New Delhi: Deepening economic relationships among members of the Quad to increase technological and energy security amid China’s growing influence in the Asia-Pacific region could have long-term credit implications resulting from supply chain and trade reconfigurations, according to a new report by Moody’s Investors Service.
India, in particular, stands to benefit from greater trade and investment flows, although at a gradual pace due to regulatory hurdles, the report said.
“India will likely be a growing destination market for goods from fellow Quad countries, while the US and Japan will continue to be major sources of foreign direct investment in India’s services, telecommunications and software sectors,” the report said.
The Quad’s effects on geopolitical tensions could alter capital flows and international business activity, for instance, any increase in member countries’ tensions with China could drive companies to diversify their production centres in APAC, it said.
“But these shifts may occur only slowly because Quad governments will be cautious not to antagonize China, given their existing deep commercial ties.”
While existing regional frameworks will continue to underpin trade flows, the greater economic focus of Quad member countries – Australia, India, Japan and the US – will drive some trade shifts along alliance lines, although stopping short of changing China’s centrality to regional trade, it added.
These shifts include greater Australian commodity exports toward India and a spur in demand for US and Japanese technology and equipment.
“The economic realignment will benefit member countries‘ technology and energy sectors as they seek to reduce reliance on Chinese-produced critical materials and technologies that are key inputs to tech and renewable energy products,” said Nishad Majmudar, a Moody’s Assistant Vice President and Analyst.
“These trends will affect production of inputs for advanced computing, renewable energy, 5G telecommunications equipment and semiconductors,” he added.
Meanwhile, Chinese exports are important for the Quad member countries. At the aggregate level, demand for Chinese goods from the Quad member countries in APAC will likely remain largely unchanged over the next one to two years, given that the Quad itself is unlikely to reshape supply chains tied to China and drive additional investment, the report said.
However, Quad members would like to reduce reliance on Chinese-produced critical materials and technologies that are key inputs to tech and renewable energy products, despite the economic costs and the lack of alternatives in some categories, such as advance computing equipment, solar photovoltaic panels and electric vehicle (EV) batteries.
“This is in keeping with ongoing efforts by Western countries to reduce reliance on Chinese technologies because of national security concerns,” it added.
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