PETALING JAYA: China's gradual shift away from the manufacturing sector towards a more consumer- and service-driven model could give emerging markets the opportunity to fulfil the export demand for manufactured products.
"Policies unveiled at the 18th National Congress of the Communist Party of China in 2012 were designed to help steer the economy away from manufacturing into a consumption- and service-driven model," said Franklin Templeton Emerging Market Equity's Chetan Sehgal in a recently published report.
Sehgal noted that Vietnam and Malaysia are two countries that are poised to reap the benefits as they have cheap production costs and labour as well as the transport infrastructure to support international trade.
He said that major electronics companies have a large presence in Malaysia, and expects exports of electronic integrated circuits, liquefied natural gas and communication apparatus to potentially increase.
Meanwhile, the US's tariffs on Chinese garments could create opportunities for lower-cost manufacturers such as India and Vietnam.
"Garment production chains in these countries already include major international retail fashion brands," he added, while noting that China has taken a step back from manufacturing garments for export.
Commenting on the ongoing trade war, he said rising US protectionism could serve as a catalyst for more regional trade between the emerging economies.
"As the largest emerging market, how China fares amid a new era of trade and manufacturing could have profound implications for other emerging markets and for the global economy at large," said Sehgal.
"The structural case for emerging markets still centers on further growth, demographics and the ability to take a larger market share of global manufacturing, which in our view makes up one of the elements that could allow other emerging-market economies to ride out and potentially thrive during this period."