South-east Asia: A hotspot for Chinese enterprises in the post-pandemic era?
In the first of a six-part BT-Lianhe Zaobao series on China capital flows to Asean, we look at the reasons that are drawing Chinese companies to this part of the world
Singapore
AS TENSIONS between the US and China intensify and global supply chains undergo reconfigurations, Chinese businesses are seeking opportunities amid the crisis, heading out to South-east Asia at a faster pace.
Alibaba, ByteDance, and Tencent have all set up their regional headquarters in Singapore last year, while Huawei announced its investment in a 5G innovation centre in Thailand last September.
Tencent Cloud opened its first cloud computing data centre in Indonesia in April, while SF Express acquired a majority stake in Kerry Logistics in February with the intention of gaining a foothold in the South-east Asian market.
Traditionally, China's overseas ventures were infrastructure construction projects spearheaded by state-owned enterprises.
But the more recent wave of south-bound Chinese firms are from the private sector, with many focused on adding value to the daily lives of users.
Their product offerings include familiar names such as video platform TikTok, Tencent's mobile game platform PUBG Mobile and others.
The rapid advancement of China's information and communication technology industry has helped these companies build distinctive strengths.
The decline in bilateral ties between the US and China created stumbling blocks for Chinese businesses in their forays into Western markets. Inevitably, they have turned to the less developed South-east Asia, which also holds immense potential.
According to data from the United Nations Conference on Trade and Development (UNCTAD), global foreign direct investment in 2020 plunged 42 per cent to an estimated US$859 billion.
The Association of Southeast Asian Nations (Asean), which consists of 10 member countries, saw foreign direct investment fall 31 per cent over the previous year.
Data from China's Ministry of Commerce showed that Chinese investment in Asean came up to US$14.36 billion, an increase of 52.1 per cent year on year. The top three recipients of Chinese investment were Singapore, Indonesia, and Vietnam.
Widely seen as the third biggest market in Asia after China and India, Asean is home to 660 million people as well as a growing middle class.
Xu Ningning, executive president of the China-Asean Business Council, pointed out that Chinese investment in South-east Asia can be categorised into five types: infrastructure building under the Belt and Road Initiative (BRI), manufacturing and assembly, engineering projects, real estate, as well as e-commerce and digital economy.
Mr Xu observed that the diversity of Asean nations and their varied stages of development have created a wealth of opportunities for Chinese enterprises.
The resources and industrial sectors of China and Asean are complementary, and their geographic proximity is also giving a boost to trade cooperation in the post-pandemic era.
Mr Xu cited the example of Singapore as a global financial services hub that can serve as a springboard for Chinese companies going global.
Vietnam, Cambodia, and Thailand are manufacturing and assembly bases that offer Chinese firms a way of circumventing punitive tariffs for exporting to the US and Europe.
Indonesia, Brunei and Laos are home to a number of ventures involving mines, wood, and other natural resources under the BRI.
Chinese real estate ventures are concentrated in Johor Bahru in Malaysia, Bangkok in Thailand, and Phnom Penh in Cambodia, while e-commerce investors are drawn to Indonesia and Vietnam.
Riding on the boom in e-commerce and e-payments in the region, Chinese logistics firm Best Inc had reportedly fulfilled some 73.59 million orders in South-east Asia last year, a growth of 738 per cent over the previous year.
UnionPay International announced a cooperative agreement with Vietnam's Military Bank to issue 600,000 virtual bank cards, offering online card applications and QR code payments in Vietnam.
Shanghai-based Ice Kredit is one of many Chinese firms eager to gain a foothold in South-east Asia. A fintech company specialising in risk management and credit assessment, it offers loan approval and collection through the use of artificial intelligence.
"Globally, the European and American markets are already very mature in digitisation, but this is not the case in South-east Asia - excluding Singapore - and there are more business opportunities," said Ice Kredit marketing director Zhou Yang. "After years of building our foundation in China, we would like to replicate our experience in South-east Asia."
China-plus-one
China-based companies - both homegrown and multinationals - have in recent years deployed a "China-plus-one" strategy for industrial chains, setting up manufacturing facilities in lower-wage South-east Asian countries, to cut costs and to avoid hefty tariffs imposed by Europe and the US on exports from China.
Among the Asean countries, Vietnam has been the biggest beneficiary of manufacturing lines shifting out of China.
Figures from China's Ministry of Commerce show that trade between China and Asean rose 6.7 per cent to US$684.6 billion in 2020. Vietnam was also China's biggest trading partner within the bloc.
But China is not the biggest foreign investor in Asean - yet. It is still behind the European Union, Japan, and the US.
Following the signing of the Regional Comprehensive Economic Partnership (RCEP) agreement between Asean and China, Japan, South Korea, Australia and New Zealand last year, several observers and industry insiders expressed their optimism for South-east Asia to become an even hotter destination for Chinese investments.
Li Mingjiang, associate professor at the S Rajaratnam School of International Studies, said that it was "only a matter of time" before China became the biggest source of foreign investment in South-east Asia. He said that even without the signing of the RCEP, investment from China would still grow exponentially.
"The China-US trade war is causing MNCs in China and low-end domestic manufacturers to turn to South-east Asia; the Belt and Road Initiative also promises to bring large-scale projects, both of which will boost investment in South-east Asia."
Tommy Xie, head of Greater China research at OCBC Bank, pointed out that in addition to the RCEP and other external factors such as market forces, geopolitics are also proving favourable.
He said: "After the pandemic, relations between China and Europe and the US will become even more complicated, there's no way of going back to the way things were. The relationship between China and Asean is simpler; there is less political obstruction and that will draw more Chinese businesses to the region."
- This article is part of a collaboration on a series of features translated from Lianhe Zaobao. The original story first appeared in Lianhe Zaobao on May 9. The next article on May 24 will take a look at the rising trend of China's technology giants choosing to set up their regional headquarters in Singapore.
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