ASEAN sees higher FDI inflow as US-China trade war heightens

ASEAN sees influx of foreign direct investment as US-China trade war intensifies

The continuing US-China trade war has caused companies to move their production sites to Southeast Asia, allowing ASEAN countries to gain a higher inflow of foreign direct investment than before. 

For example, in the first seven months of 2018, Thailand saw its net foreign direct investment increase by 53% to $7.6 billion and manufacturing inflows rise fivefold. Similarly, the Philippines saw its manufacturing inflows from foreign direct investment sharply rise to $861 million from last year’s $144 million.

In Vietnam’s case, manufacturing inflows from January to September 2018 soared by 18% due to the increase in foreign direct investment. One of the investments came from South Korea’s Hyosung Corporation, where it invested $1.2 billion in a polypropylene production project in the country.

Why ASEAN?

Low production costs and strong economic growth has boosted the region’s attractiveness for establishing new factories. More ASEAN countries are also improving their regulations, making it easier for foreign companies to do business in the region. Southeast Asia is also physically close to China, making it a suitable location for Chinese companies or businesses with ties to China to set up factories. 

Future implications for ASEAN countries

As a result of the US-China trade war, many firms have showed interest in moving and setting up its factories in ASEAN. These sectors include consumer products, technology and telecom hardware, chemicals, automotive, and industrial. As much as one-third of the 430 US companies currently located in China are also looking to relocate to the region.

Several companies that have confirmed to either relocate their production or expand existing production facilities in Southeast Asia include Panasonic Corporation (shifting production to Malaysia), Harley Davidson (moving some of its production processes to Thailand), Kayamatics (building production lines in Penang and Kuala Lumpur, Malaysia), Merry Electronics (shifting part of its production from southern China to Thailand), Delta Electronics (plans to expand production by purchasing a Thai affiliate), and Steven Madden (moving production from China to Cambodia). 

However, this doesn’t mean ASEAN will only benefit from the trade war. Thailand’s exports slump this past September was reportedly attributed to the dispute.

Singapore’s manufacturing industry sees its factory output expand by 7.6% in November despite previous forecast of 4.2% and dismal global electronics market.
The central bank of Thailand, Bank of Thailand, has increased its key interest rate for the first time since 2011 by 0.25 percentage points from 1.5% to 1.75%.
Based on a study by Google and Temasek Holdings, ASEAN is forecasted to have its digital economy reach $240 billion by 2025 due to strong growth in all sectors.
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