Philippines considered less vulnerable to China’s Southeast Asian export push

THE Philippines is deemed less vulnerable compared to the rest of Southeast Asia to China’s redirection of exports to the region after encountering trade barriers elsewhere, Moody’s Ratings said.

In a report  on Tuesday, Moody’s said: “Lower aggregate vulnerability reflects more contained direct trade exposure to China rather than broad-based industrial competitiveness.” 

Moody’s said China’s trade reorientation poses potential risks to the credit ratings of manufacturers in the so-called ASEAN 5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand).

“China’s export redirection is credit negative for highly exposed ASEAN-5 local manufacturing segments because it intensifies import competition and price compression, weighs on profit margins and slows industry upgrading,” it said.

It identified the “high-risk” segments in the Philippines as coke, refined petroleum and basic and fabricated metal.

However, Moody’s noted that these sectors are only a small part of the Philippines’ total factory output, making any impact on them immaterial to the overall manufacturing industry.

It noted that the Philippine electrical and optical equipment industries have the largest share of the country’s export overlap with China at 29%, followed by machinery with 9%.

According to Moody’s Manufacturing Vulnerability Index (MVI), six Philippine industries have medium vulnerability to displacement risks — textiles and apparel; paper and related products; chemicals and related products; motor vehicles and equipment; pharmaceuticals and related products; and machinery.

Meanwhile, the electrical and optical equipment industry was classified as low-medium vulnerability. 

The MVI also deemed four sectors to be low risk — including food, beverages and tobacco; wood and related products; rubber and plastics; and other nonmetallic mineral products.

Philippine manufacturing output, as measured by the volume of production index (VoPI), posted its strongest year-on-year growth in over four years at 12% in April, according to preliminary results of the Philippine Statistics Authority’s (PSA) Monthly Integrated Survey of Selected Industries.

The PSA said the VoPI expansion was driven mainly by coke and refined petroleum products, computer, electronic and optical products, and food products. — Katherine K. Chan