Chinese companies look to Malaysia for expansion plans: Standard Chartered

CHINESE companies with an appetite for the Asean region are favouring Malaysia in their expansion plans, according to a pulse survey commissioned by Standard Chartered on growth opportunities in the China-Asean corridor.

Most are also planning to increase their investments in the Asean region significantly, especially in the medium term. But many are conscious of the risks posed by the pandemic, geopolitical uncertainty and trade conflicts, and a tepid rebound.

Adapting Chinese business models to local contexts will also be a key challenge, that may require partnerships with Asean actors.

Senior executives at 43 China-based companies with a focus on Asean were polled for the survey, of which nearly two-thirds (65 per cent) said they thought Malaysia offered their companies the best opportunities to capture sales and production opportunities.

Singapore ranked second (60 per cent), and Thailand third (53 per cent). The Philippines (44 per cent) and Indonesia (37 per cent) came next, while Vietnam trailed at only 30 per cent.

Singapore and Malaysia have typically been considered as hubs for Chinese investments, noted the report by Standard Chartered, which was released on Thursday. Nearly half of respondents (47 per cent) are keen to tap Singapore as a major regional procurement hub, and a regional research & development and innovation centre (44 per cent).

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More than 60 per cent of those surveyed are looking to expand their sales and production in the region by over 10 per cent, over the next 12 months. Over half said they were driven by access to the large and growing Asean consumer market, local government incentives and support, and a reliable supplier base.

Nearly half also cited Asean's network of free trade agreements, which enables access to a global market. The Regional Comprehensive Economic Partnership (RCEP) is also expected to usher more investments into the region, with 88 per cent planning to increase investments into Asean by at least 25 per cent over the next three to five years, once RCEP is ratified.

However, the executives polled also recognised a wide range of risks in their responses.

Seven in 10 cited the pandemic or other health crises as a key risk for their business, while two-thirds (67 per cent) cited the risks of geopolitical uncertainty and trade conflicts, as well as a slow economic revival and a drop in consumer spending.

Adapting Chinese businesses to the Asean context also looks set to be a challenge, with nearly 60 per cent of respondents agreeing that adapting their business model to industry practices and conditions within Asean will be the most significant challenge for them in the six to 12 months ahead.

This could open up opportunities for Asean actors to partner Chinese businesses. Indeed, leading Chinese businesses like Alibaba and JD.com have steadily deepened their investments and partnerships in the region in recent years - one of the more prominent examples being the US$500 million joint venture between JD.com and Thai retailer Central Group to form JD Central in 2017.

A significant proportion (44 per cent) of respondents polled for Standard Chartered's survey cited entering new partnerships and joint ventures to increase market presence as one of their top three focus areas for their organisation to drive "resilient and rebalanced growth in Asean".

This was the third most commonly cited priority, after executing digital transformation programmes (58 per cent) and driving sustainability and environmental, social and governance initiatives (47 per cent).

"Chinese companies with limited capacity to conduct due diligence on foreign markets can engage with local partners to understand growth dependencies and risks, address capability gaps, and mitigate market entry barriers," said Standard Chartered's report.

"Entering alliances or making strategic acquisitions can help Chinese companies targeting Asean bridge potential information and capability gaps."