As the world enters 2023 with a renewed sense of uncertainty amid higher rates and the potential for a broad economic slowdown, Asian markets present businesses with opportunities to counter some of the risks ahead.

China remains committed to its own economic structural transformation as it shifts gear to a rapid reopening following COVID-19 shutdowns, giving businesses clear impetus to continue exploring ‘China Plus One’ strategies as both a hedge and to capitalise on opportunities.

The diversification of trade and investment is presently front of mind for German businesses. There is also an ever-increasing eye on sustainability and, with the global supply chain balance being disrupted, Asean nations offer clear opportunities to businesses globally.

With growth rates in countries including Vietnam, Indonesia and Malaysia expected to outstrip those of more developed peers, the prospects ahead are compelling.

Firstly, it’s important to understand the shifting global growth dynamic, even as we eye the potential for a global recession this year. It’s unlikely we’ll see a rapid expansion in China with our economists forecasting growth over the course of this year to sit at just 4 per cent, even as the country reverses its zero tolerance covid measures.

This is a far cry from the days of double-digit growth in the past decade and comes at the same time as the Chinese economy alters structurally, continuing its shift towards a dual circulation model. This is where internal consumption and larger focus on the domestic market will work in tandem with current economic settings but will see China shift away from low-cost manufacturing and move up the value chain.

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While China is a long-standing and important partner with countries like Germany and cannot be ignored, a trade and investment strategy encompassing China plus “others” now appears more prudent than ever, with South-east Asia having the necessary characteristics to fulfil this role.

Nations in this part of the world are poised for another leg up in growth as we see a shift in global supply chains amid China’s ongoing structural transformation. A focus on the sustainability of supply chains, championed by initiatives including the German Supply Chain Act, which enforces strict measures to ensure human rights and sustainability across global supply, is also key.

Sitting at the forefront of the shifting supply chain dynamic are some of the biggest nations in South-east Asia, such as Vietnam, Malaysia, and Indonesia, where annual growth rates are expected to surpass

China. Our economists predict a 6.2 per cent GDP growth rate in Vietnam this year and 5 per cent in Indonesia as trade flows alter and infrastructure associated with the shifting dynamic is further developed.

While adopting a ‘China Plus One’ strategy isn’t a new phenomenon, the ability for global businesses to access growing markets is getting easier. Singapore has been a launch pad for German trade with the region for more than half a decade, with more than 2000 German businesses already operating in the city-state. This has been enhanced over the years by the implementation of the EU-Singapore Free Trade Agreement and more recently, with the November 2022 signing of the Germany-Singapore Framework for Sustainability and Innovation.

Sustainability and innovation are key opportunities as nations across the region treat the push towards a sustainable future with greater sense of urgency. It is here that businesses can harness experience across the ESG patch to acclimate parts of the region with the most prominent trends.

Sustainability across global supply chains is one such notable trend and an area where German businesses have found a clear leadership role. Given, for example the recent German Supply Chain Act legislation which requires compliance with, including internationally applicable standards for occupational health and safety and compliance with human rights.

The shifting mood towards sustainable global supply chains is an untapped opportunity. The increasing volume of green and sustainable loans across the region is evidence that sustainability is front of mind and this will likely continue to be the case in the years ahead. The market for sustainable finance passed US$1 trillion globally in 2021 and borrower appetite for sustainability linked loans increased by 350 per cent over the same period according to Bloomberg and Refinitiv data.

Sustainable loans are often utilised in the development of waste management, renewable energy, clean transport or for research into future sustainability tools. As parts of Asean experience rapid growth in manufacturing capacity, there remain challenges on the infrastructure side, with increasing bottlenecks across a variety of critical infrastructure. Funding social development and capital investment is critical in any burgeoning manufacturing hub.

Export Credit Agencies (ECA) can provide backstopped finance underwritten by governments to facilitate such needs. Financing needs in Asian nations like China, Indonesia and Vietnam have already seen a significant take up in such methods and this is expected to continue. Indeed, Asia now accounts for around a third of Commerzbank’s total current active portfolio in ECA financing and this is growing in scope.

It is clear, as we begin 2023 and as concerns around growth and the broader economic outlook remain, diversification remains key in any trading relationship. And it is clear the ASEAN region sits compellingly at the forefront not only within the prism of a transforming the global supply balance, but as the world continues its push towards a greater, sustainable future.

The writer is regional board member at Commerzbank.