Last updated February 4th, 2019.

In the battle of ASEAN vs. China, tides have turned and Southeast Asia is on top… for now. The ASEAN region as a whole lured a greater amount of foreign direct investment (FDI) than China for the sixth year in a row.

According to data by Thomson Reuters, total inward FDI in Singapore, the Philippines, Malaysia Indonesia, Thailand, and Vietnam grew to a record high and exceeded US$200 billion in 2018.

Compare this figure to a rather disappointing US$130 billion that flowed into China during the same period.

However, some countries in ASEAN performed much better than others. Political change along with rising instability affected economic growth in places like Thailand.

Furthermore, various levels of difficulty and business costs between different countries means that many Southeast Asian markets are ideally positioned to attract foreign capital..

Foreign direct investment in the Philippines grew at Southeast Asia’s fastest pace. Meanwhile, Thailand’s FDI inflows fell because of declining tourism numbers.

Indonesia, ASEAN’s largest economy, attracted about 10% more FDI over the previous year due to rising optimism concerning the nation’s robust manufacturing industry.

The Philippines, Asia’s second-fastest growing economy, is luring investors to its shores with its strong economic fundamentals and newfound stability. Yet some analysts are worried over a substantial increase in government debt.

Falling commodity prices could impact FDI inflows into Malaysia and Indonesia, both which rely heavily on resources. Oil and precious metals have especially suffered a major drop.

Indonesian President Joko Widodo seeks more foreign investment in manufacturing in order to lessen his country’s reliance on natural resources. Yet Indonesia has a very long path ahead of itself, especially with regards to infrastructure and legal framework.

 

Predicted wage growth of China through 2018 compared to smaller manufacturing hubs worldwide.

 

Chinese Manufacturing Slows, Falls Behind ASEAN

Unlike Southeast Asia’s, the Chinese manufacturing sector isn’t performing well. China faces a major slowdown because of rising costs, geopolitical tensions, and weak global demand.

As a result, Chinese companies are now looking for superior alternatives abroad to base their production and remain competitive. That’s especially true in the middle of a trade war against the United States.

“Rising wages in China are making low-end manufacturers search for other low-cost locations for their factories, with countries like Vietnam and the Philippines appearing as alternatives,” explained Dan Martin of Capital Economics.

“ASEAN is also a large market in its own right, and one with good long-term growth prospects. Given the general slowdown in other emerging market regions in recent years, it’s starting to stand out,”

We can’t paint all of Southeast Asia using a broad stroke. The ASEAN region hosts many of the world’s top performers alongside nations that are not nearly as economically successful. Thus, business and investment prospects will depend on the specific country and industry.

The fact remains: China is losing out, and will continue losing investment, to its competitors in the region. You can profit from geopolitical reality through figuring out the right places to buy assets and following up with proper execution.

 

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Thailand, Cambodia, and several other places. Reid manages the world's first and only frontier market real estate fund and has been featured in publications such as Forbes, Property Report, the South China Morning Post, and Seeking Alpha. Get his free investment guide by clicking here.

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