South-east Asia no longer just an assembly hub for China: panellists
Chinese firms are increasingly looking to the region for future growth plans, they add
[SINGAPORE] South-east Asia is no longer simply part of the assembly line for Chinese exports, experts noted in a panel discussion at a forum on Friday (Sep 19). Rather, the region will play an ever-increasing role in China’s economic and trade trajectory as a destination for production and investment – and even as a market for growth.
The panel, discussing economic and trade relations between the region and China at the 16th FutureChina Global Forum organised by Business China, noted that existing trade tensions have forced Chinese value chains to quickly evolve.
Wang Huabin, deputy chief executive at the Bank of China (Hong Kong), said that many of the lender’s Chinese clients are beginning to shift more of their production lines into the region – a key difference from previous models where South-east Asia merely served as a site for assembly of the final product before shipping.
“As traditional trade routes break down, China starts to look for an alternative in Asean,” said Tommy Xie, head of Asia macro research at OCBC.
Unlike US-China trade tensions during US President Donald Trump’s first term which only imposed levies on China, high US tariffs on countries across South-east Asia this year have aimed to target transhipments, or China’s use of intermediate locations in the region to export goods into the US.
But Xie believes that the supply chain links between China and South-east Asia have steadily become too intertwined for the US to break down through tariffs.
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Clear trends in trade patterns between South-east Asia and China have emerged since 2018 when the US and China first faced off in trade disputes, noted Xie.
The Asian giant had consistently recorded trade deficits with the region, but flipped the script with trade surpluses after 2018, as Chinese supply chains became increasingly entrenched within South-east Asian countries.
Vikrom Kromadit, chairperson of Thai industrial estate developer Amata Corporation, observed that Chinese businesses have rapidly expanded their presence in Amata’s industrial spaces in the past few years.
“Many are going into high-tech products, and they have many people in research and development,” said Vikrom. “I believe the future of investment in Asean will be majority Chinese – they are quickly catching up to the Japanese.”
Yet South-east Asia’s role in China’s continued growth story is not simply about supply chains, Wang noted, as Chinese companies increasingly look towards the region’s sizeable consumer market.
“Asean has a population of 700 million, several countries are in the process of urbanisation and growing their middle class,” Wang said.
The search for alternative markets is not merely a diversification strategy for Chinese firms, but a necessary step as the country struggles with ailing domestic consumption.
“It is difficult for China to rely on other avenues of growth apart from exports at the moment,” noted Chen Weiheng, global investment strategist at JP Morgan Private Bank. “Exporting to other markets is the key right now, even if a trade deal between the US and China is achieved.”
Likewise, the nature of these exports is critical to South-east Asia’s potential as a growth market. “For now, the goods from China coming in are still complementary for the region, because these goods are not produced in South-east Asia,” said Xie.
But the country will increasingly need to carefully balance the impact of its exports into South-east Asian economies.
“On one hand, foreign direct investment that creates jobs and benefits the financial plumbing would be welcome,” Chen said.
On the other, a flood of cheap products into the region’s markets could crowd out local producers, he explained, adding: “Just like how Chinese exports have hurt US producers for many years, this could be a social or political problem down the road.”
Therefore, multiple panellists agreed that further diversification beyond labour and resource-intensive manufacturing will likely become a part of the region’s relationship with China.
“In the coming years, technology-related investments, e-commerce, renewable energy and financial services are going to be meaningful,” Wang added.
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