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Changing GVC in Post-Pandemic Asia: Korea, China and Southeast Asia

Keun Lee and Taeyoung Park ()

Working Paper Series from Institute of Economic Research, Seoul National University

Abstract: This paper has provided some overview of the changing GVC in Asia, especially since the outbreak of Covid-19, focusing on the phenomena of reshoring and nearshoring. It first discussed the role of the three factors responsible for changing and shaping GVC in Asia, and they are digitalization with Industry 4.0 since the 2010s, the US-China trade conflict since 2018, and the Covid-19 since 2020. Thus, an emerging trend is that FDI firms in China and Asia are either reshoring their factories back to their home bases or relocating to nearby locations, such as Vietnam and other Southeast Asian economies. These changes are also associated with MNCs¡¯ move to increase the resiliency of their value chains and by the national government to promote domestic jobs by offering incentives to reshoring. Investigating the cases of reshoring involving Korean firms getting out of China or SEA, the paper identifies three types, 1) reshoring of production of labour-intensive products requiring monetary or tax incentives, 2) reshoring getting possible by flattening of GVC by innovation, such as skipping a stage where semi-finished products are processed in foreign countries, and 3) large scale automation or transformation into Smart Factory, which requires considerable investment and innovation capabilities. These cases and typology suggest that effective reshoring requires not just monetary incentives but also technical assistance to realize the potentials for innovation and automation. In the meantime, some FDI firms are moving out of China and relocating into nearby SEA countries mainly for labour-saving reasons and avoiding tariffs imposed by the US on made-in-China products. Such exit from China might mean a new opportunity for SEA, as exemplified by Vietnam receiving many FDI firms out of China. It could be a new opportunity for SEA to overcome the challenges posed by 4IR and keep existing FDI (onshoring) and/or attract new factories getting out of China (nearshoring).

Keywords: Reshoring; Near-shoring; China; Korea; Southeast Asia; Digital Factory (search for similar items in EconPapers)
Date: 2021-10
New Economics Papers: this item is included in nep-cna, nep-int, nep-sea and nep-tid
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