China aims to pump investment into Southeast Asia ahead of the ASEAN Economic Community in 2015. The country plans for the amount its currently investing in ASEAN to increase by a factor of five to US$150 billion by the year 2020.

China Singapore High Speed

The planned route for the high-speed rail which will link China and ASEAN.

Although China and the ten member nations of ASEAN used to compete on exports and attracting foreign capital, the two regions have since found opportunities for cooperation.

Noel Quinn, general manager of Asia-Pacific commercial banking at HSBC in Hong Kong, says there’s synergy to create in manufacturing, services and other industries.

Quinn also noted that while China exports a large amount of goods to ASEAN, Southeast Asia is now a major exporter and producer in its own right. “Trade flows between China and ASEAN are driven as much by the evolution of regional production networks and trade integration initiatives as by rising regional domestic demand”, he elaborated.

Facilitating ASEAN-China investment and trade will of course, require the proper infrastructure. Some the larger projects between the two regions are numerous highways, as well as a high-speed rail line between Kunming, China and Singapore. The line will run through China, Laos, Vietnam, Cambodia, Myanmar, Thailand, Malaysia, and Singapore and is expected to cost US$7 billion.

There are several factors causing the dynamics of trade in Asia to shift, but most important is the rising cost of labor and manufacturing in China. The country is moving further up the value chain and producing more high-tech goods, while countries in ASEAN such as Vietnam, Indonesia, and the Philippines are using their lower costs as an advantage.

In addition, the Chinese economy is changing from one dominated by exports, to one driven by its 1.3 billion consumers. This trend is expected to continue by many experts, as the number of people belonging to China’s middle-class increases from 250 million to 600 million by 2020.

China is searching for ways to sustain an older, wealthier population at a time when the nation can’t produce goods on a large scale and at a low cost. This means looking at regions such as ASEAN, as well as Africa, which have potential to develop their manufacturing and agricultural sectors.

 Investing in ASEAN, Globalizing the Yuan

As the U.S. Dollar fluctuates and the future of the Eurozone looks bleak, an increase of Chinese investing in ASEAN will also boost the yuan’s prospects of being a major international currency.

The movement of yuan into ASEAN usually goes through Singapore, the de-facto financial hub of the region. Yuan deposits in the city-state grew from US$195 billion to US$220 billion in the first quarter of 2014 alone, while loans in yuan increased by nearly 25% to more than US$300 billion, according to data by SWIFT.

In summary, ASEAN will lead the world in adopting the yuan as a global currency. It will start using the yuan for trade settlement, financing, and investment purposes as the region’s dependence on the U.S Dollar weakens.

While Asia will benefit from increased trade and flow of capital, the western world might lose out.

 

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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