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Supply Chains Re-routed to Asean
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The relocation of production bases from China to ASEAN is perhaps the most notable benefit of the ongoing US-China trade war for the region. Over the past several decades, companies have flocked to China to take advantage of their low-cost production base and fast-growing middle class population with burgeoning spending power.
With the US-China trade tension – which China’s Ministry of Commerce warned could be “the largest trade war in economic history to date” – disrupting supply chains, ASEAN is bracing for a surge in foreign direct investment (FDI).
According to Arm Tungnirun, a lecturer at Chulalongkorn Unversity’s faculty of law and author of the book China 5.0, the Belt and Road Initiative (BRI) has so far focused on infrastructure construction in developing countries throughout the world. This creates a fruitful business environment for Chinese firms that are looking to invest abroad.
Being positive towards both trade and protectionism seems a little counter-intuitive at first glance. But dig a little deeper and it is clear that businesses are shrewdly seeing and capitalizing on the opportunity amid the emerging trade disruption.
Shifts in production to Asean can – and are – happening quickly.
From 2013 to last year, $737 billion of BRI-related capital flowed into the Asean region, according to research by the CIMB Asean Research Institute (CARI) titled China’s Belt and Road Initiative and Southeast Asia.
Of these Asean countries, Indonesia gained the largest BRI-related capital flows at $171 billion, followed by Vietnam with $152 billion, Cambodia $104 billion, Malaysia $98 billion and Singapore $70 billion. Behind them are Laos with $47 billion, Brunei $35 billion, Myanmar $27 billion, Thailand $24 billion and the Philippines $9 billion.
The key BRI-related projects in the region include phase one of the Bangkok-Nakhon Ratchasima railway, which was initiated in 2017 with an expected completion in 2021. The project is worth up to 179 billion baht.
Other projects include the Vientiane-Boten railway linking Laos with China at a cost of $5.8 billion, the $1.9 billion Cambodian Phnom Penh-Sihanoukville expressway, and the Morowali industrial park in Indonesia valued at $1.6 billion, according to the research.
The Asean Development Bank (ADB) estimates that the total infrastructure investment needs in Asean from 2016 to 2030 will be between $2.8 trillion (the baseline estimate) and $3.1 trillion (a climate-adjusted estimate).
To optimize the benefits of the BRI and supply chain realignment in the region as well as minimize the debt risk of these Chinese-backed projects, Arm advised Asean governments to establish a common position on the BRI and cooperate as a region to assess the risks of the different BRI projects on a case-by-case basis.
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