Asia is being rewired by three forces: multipolarization, China Shock 2.0, and the AI revolution

Overview

The report, Asia rewired, discusses how Asian economies are being reconnected by geopolitical transformation, the China Shock, and the AI revolution. Nomura characterizes the current environment as a shift from unipolar open globalization toward an order of multipolarity, fragmentation, and economic-security priority, and argues that this will reshape trade, FDI, energy, rare earths, defense, interest rates, and equity-market opportunities.

Core views

First, Asia’s existing growth model, which relied on open trade, global supply chains, and China’s industrialization, is being challenged. Second, supply-chain relocation and friend-shoring are creating FDI and manufacturing opportunities for ASEAN, India, Vietnam, Malaysia, and Singapore, but the extent of benefits across economies depends on market size, investment environment, tariff advantages, and geopolitical risk. Third, China Shock 2.0 is no longer just about low-end manufacturing, but extends into higher-technology and higher-value-added sectors such as new energy vehicles, batteries, solar PV, construction machinery, and shipbuilding. Fourth, AI is dividing Asia into production-side winners, adoption-side winners, and longer-term optionality markets; Taiwan, South Korea, China, and Malaysia are benefiting more quickly through hardware exports and capital spending, while India, Indonesia, the Philippines, and Thailand need to build out infrastructure, skills, and enterprise adoption capabilities. Fifth, energy security, rare-earth supply chains, defense spending, and de-dollarization together form longer-term asset-allocation themes.

Analysis framework

The report adopts a thematic framework combined with multidimensional scorecards: it starts with the macro-order shift from unipolarity to multipolarity, then separately analyzes shocks to trade, FDI, Chinese exports, AI, energy security, rare earths, defense, and interest rates; at the same time, it compares the relative positioning of different economies through country vulnerability, FDI attractiveness, AI production/adoption matrices, and an energy security index, and lists potential equity beneficiaries.

Methodology notes

• Macro thematic frameworkUnipolar-to-multipolar transition framework

  A shift from US-led open globalization to multipolar competition, fragmentation, and economic-security priority.

  This framework is used to explain why supply-chain restructuring, trade protectionism, strategic autonomy, energy security, and rising defense spending are occurring simultaneously.

• Cross-country comparison frameworkFDI attractiveness scorecard

  Compares the ability of Asian economies to attract foreign investment across dimensions such as market size, investment environment, tariff advantages, and geopolitical risk.

  Based on this, the report concludes that India, Singapore, Vietnam, and Malaysia are the main beneficiaries of FDI reallocation.

• Industry and macro frameworkAI production-adoption matrix

  Distinguishes between AI production-side economies, AI adoption-side economies, dual winners, and long-term optionality markets.

  This matrix is used to assess how AI affects different Asian economies through hardware exports, capital spending, productivity gains, and enterprise restructuring costs.

• Risk assessment frameworkChina Shock 2.0 vulnerability scorecard

  Assesses each country’s exposure to China’s manufacturing upgrade and export expansion.

  The report finds Indonesia, Thailand, and the Philippines to be more vulnerable, while Malaysia, India, and Vietnam are relatively more resilient due to supply-chain diversification and better positions in the value chain.

• Energy security frameworkAsia energy security index

  Evaluates security across dimensions such as diversification of the energy mix, diversification of supply sources, strategic reserves, energy efficiency, and domestic production/resource exploration.

  The report shows that China performs most strongly, while New Zealand and Thailand rank lower.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• ASEAN manufacturing and FDI beneficiary chain

  Benefits from supply-chain relocation, friend-shoring, and growth in intra-regional intermediate-goods trade.

  Strengths

  ASEAN FDI inflows still grew 8.5% in 2024 despite a global downturn, while Vietnam and Malaysia are listed as beneficiaries due to lower geopolitical risk.

  Weaknesses

  Highly dependent on external demand, trade policy, and multinational capital-spending cycles.

  Comparison

  Compared with the 11% decline in global FDI inflows, ASEAN has shown greater resilience; compared with economies with stronger security alliances such as Japan, South Korea, and Taiwan, China, some ASEAN countries face less pressure to invest in the US.

  Risks

  Escalation of US protectionism, changes in tariff rules, infrastructure bottlenecks, and local political risk.

• India manufacturing, IT services, and data centers

  Benefits from China+1, market size, and some relocation in electronics manufacturing, while also occupying a place in long-term AI optionality markets.

  Strengths

  The report identifies India as one of the main beneficiaries of FDI attractiveness and highlights opportunities in IT services, data centers, power equipment, auto parts, and pharmaceuticals.

  Weaknesses

  Its share of global goods exports is still only around 1.7%, its share of FDI has slowed, and AI infrastructure, skills, and enterprise adoption capabilities still need to be built.

  Comparison

  Compared with Vietnam and Malaysia, India has a larger market size; compared with Taiwan and South Korea, India’s short-term AI production-side benefits are weaker.

  Risks

  Current-account pressure, infrastructure constraints, skill gaps, and slower-than-expected manufacturing expansion.

• AI hardware production economies: Taiwan, South Korea, China, Malaysia

  Take the lead in benefiting through AI hardware exports, server supply chains, memory, packaging, and capital spending.

  Strengths

  The report argues that production-side economies can first capture upside in exports and capital spending, with Taiwan, China’s 2025 GDP growth of 9% used to illustrate how AI amplifies supply-chain advantages.

  Weaknesses

  Highly cyclical, and exposed to US export controls, hardware supply bottlenecks, and domestic AI diffusion capability.

  Comparison

  Compared with adoption-side economies such as Singapore and Japan, production-side economies enjoy more direct short-term benefits; compared with India, Indonesia, the Philippines, and Thailand, their AI positioning is clearer.

  Risks

  Overheated valuations, technology restrictions, slowing AI capital spending, and rising local interest rates.

• China’s high-end exports and overseas-expanding companies

  Represent China Shock 2.0, covering sectors such as new energy vehicles, batteries, solar PV, construction machinery, shipbuilding, and energy storage.

  Strengths

  Combined exports of new energy vehicles, batteries, and solar panels grew 349% from 2020 to 2025; construction machinery exports nearly tripled; and China’s global shipbuilding share rose to 56.1%.

  Weaknesses

  Industries such as solar PV face oversupply, while some sectors are subject to overseas trade remedies and local-production requirements.

  Comparison

  Compared with China Shock 1.0, which was focused on lower-end manufacturing, this wave is more concentrated in high-tech and high-value-added sectors; it puts greater pressure on economies such as Indonesia, Thailand, and the Philippines that are more reliant on low-value-added manufacturing.

  Risks

  Anti-dumping measures, tariffs, export controls, overseas political risk, and a global demand slowdown.

• Energy security, green technology, power grids, and LNG

  Geopolitical conflict and AI data-center power demand together are boosting the themes of energy security and energy investment.

  Strengths

  China performs strongly in Nomura’s energy security index; Asia has investment opportunities in nuclear construction, renewable energy, energy storage, power grids, and LNG demand.

  Weaknesses

  Some countries have concentrated energy supply sources or high dependence on oil and gas imports, while New Zealand and Thailand rank lower in the index.

  Comparison

  China leads in green-tech exports and manufacturing capacity, South Korea and Japan are strong in advanced battery exports, and Australia and Malaysia benefit from LNG demand.

  Risks

  Middle East conflict, energy-price volatility, project delays, regulatory changes, and insufficient grid investment.

• Rare earths and critical minerals supply chain

  Many countries are trying to reduce dependence on China’s rare-earth processing, making this an important theme in economic security and industrial policy.

  Strengths

  China still controls nearly 70% of rare-earth mining and about 90% of processing capacity; non-China supply chains are improving resilience through local refining, partnership agreements, strategic reserves, recycling, and technological innovation.

  Weaknesses

  Rare-earth processing remains highly concentrated, and non-China refining expansion is constrained by environmental, capital-spending, and technological limits.

  Comparison

  Australia is more likely to expand rare-earth mining, while the US, Malaysia, and India are more likely to expand processing; Lynas and MP Materials are cited as established or emerging non-China participants.

  Risks

  China export controls, project-construction delays, uncertainty in environmental permits, and price volatility.

• Asian defense and aerospace

  Strategic competition and China-US tensions are driving a defense revival in Asia.

  Strengths

  Asia-Pacific and Oceania already account for 23.6% of global military spending, and rising regional defense budgets benefit aerospace, defense equipment, and military industrial supply chains.

  Weaknesses

  Defense-spending expansion depends on fiscal space and political consensus, and order confirmation cycles may be long.

  Comparison

  Compared with traditional cyclical industries, defense demand is more driven by national security; related industries in South Korea, Japan, and India are highlighted in the report.

  Risks

  Fiscal constraints, project-execution risk, export-license restrictions, and escalation of regional security tensions.

• Asian rates, FX, and de-dollarization themes

  AI growth divergence, high developed-market rates, and de-dollarization discussions jointly affect Asian yield curves and FX assets.

  Strengths

  AI-driven growth in South Korea and Taiwan, China is strong, and the report believes the BOK and CBC may raise rates 4 to 5 times over the next 12 months; China’s dual-winner positioning may support a steeper curve and higher long-end yields.

  Weaknesses

  High interest rates suppress valuations and increase financing costs, while markets with low AI production/adoption scores have weaker short-term catalysts.

  Comparison

  The report argues that China’s long-end yields may catch up with South Korea and Taiwan, China, while high-yield markets such as Indonesia and India may face relative pressure because AI-related catalysts are weaker.

  Risks

  Global interest-rate repricing, US dollar volatility, capital outflows, and current-account vulnerability.

Key data

• ASEAN FDI resilienceIn 2024, total FDI inflows into ASEAN increased by 8.5%, while global FDI inflows declined by 11% over the same period.The report interprets this as multinational companies increasing their ASEAN footprint to diversify production and respond to uncertainty in US trade policy.
• India export shareIndia’s share of global goods exports remains around 1.7%.The report believes India benefits from China+1, but success has mainly been concentrated in electronics, while its share of FDI has also slowed.
• China global export shareFrom 2019 to 2024, China’s share of global exports increased by 1.5 percentage points.The increase spans both high-tech and low-value-added products, forming the backdrop to China Shock 2.0.
• China’s new three exportsFrom 2020 to 2025, combined exports of new energy vehicles, lithium batteries, and solar panels grew by 349%, with a compound annual growth rate of 35%, and their share of China’s total exports rose from 1.5% to 4.6%.Over the same period, by sales volume, new energy vehicles grew 907%, batteries 674%, and solar panels 586%.
• Construction machinery and shipbuildingFrom 2020 to 2025, China’s construction machinery exports nearly tripled; excavator exports as a share of total sales rose from 17.4% to 50.0%; and China’s shipbuilding market share rose from 35% in 2019 to 56.1% in 2025.The report notes that 89.3% of China’s ship output is for export, and that it holds 66.8% of global order backlog.
• AI and Taiwan, China growthThe report mentions that Taiwan, China’s GDP growth reached 9% in 2025.This is used to illustrate how AI can amplify supply-chain advantages into significant growth divergence.
• AI-related rate impactThe report expects the BOK and CBC may raise rates 4 to 5 times over the next 12 months.The logic is that AI-driven growth in South Korea and Taiwan, China is strong, with rising asset prices.
• Green-tech exportsChina accounts for about 40% of green-tech export market share and controls about 80% of manufacturing capacity in solar PV, wind turbines, and lithium batteries.ASEAN economies, India, South Korea, Japan, Australia, and Malaysia are also benefiting through different energy export chains.
• Rare-earth concentrationChina accounts for nearly 70% of global rare-earth mining and about 90% of rare-earth processing.The IEA forecasts that China’s share of rare-earth mining may fall to around 50% by 2030, but its refining share could still remain as high as 73% to 75% by 2035 to 2040.
• Asian defense spendingAsia-Pacific and Oceania account for 23.6% of global military spending, with military expenditure at about 1.72% of GDP.The report links this to Asia’s defense revival amid strategic competition and China-US tensions.

Impact & implications

For investment, the report’s core implication is not a one-directional rise in Asia’s risk premium, but stronger structural divergence. Supply-chain relocation benefits parts of ASEAN, India, and Singapore; the AI hardware chain benefits Taiwan, South Korea, China, Malaysia, and related semiconductor/server companies; Chinese companies expanding overseas still have growth in batteries, energy storage, construction machinery, and shipbuilding, but will face trade protectionism and overcapacity risks; energy, rare earth, and defense themes are more medium- to long-term in nature and are tied to national security, resource control, and capital-spending cycles.

Risks

• Deepening geopolitical fragmentation and trust deficits could weaken the open trading system on which Asia has long depended.
• Escalation of US protectionism, tariffs, and export controls could alter supply-chain relocation and FDI flows.
• China Shock 2.0 brings export competition with higher technological content, compressing the manufacturing-upgrade space of some Asian economies.
• AI adoption costs may come in higher than expected, and productivity gains may lag, putting short-term growth pressure on adoption-side economies.
• Energy, rare earths, and critical minerals still face supply concentration risks, especially the high dependence on China in rare-earth processing.
• High developed-market interest rates and expectations of local rate hikes in Asia may suppress valuations and increase debt burdens.
• Economies with weaker current accounts such as the Philippines, India, and Indonesia may face greater balance-of-payments pressure.
• Although rising defense spending creates industry opportunities, it may also bring fiscal pressure and regional security risks.

What to watch

• Whether US tariffs, export controls, and reshoring policies toward China and Asian supply chains continue to escalate.
• FDI inflows, manufacturing orders, and intra-regional intermediate-goods trade data for ASEAN, India, Singapore, Vietnam, and Malaysia.
• China’s export shares in new energy vehicles, batteries, solar PV, construction machinery, and shipbuilding, as well as changes in overseas anti-dumping and localization policies.
• AI capital spending, server/semiconductor orders, asset prices in Taiwan and South Korea, and the policy-rate paths of the BOK and CBC over the next 12 months.
• Whether India, Indonesia, the Philippines, and Thailand can achieve sustainable productivity gains through AI infrastructure, skills, and enterprise adoption.
• Asian energy-security investment, including nuclear power, renewable energy, energy storage, smart grids, LNG, and domestic resource exploration projects.
• Changes in rare-earth mining and processing shares, especially China’s share and progress in projects involving Lynas, MP Materials, India, and Malaysia.
• Asia-Pacific defense budgets, aerospace and defense orders, and related export-license policies.
• The impact of de-dollarization, dollar-substitute assets, and high developed-market interest rates on Asian exchange rates and capital flows.