General

Southeast Asia lacks materials, cabinets, cores, labor, and vaccines!

Delta mutant strains are ravaging Southeast Asia. The local epidemic situation has intensified since July. The epidemic situation in many countries has reached a critical point. This has put the manufacturing industry in the region in trouble and disrupted commodities such as rubber gloves, semiconductors and sports utility vehicles. Global supply threatens regional economic recovery.

At present, Southeast Asian manufacturers are generally facing the "five shortfalls" dilemma of "shortage of materials, lack of cabinets, lack of cores, lack of labor, and lack of vaccines". The chaos in the Asian market may distort the global supply chain. According to United Nations estimates, about 42% of global exports come from Asia.

01Malaysia

The latest wave of outbreaks in Malaysia started in July. Since then, new confirmed cases and new deaths have increased exponentially. Although they began to lock down the city on June 1, it did not play an effective role. The lockdown is currently being extended indefinitely. The Malaysian government plans to gradually restart production activities when the number of cases drops below 4,000 per day, but it still appears to be far away.

Empty Malaysian streets after the "total blockade"

On August 16, Malaysian Prime Minister Muhyiddin announced that he had submitted his resignation, becoming the prime minister with the shortest term in office in Malaysian history.

Southeast Asia has a market share of 27% in the global semiconductor packaging and testing market, while Malaysia accounts for nearly 13% of the market share. Malaysia is known as the "semiconductor packaging and testing center" and is the seventh largest exporter of semiconductor products in the world.

According to United Nations data, since 2002, Malaysia’s integrated circuit export share has been at the forefront of the world. In 2018, Malaysia’s integrated circuit export share has surpassed Japan and is on par with the United States.

According to TrendForce research, the global passive component (MLCC) market supply will face challenges due to the extension of the Malaysian government’s national movement control. Among them, high-end MLCC is the most pressing. The terminal products corresponding to the main shortage items include mobile phones, laptops, Netcom, servers and 5G base stations.

Wang Shoutai, chairman of the Malaysian Semiconductor Industry Association, said: "Some factories have been infected, causing the factories to be closed."

On August 17, the automotive electronics company Bosch China's high-level circle of friends issued a document saying that due to the serious epidemic in Malaysia, a semiconductor chip supplier in Muar, Malaysia was asked by the local government to close some production lines until August 21. He mentioned that the Muar factory "sacrificed more than 20 employees due to the new crown epidemic, and hundreds of people were infected, facing the test of life and death."

The furniture industry in Malaysia is even more miserable. After Malaysia implemented a blockade order, furniture factories banned operations. This has caused the furniture industry to detain more than 2,000 containers of export goods, which are worth more than 200 million ringgits.

02Vietnam

The outbreak in Vietnam has reached its most critical state. It has been determined that the capital Hanoi will be extended to August 22, while Ho Chi Minh City will continue to maintain social isolation until September 15.

Current status of Hanoi

In early August, the Vietnamese government maintained a blockade of 19 cities and provinces in the south, strictly restricting travel, which had a major impact on national production and supply. So although many export companies in Vietnam have already received orders until the third quarter of 2021 or the whole year of 2021. However, the fall of epidemic prevention has forced many companies to stop operations.

Vietnam's requirements for companies in blocked areas to keep operating are "three locales" and "two points and one line." The so-called "three on-site" refers to "on-site production, on-site meal, and on-site rest". To put it simply, workers enter the factory and don’t leave. Food and lodging are in the factory. Some factories actually set up tents for workers in the factory area. The so-called "two points and one line" refers to the company picking up workers to and from the factory. Avoid contact between the factory and the dormitory to ensure production.

About 90% of factories manufacturing textiles, footwear, luggage, electronic products and wood products in Ho Chi Minh City have suspended operations because they failed to meet the requirements for on-site accommodation for workers.

Take Nike as an example. In late July this year, S&P Global warned that Nike's Vietnam-made sports shoes may face the risk of out of stock. Previously, Nike's two suppliers in Vietnam, Chang Shin Vietnam Co. and Pou Chen Corp, stopped production due to the epidemic.

Large companies and large factories can still support a period of time, but small businesses in Vietnam are not so lucky. More and more small businesses have closed down.

In addition, the shutdown of factories, warehouses and unmanned handling of imported goods also caused by the blockade caused serious congestion in southern Vietnam’s ports. The largest port in Ho Chi Minh City, Cat Lai, has a backlog of more than 100,000 TEUs. The station density has reached 85%.

Saigon New Port, which manages the Inner City River Terminal in Ho Chi Minh City, informed customers that the epidemic has severely affected port operations and congestion has worsened. Due to the slow pickup or release of imported containers, the backlog may increase. Affected by the congestion of major ports, the circulation and transit capacity of Gilai and adjacent deep-sea ports will also be weakened.

The two major ports in Vietnam, Gloria Port Terminal and Xingang Gemei International Port Terminal (TCIT) have notified that they will suspend receiving some containers from August 5, 2021. Port yards are also under pressure to transfer containers. Drivers crossing between provinces in Vietnam must have 3-7 days of nucleic acid test results, otherwise they cannot operate.

03Indonesia

As the world's fourth most populous country, Indonesia has previously replaced India as the center of the new crown epidemic in Asia. On August 4, the number of deaths from the new coronavirus in Indonesia exceeded 100,000, making it the second Asian country to have a cumulative death toll of more than 100,000 after India.

As Indonesia has repeatedly extended anti-epidemic measures and most of the economic stimulus assistance has not been issued in place, tens of millions of small companies that are the backbone of the Indonesian economy are facing the risk of bankruptcy. According to data from the Indonesian Association of Small, Medium and Micro Enterprises, the epidemic has led to the closure of more than 30 million small, medium and micro enterprises, most of which are from agriculture, fisheries and trade.

Some domestic associations in Indonesia are already calling for anti-dumping of Chinese products. For example, Silmy Karim, president of the Indonesian Steel Manufacturers Association, stated on August 13 that China's imports of steel flood the Indonesian market, and steel has become Indonesia's second largest import product, and most of it is imported from China.

The Indonesian Steel Producers Association has requested the Indonesian central government to take anti-dumping measures against Chinese imports of steel including hot rolled steel, steel plate, cold rolled steel, wire rod, bar, profile and coated steel, but the Indonesian government has not yet agreed.

In addition, Indonesia's new cross-border e-commerce policy implemented on August 1 has also had a significant impact on Chinese exporters. Starting from August 1, the Indonesian government requires all inbound e-commerce packages to contain the recipient’s personal or corporate identity authentication information (NPWP or NIK/KTP/passport number). This new policy applies to all B2B, B2C and C2C express packages, with the only exception being express documents.

SHEIN, the largest cross-border fast fashion giant surpassing ZARA, ceased operations in Indonesia on July 29.

04Philippines

The Philippines is the second country in Southeast Asia to have a severe outbreak after Indonesia. At present, the delta mutant strain has almost spread throughout the Philippines. In order to curb its spread, the capital of the Philippines, Manila, has re-entered the lockdown on August 6. The Metropolitan Manila with a population of more than 13 million has been dotted with checkpoints to ensure that only people doing necessary work Able to take to the streets.

According to the epidemic prevention guidelines, only enterprises and workers in the necessary livelihood industries can operate and work normally in the blocked area, only one family member can go out to buy food and necessities, and other people must stay at home. Many residents of Metro Manila will face unemployment during the lockdown. Many people complain that they do not have enough financial resources to support their living needs in the next two weeks.

05Thailand

At the beginning of August, Thailand expanded the highest-level epidemic control area from 13 prefectures including Bangkok to 29 prefectures. On August 16, the Thailand Government’s New Crown Pneumonia Epidemic Management Center notified the extension to the 29 highest levels in the country, including the capital Bangkok. The prevention and control measures such as the "city closure" and curfew in the epidemic control area at the level of the epidemic will last until August 31.

In terms of work arrangements, it is required to continue to work from home, companies with more than 50 employees must prepare internal isolation places, and companies with more than 100 employees implement closed management.

The Thai baht has become the worst-performing currency in Asian emerging markets this year, casting a shadow over the purchases of Thai importers. The Thai baht has depreciated by 11% so far this year. The Bank of Thailand has reminded private companies to manage foreign exchange risks, especially those engaged in import and export trade.

The depreciation of the Thai baht is largely due to the economic recession caused by the new crown epidemic. The epidemic has severely impacted the Thai economy, which is highly dependent on the tourism industry, and the decrease in tourists also means a reduction in demand for the Thai baht.

In the latest news, the Ministry of Commerce of Thailand will sign a mini free trade agreement with my country’s Hainan Province on the 20th of this month. The two sides will strengthen cooperation in trade and investment between SMEs.

06 "Dangers" and "Opportunities" to Chinese Enterprises

The latest data report released by IHS Markit, a financial information company, showed that the purchasing managers index (PMI) of ASEAN countries’ manufacturing industries fell from 49 in June to 44.6 in July, which was the second consecutive month below the Kurong line. It is a 13-month low.

Among the seven ASEAN countries covered by the report, five countries have a manufacturing index below 50, namely Myanmar, Indonesia, Malaysia, Vietnam, and Thailand. According to the report, manufacturing demand in ASEAN countries further declined in July, with factory output and new orders falling for the second consecutive month, the highest level since May 2020.

US media recently reported that: "The epidemic has caused factories in South and Southeast Asia to close, increasing the risk of disruption in the global supply chain. American consumers may soon find that local shelves are empty."

China is naturally the best choice for buyers to transfer orders. At present, many Southeast Asian orders have returned to China. But on the other hand, a large number of orders are gathered in China, which continuously pushes up my country's export freight, and there is no room for shipping products with thin profits and low value.

At the same time, according to the French Foreign Trade Bank (Natixis), the total exports of Indonesia, Malaysia, the Philippines, Vietnam and Thailand accounted for 5.7% of the total global exports, but they will have a significant impact on larger economies such as the United States and China, especially In the field of electronic products. China imports 38% of data processing equipment and 29% of telecommunications equipment from these five countries, while half of the US's semiconductor imports come from these five countries.

Not long ago, Xiaopeng Motors founder He Xiaopeng commented when reposting the outbreak in Malaysia, “It’s more bitter to pull a core to cut off the supply, and it’s even more sorrowful to raise a glass.” Lei Jun, the founder of Xiaomi, left a comment with the word "Oh".