Hyundai and Kia being prime examples of the many automakers joining the bandwagon – and could become problematic for even the most competitive exporters in the region.
We have witnessed production increases in both North America and Europe in the recent past and while it is true that some of that growth resulted from a rebound in local demand, production of several notable models being relocated from Asia made a significant contribution.
Korea has had the worst part of the bargain in this respect. Light Vehicle exports plummeted to 2.5 million units last year, from a peak of 3.2 million in 2012. Hyundai stopped building the Accent in Korea at the end of 2017, after the latest generation of the Sub-Compact Car was released. Production of the Small Car bound for North America was relocated to Mexico, and the remaining volume was shifted to India, joining existing production of the model. The Tucson SUV will be built in the US from 2021, replacing sourcing from Korea in the process. With that said, Hyundai is attempting to cushion the blow with the addition of two new SUVs, while Kia will also add another Small SUV to Korean production. Kia’s all-new Telluride Fullsize SUV is in the pipeline and build has been assigned to the West Point, Georgia plant in the US, alongside the Hwaseong facility in Korea in 2019. General Motors, meanwhile, transferred Europe-bound production of the Chevrolet Trax SUV (Opel Mokka) to Europe back in 2014. Cumulatively, these production losses add up to hundreds of thousands of units a year in Korea.
“Thailand has certainly felt the impact from fewer overseas orders, suffering a 4% dip in shipments in 2017”
The fact that the global economy is stuttering is not helping matters either, leaving buyers less inclined to fork out for a new vehicle, especially pricier imports. Thailand has certainly felt the impact from fewer overseas orders, suffering a 4% dip in shipments in 2017.
A further risk to Asia’s trade dependency comes from the threat of a 25% tariff being slapped on vehicles imported into America. Japan and Korea stand to lose the most if the threat becomes a reality. North America receives roughly 40% of the Light Vehicles exported from each of these two markets, the bulk of which find their way onto US soil. In other words, the region is the largest vehicle export destination for these two key Asian exporters. This contrasts markedly with Thailand, where only 9% of exports end up in North America. As for the rest of Thailand’s exports, the majority (circa 60%) are still shipped to neighbouring markets within Asia and Oceania.