The Renminbi Nears a Three-Year High: Will Southeast Asia and India Replace Chinese Manufacturing?

On February 26, the offshore renminbi briefly rose to its strongest level against the U.S. dollar in nearly three years. By the end of February, it had appreciated by roughly 2% since the start of the year. The following day, the People's Bank of China announced that, from March 2, it would cut the foreign-exchange risk reserve ratio on forward foreign-exchange sales from 20% to zero, with the stated aim of helping companies manage currency risk and keeping the renminbi broadly stable at a reasonable equilibrium level.[1][2] For Chinese exporters that invoice in dollars but pay wages and domestic procurement costs in renminbi, a stronger currency reduces the renminbi value of the same dollar revenue and can squeeze margins. That raises a more practical question: will renminbi appreciation accelerate the relocation of some manufacturing activity to Southeast Asia and India?
The answer is yes—but mainly through the redistribution of selected processes, new capacity and secondary production bases, rather than the wholesale replacement of Chinese manufacturing.

In fact, production diversification was already under way before the latest bout of renminbi appreciation. JETRO's survey of Japanese companies in Asia and Oceania shows that ASEAN has been one of the main destinations for production transfers in recent years. Vietnam, Thailand, Indonesia and Malaysia have all received production functions shifted from Japan or China; among the industries moving out of China, electrical and electronic parts, metals, electrical and electronic equipment, and plastic products feature prominently.[3] The motivations cited by JETRO extend beyond cost to include reducing China-related risk and moving closer to local demand. Exchange rates are therefore only one variable in production-location decisions.

What is often described as a “shift to Southeast Asia and India” usually means relocating selected production stages or new capacity—not moving the entire supply chain out of China at the same time. Assembly and processing can take place locally while raw materials, equipment and critical components continue to come from China. To judge whether manufacturing has genuinely shifted regionally, it is not enough to look at where the final factory is located; the origin of its upstream supply chain matters as well.

The battery industry illustrates the point clearly. The IEA estimates that China accounted for about 80% of global battery-cell production in 2024, close to 85% of cathode active materials and more than 90% of anode active materials. In LFP, more than 98% of both LFP cathode material and LFP cell production was concentrated in China.[4][5] Indonesia and India are adding battery and material capacity, and Southeast Asia is attracting new investment, but some of that capacity may still depend on Chinese cathode and anode materials, equipment or technology. Supply routes such as “Chinese materials → processing and cell production in Southeast Asia or India → Japan, Europe or the United States” are therefore entirely plausible. Diversifying the manufacturing location does not mean the upstream supply chain has ceased to depend on China.

For buyers, renminbi appreciation first changes the relative cost of China versus production bases in Southeast Asia and India, prompting companies to compare procurement and manufacturing conditions across regions again. But manufacturing cost is not determined by wages and exchange rates alone. Freight, yield, lot-to-lot consistency, lead times, available supply scale, engineering support, and the validation and qualification costs involved in changing suppliers all affect the true total cost.

This is especially important in materials, electronics components and batteries, where China has built dense industrial clusters over many years. Raw materials, production equipment, components and supporting suppliers can often work together within a relatively compact geographic area. That supply-chain density and scale advantage will not migrate quickly simply because the renminbi appreciates by a certain amount.

Renminbi appreciation is therefore more likely to accelerate the diversification of selected processes and new capacity into Southeast Asia and India than to drive the wholesale replacement of Chinese manufacturing. Assembly, processing and more standardized products may be easier to relocate, while critical materials, equipment and components that depend on industrial depth, technical know-how and scale may remain significantly reliant on China in the near term.

In that context, “China+1” is becoming an increasingly practical supply-chain model. Companies can continue to use China's mature manufacturing and supply base while adding a second production location or sourcing option in Vietnam, Thailand, Malaysia, Indonesia, India or elsewhere, reducing dependence on any single geography.

For procurement teams, the strategy will increasingly shift from comparing the lowest quoted price to redesigning the supply chain as a whole. Assembly, processing and standardized products that are easier to relocate can be diversified across production and sourcing locations. Critical materials, equipment and components that are harder to replace in the short term may require second sources, safety stock and longer-term supply arrangements to reduce disruption risk.

Seen this way, what renminbi appreciation is most likely to accelerate is not an “exit from Chinese manufacturing,” but a broader shift in global manufacturing from single-location concentration toward regional specialization. Whether China can retain its manufacturing advantage, and how much new capacity Southeast Asia and India can absorb, will ultimately depend on whether each region can build competitive quality, efficiency and supply-chain depth—not cost alone.