Institutional enterprises based across Asia display a similar, though not as pronounced, trend with a slight reduction in the proportion of large corporates based in ten Asia countries citing China as a key export market, dropping 1.9 percentage points to 76.7 per cent in H1 2021. Trade tensions, COVID-19 border restrictions and geopolitical concerns are clearly making their mark on which trade corridors Chief Financial Officers are turning to in future noting the ambitious Belt and Road Initiative is an ever present focus in the region.
Minding the gaps
While the trade account picture appears solid for China, this belies the fact commodities and raw materials growth is masking pain for many importers and exporters in other key sector verticals such as manufacturing and retail.
So where are corporates now turning to plug the COVID-19 related gaps in their stalled supply chains?
Traditional trade corridors of focus for major global trade banks including Korea to the Association of South East Asian Nations (ASEAN), Korea to China, Australia to China, Korea to India, Japan to ASEAN, Japan to China and China to ASEAN are expected to gradually give way to emergent South East Asian countries such as Vietnam and Thailand.
Ultimately businesses are looking to their bank for much needed guidance and advice on which markets they must invest their future production needs in alongside targeted new export market opportunities. Where they are not getting the support they desperately need to adapt to the new COVID world, they are turning to friends, colleagues, suppliers and even competitor banks instead.
As second and third waves of COVID-19 infections force borders to close and push back reopening timelines, the march of free trade and globalisation will inevitably slow, replaced by a distinctive regional flavour for global trade.
Professor of International Trade at Melbourne Business School, Gary P. Sampson, says the world economy will require more, not less, global trade cooperation after COVID-19. “The G20 countries have allowed international collaboration on trade to unravel. They now have a chance to seize on the crisis to sow the seeds for renewed global trade cooperation"
A likely outcome from the crisis will be supply chains snapping back to more simplified structures that are shorter, less vulnerable and more focused on risk management.
Businesses go local for global trade
Notwithstanding this exceptional Asia-led trade resurgence, the COVID-19 pandemic has upended supply chains, disrupted container shipping and congested international trade routes for many sectors, including semiconductors and more recently lumber encountering bottle necks and damaging trade dispute spats. Trade in many key sectors, which in recent years accounted for 54 per cent to 60 per cent of global economic activity, retracted in global output terms by 13 per cent to as much as 32 per cent, according to the World Trade Organisation (WTO).
International banks with large global footprints are often assumed to have the upper hand in financing trade and cross border supply chains however East & Partners research indicates the top 100 enterprises by revenue globally use 1.8 international banks for every 12.4 domestic banks on their panel. These figures illustrate strong market share for incumbent domestic bank majors such as the Big Four in Australia.
East & Partners Head of Markets Analysis, Martin Smith explains that shifting trade corridors radically upend the playing field.
“Incumbent global majors with extensive reach do not necessarily take advantage automatically. Vast time and resources are required to develop a presence in newly prioritised import and export markets,” he says.