China is pumping investment into Southeast Asia. In fact, China plans to invest five times more in the ASEAN region than it does already. Trade between China and ASEAN will increase 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.

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

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

Quinn also noted that while China exports lots of goods to ASEAN, Southeast Asia is a major exporter in its own right. “Trade flows between China and ASEAN are driven by rising regional and 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 should cost US$7 billion.

 

Rising Costs Lead to Change in China

There are several factors causing the dynamics of trade in Asia to shift. However, most important is the rising cost of labor and manufacturing in China.

China is moving further up the value chain and producing more high-tech goods. This allows countries in ASEAN such as Vietnam, Indonesia, and the Philippines to use 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. Many experts believe this trend will continue. That’s because China’s middle-class will increase from 250 million to 600 million by 2020.

China needs to sustain an older, wealthier population at a time when they can’t produce a massive amount of goods at a low cost. This means looking at regions such as ASEAN and Africa which can develop their manufacturing and agricultural sectors.

 

Yuan’s Role in Chinese Globalization

The U.S. Dollar is fluctuating while the future of the Eurozone looks bleak.  Because of this, Chinese investment in ASEAN 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. Meanwhile, loans in yuan increased by nearly 25% to more than US$300 billion. That’s 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 and financing 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 an accomplished stock trader and property investor in Thailand, Cambodia, and many other places. 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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