China is set to lose title of 'world's factory' to Southeast Asia

[SYDNEY]The cheap, young labour and strategic location of Myanmar, Cambodia and Laos are set to draw increasing numbers of manufacturers to Southeast Asia, which will eventually displace China for the title of "world's factory."

The transformation will be part of the rise of the Association of Southeast Asian Nations to become the "third pillar" of regional growth after China and India, ANZ Bank economists led by Glenn Maguire reckon. By 2030, more than half of 650 million people in Southeast Asia will be under the age of 30, part of an emerging middle class with high rates of consumption.

"We also believe Southeast Asia will take up China's mantle of the 'world's factory' over the next 10-15 years as companies move to take advantage of cheap and abundant labor in areas such as the Mekong," ANZ said.

What will likely assist this shift is the connection between low-cost labor in places like Myanmar, Cambodia and Laos, cost-effective manufacturers in Thailand, Vietnam, Indonesia and the Philippines, and sophisticated producers in Singapore and Malaysia. Southeast Asian nations have committed to establish an Asean Community by 2015 where goods, services, capital and labor can move freely between the member states.

Together, the Southeast Asian nations could lift intra- regional trade to $1 trillion by 2025, ANZ estimates. Foreign direct investment into Asean from the major economies could climb to $106 billion in 2025, having already eclipsed investment into China for the first time in 2013.

"Most of Asean's member countries lie at the junction of the Pacific and Indian Oceans," ANZ noted. "The land-based members of Asean sit between the two most populous countries in the world - China and India. Access to these land and maritime routes allows Asean to participate in Asia's expanding production network."

BLOOMBERG