Chinese companies see ASEAN as a bright spot for investment
Maturing and sophisticated Chinese companies looking to internationalise find ASEAN an increasingly attractive destination. The ten-nation bloc, currently the fifth largest economy globally by GDP, offers significant trade and investment opportunities supported by its rising consumption and improved manufacturing capabilities.
Marking its 30 years of relations this year, China and ASEAN's economic ties have never been stronger. In 2020, ASEAN became China's largest trading partner for the first time while China ranked the region's biggest trading partner for 12 consecutive years.
Further growth is expected across the China-ASEAN corridor as indicated by a pulse survey commissioned by Standard Chartered in April 2021 and completed by senior executives at 43 companies based in China and focusing on the China-ASEAN corridor. More than 60% of Chinese companies focusing on ASEAN are looking to expand their sales/production in the region by more than 10% over the next 12 months. Some 56% of respondents are focusing on ASEAN to gain access to the large and growing consumer market, while 44% are expanding to diversify their production footprint.* Over 60% of these Chinese companies picked Singapore and Malaysia as their preferred expansion destinations.
China-led initiatives, such as the Belt & Road Initiative (BRI) and renminbi internationalisation, as well as other trade initiatives such as the ratification of the Regional Comprehensive Economic Partnership (RCEP) will support this growth as increased collaboration and alignment between China and ASEAN ensue.
The BRI will also help drive the renminbi's internationalisation as it fuels demand for cross-border renminbi services.
RCEP could provide a boost
Complementing the earlier focus of BRI investment on large-scale infrastructure projects, Chinese companies are increasingly focusing on fast-growing sectors such as renewable energy and digital solutions. The BRI will also help drive the renminbi's internationalisation as it fuels demand for cross-border renminbi services. As the currency is more widely used for cross-border settlements, Chinese businesses can benefit from reduced foreign exchange risks and lower transaction costs.
In addition, trade between the 15 RCEP signatories could increase by US$428 billion by 2030; China's exports alone are projected to rise by US$248 billion, according to the Peterson Institute for International Economics. This underscores the sentiment that close to 90% of the survey respondents seek to increase their investment into ASEAN by at least 25% over the next three to five years, once RCEP is ratified.
Opportunities in high-value manufacturing, energy and digital services
Chinese companies venturing into ASEAN have much to look forward to. Key focus areas such as partnerships for market access, stronger digitalisation and cyber resilience, enhanced governance and risk management, as well as environmental and social initiatives, will help them further build their resilience and will drive their long-term success.
High-value manufacturing, energy and digital services are among the most promising growth sectors in the region. Driven by improved supplier capabilities and lower costs, and underpinned by a growing consumer market and supportive regulatory policies, automotive (including fast-developing segments such as electric vehicles and batteries) and consumer electronics also show significant potential for growth across the China-ASEAN corridor.
Urbanisation and increased consumption will continue to spur demand for energy and resources in ASEAN, with a focus on renewable sectors such as waste management. In addition, the region's target to raise ASEAN's renewable energy supply to 23% of total primary energy by 2025 will fuel new investments with a focus on greater power capacity for renewable energy across the region.
To invest in ASEAN with an impact, Chinese companies need to diversify production networks and supply chains to mitigate risks. Accelerating digital transformation while being mindful of cyber security risks could enhance resilience.
With 400 million internet users and a thriving digital ecosystem, ASEAN is well-positioned for further e-commerce growth. Prominent Chinese e-commerce players Alibaba and JD.com have already invested in ASEAN. Companies such as Lazada, Shopee, and Tokopedia have also benefited from significant regional demand for online services during Covid-19. The industry is projected to grow at a compound annual growth rate (CAGR) of 24% to reach a market size of US$309 billion by 2025, according to the e-Conomy SEA 2020 report by Google, Temasek and Bain & Company. Accelerated digital transformation of companies in ASEAN will also propel demand for cloud and other digital services.
Investing with an impact
ASEAN comprises ten diverse markets with varying dynamics. To invest in ASEAN with an impact, Chinese companies need to diversify production networks and supply chains to mitigate risks. Accelerating digital transformation while being mindful of cyber security risks could enhance resilience.
As ASEAN increases its focus on climate change, companies need to differentiate through sustainability-driven models and build sustainability into their supply chains. Linking environment, social and governance (ESG) goals to senior management's KPIs and incentives can accelerate organisational change.
Local partnerships, from banking partners to investment agencies, as well as alliances and acquisitions, can also help bridge capability gaps and unlock access of Chinese companies to ASEAN markets.
Finally, to ensure meaningful growth in ASEAN, Chinese companies should focus on driving purposeful and risk-conscious growth whilst balancing the interests of both shareholders and local stakeholders to thrive and stay resilient for the long term.
*For key drivers, values refer to the % of survey respondents who included the driver as one of the top three ranked choices.