Seeds for growth in China-Asean shared future

Strong ties: A woman walks past a poster promoting the Asean Summit in Labuan Bajo held last month. For more than a decade now, China and Asean have enjoyed growing connectivity, deepening economic integration and robust business ties. — AFP

In 2013, President Xi Jinping announced an initiative for China to work with Asean countries for a 21st Century Maritime Silk Road to build together a closer China-Asean community with a shared future. For more than a decade now, China and Asean have enjoyed growing connectivity, deepening economic integration and robust business ties.

Since 2020, Asean has surpassed the European Union to become China’s largest trading partner, marking the official formation of a new regional economic and trade cooperation pattern in which China and Asean are each other’s largest trading partners. In 2022, the Regional Comprehensive Economic Partnership (RCEP) came into effect, which presented China a year-on-year trade increase of 15% with Asean.

As the two economies’ partnership continues to deepen, beyond trade, we expect to see China’s growing footprint in Asean through foreign direct investment (FDI), planting seeds for growth in China and Asean’s shared future.

Within Asean, Malaysia and China have enjoyed a strong and enduring relationship. Over the last 14 years, rapid growth in bilateral trade and investment, as well as in cultural, education and other links, have created a strong and wide-ranging Malaysia-China relationship.

And in 2024, both countries will celebrate the 50th anniversary of the establishment of diplomatic relations.

Located strategically in the heart of the region, Malaysia continues to be one of the preferred destinations for businesses and entrepreneurs from China to expand their businesses in the region.

In 2022 alone, according to the Malaysian Investment Development Authority, China dominated 33.9% of foreign investments into the country.

Asean overall is attracting increasing FDI into the region due to several well-recognised comparative advantages, including demographic dividends and cost-effective labour costs.

FDI flows into Asean as a percentage of total world flows rose to a record high of 11% in 2021, almost on par with China (12%). And China has become the joint largest source country for FDI into Asean (not counting intra-Asean) in 2021, on par with Japan.

While the process was partially disrupted by the pandemic, after the reopening, China’s investment push into Asean will continue to thrive.

Most of mainland China’s FDI projects in Asean in 2022 fall into sectors where recipient countries have a competitive advantage.

Over the years, China has been investing heavily in Asean’s booming manufacturing sector, ranging from the electric vehicle (EV) supply chain in Indonesia and Thailand, to consumer electronics in Vietnam, as well as Singapore’s promising pharmaceuticals.

And for Malaysia too, China continues to be a major investor into the manufacturing sector, with the potential for further investments in several areas including in automotive and EVs and the semiconductor value chain.

For these sectors, Malaysia has a long-standing and well-developed supply chain and established connectivity domestically, Asean-wide and globally. This is also supported by a skilled and experienced workforce.

The changing landscape of China’s manufacturing sector as the country continues to develop and move up the value chain, towards producing more high-tech manufacturing output and services and investing in more research and development, will present significant opportunities for Asean to capture some of China’s manufacturing while elevating the region’s potential to become one of the world’s key manufacturing hubs and to become a major source of consumption for the world.

As more companies seek geographic diversification and adopt the “China+1” strategy, South-East Asia will continue to gain market share – as well as a greater slice of global FDI as the centre of gravity of global manufacturing continues to shift.

The China+1 strategy, coupled with China’s sustained role as Malaysia’s largest trading partner and the country’s strengths in manufacturing, commodities and infrastructure, among others, is accelerating Malaysia’s position as a preferred investment destination.

Asean also presents significant opportunities around renewable energy and energy transition. Risen Energy, China’s solar energy firm, announced its first facility investment in South-East Asia, in Malaysia, worth about US$10bil (RM46.2bil) over 15 years, to manufacture high-efficiency photovoltaic modules.

CATL signed an agreement with Indonesia’s SOE ANTAM and IBI to jointly develop an almost US$6bil (RM27.72bil) mining-to-batteries ecosystem. BYD, China’s top EV producer, is planning to build a production centre in Thailand, with a capacity of production of 150,000 EVs per annum. This will make Thailand its first production hub in Asean.

The spreading supply chain across Asia is already resulting in increased capability and production quality in the countries closest to China.

Continued investment, the right partnerships and new trade agreements such as the RCEP will likely bring to the wider South-East Asia a degree of the economic advancement China has already been enjoying.

Despite the shadows cast by the global pandemic in the last few years and other market uncertainties, we see the coming years as a period of great promise for South-East Asia, brimming with possibilities.

With its strategic location in Asean, favourable policy environment, modern and well-connected infrastructure and the availability of skilled labour, Malaysia continues to offer great potential for investors and stands to benefit from increased FDI from China and other markets.

This also creates unprecedented opportunities for Chinese companies that are seeking continuous growth and global presence in the post-Covid era.

The key to unlocking opportunities is not just to understand the dynamics of each market, but to understand how to help businesses across markets connect and work together – from electronic manufacturing in Malaysia to the automotive sector in Thailand to natural resources in Indonesia and pharmaceutical and financial services in Singapore.

About 10 years ago, China took a decisive step to build even closer ties with the Asean region. Many years on, these efforts continue to create enormous possibilities for China-Asean partnerships that will benefit all parties both now and in the future.

Mark Wang is president and chief executive officer of HSBC China and Datuk Omar Siddiq is the chief executive officer of HSBC Malaysia. The views expressed here are the writers’ own.