China’s export transition reorders regional supply chains
China’s emerging roles as both a critical intermediate goods supplier to global supply chains and a dominant producer of high value-added goods will remain the key forces sustaining its large current account surplus, far more so than the eventual direction of US tariffs.
The regional implications are varied. Emerging Asian economies are capturing mid-tech assembly niches left behind by Chinese manufacturers. In return, increased Chinese investment in these economies is helping improve local production capabilities, even if the employment dividends are uneven, according to our top-down analyses.
Advanced Asia faces sharper competition and a disinflationary squeeze as China’s export profile shifts to mirror theirs. Japan, Korea, and Taiwan now compete with China in parts of the semiconductor value chain, electric vehicles, and precision machinery. As export overlap deepens, production gains are giving way to margin pressure and employment risks.
In response, regional governments are deploying industrial policy to manage the asymmetric nature of their economic relationship with China, balancing rising competitive pressure against continued dependence on Chinese demand, inputs, and investment.
For most emerging Asian economies, the strategy has been to welcome Chinese capital inflows while shielding domestic industries. In contrast, advanced Asian economies are responding by intensifying innovation drives, strengthening strategic partnerships, and diversifying supply chains.
