Supply chains are departing China - the world's factory floor for the last 40 years - to other low-cost manufacturing hubs in Asia.
Even before supply chains were messed up during the COVID-19 pandemic, companies were already considering diversifying away from China after President Donald Trump started a trade war with the country. Under the administration of Donald Trump, tensions between Washington and Beijing remain high.
Apple and Mazda have been moving away from Chinese factories to neighboring Asian countries like Vietnam and Bangladesh, but there's more to that than meets the eye.
While manufacturing activity for end-products has been moving away from China, supply chains haven't decoupled from the country.
In response to trade data analysis, Chinese manufacturers are assembling fewer end products at home. In return, they are ship processing materials and intermediate products to Southeast Asia for final assembly.
Misha Govshteyn, the CEO of Houston-based firm MacroFab, told Insider that the company's platform for electronics manufacturing is a platform for consumer electronics manufacturing.
An ecosystem is made up of supply chains. In China, the raw materials or intermediate parts must come from somewhere in or outside the country.
Companies are moving their supply chains out of China. That means other countries in Asia, many of which supply commodities or intermediate products to China, have seen their exports to China drop.
China's share of exports from Asia has fallen, based on their 12-month rolling averages, economists from Nomura Holdings said in a September 8 note seen by Insider. The slowdown is the biggest two-year drop in two decades, according to the National Institutes of Health.
And it's not just China's domestic demand for imports that have fallen, according to Nomura's analysis of Chinese customs data. China's purchases of raw materials and intermediate goods from most other Asian nations have dropped, too.
China's share of processing-parts exports out of South Korea and Hong Kong fell by 2%, from April 2021 to June 2023.
Nomura did not provide absolute numbers of exports, but said in its analysis that the decline in exports of processing materials reflects a shift in supply chains away from China.
Sonal Varma, Nomura's chief economist for India and Asia, said that his share in Asia's overall exports has continued for some time.
China's share in Asia exports has been decreasing over the past five years, she said. The trend is shown in the graph below, where the dotted line represents a general trendline.
China's exports to Southeast Asia for product assembly have surged.
Even though Asia may be decoupling from China, at least one region on Asia is getting more tied up with the East Asian giant.
Friendshoring - a practice where supply chains are focused on countries considered to be political or economic allies, is becoming a more common practice in Southeast Asian trade.
In September, HSBC published a report showing that more Chinese exports have been going to Southeast Asia than the US and Europe.
Exports from China to the 10 member Association of Southeast Asian Nations have reached nearly $600 billion a month, based on 12month moving averages compiled by the bank, surpassing the bloc's shipments to the US and Europe since earlier in 2023.
This shift is partly because parts sourced from China are getting shipped to Southeast Asia for final assembly before getting reexported to their final consumer destinations - like the US - said Frederic Neumann, HSBC's chief Asia economist.
HSBC's findings echo findings made by Yukon Huang and Genevieve Slosberg, researchers at Carnegie Asia Program, in April.
The survey also found that China played a 'behind-the-scene' role in supplying components and materials for other countries' exports to the US, even though China's share of total goods imported into America fell from 22% to 17% between 2017 and 2022.
The US companies had specifically asked Guangdong Vanward New Electric, China's largest water-heater maker, to build factories outside the country to continue cooperation with them, said Lu Yucong, the chair of Guangdong Vanward New Electric.
China will continue to play a significant role in the world's supply chains.
Even if China's second-largest economy continues to play an outermost role in global trade, the world's second-largest economy is likely to continue playing an outsized role in global trade.
Carnegie's Huang and Slosberg, Carnegie's Huang and Slosberg, report, China accounted for about one third of the world's total manufacturing output in 2021.
MaroFab's Govshteyn echoed the sentiment.