KUALA LUMPUR (May 23): Asean countries will benefit from firms hedging against ongoing US-China frictions for the medium- and long-term amid pressures to decouple supply chains from China, according to Eastspring Investments.
“The soured relationship between China and the US in my personal view, I do not think is going to get resolved anytime soon. That will be a sort of medium-to-long-term of benefit to India and Asean,” Eastspring Investments head of growth equities John Tsai said at a webinar themed “Invested in Asia 2.0: An era of new opportunities”
The emergence of the China plus one strategy — where firms diversify their operations outside of the country, while still maintaining a presence there — has prompted companies to look for alternative destinations to set up a new manufacturing base. Against this backdrop, Tsai said Asean countries along with India are the greatest beneficiaries of a diversifying global supply chain.
Apart from the fear of over-dependence on China, factors that make Asean stand to benefit from the supply chain rebalancing include favourable demographics, such as a huge population base and young population, as well as cheap labour costs.
Tsai also highlighted the large-scale impact of the China plus one approach.
China, being the world’s largest manufacturing hub, has a manufacturing value added amounting to US$4.9 trillion (RM22.4 trillion) in 2021. In comparison, the total manufacturing value added of Asean (ex-Singapore) is only US$579 billion.
“Imagine under China plus one strategy, China’s manufacturing value added declined by 10% and half of which went to Asean, the impact on Asean would be huge, and it would be a 42% increase in the manufacturing value added to Asean,” Tsai elaborated
Last but not least is the rising middle-income class in Asean countries that is propelling consumption, which is also prompting investors to expand their supply chain in the region, he added.
Meanwhile, Tsai said there are advantages inherent to Asean countries when it comes to the electric vehicle (EV) industry.
For example, in the upstream areas like materials, Indonesia has a natural advantage as it has ample commodity reserves, including copper and nickel, in particular.
Hence, he believes that Indonesia will become a major EV battery development hub.
As for the mid-stream, Tsai said Malaysia have a competitive advantage because it has a technology ecosystem that has already been built up over the years that is exposed to multiple layers of the EV manufacturing value chain.
For example, in Malaysia, there are companies already very advanced in factory automation.
"They have that expertise and there are companies that are very advanced in their system-level testing, and optoelectronics infrastructure, and so these things are already in place in the technology space that will add value to the EV industry and manufacturing going forward," Tsai noted.
As for the EV downstream, he said Thailand has a competitive edge as the country is experienced in the manufacturing and assembly of autos and auto parts.
“Thailand is getting into EV manufacturing, but also getting into other components on the downstream components such as charging stations, battery swap stations, and the likes.
“So if you think about Asean as a region, whether it's its upstream, midstream or downstream, the EV participation could be very big going forward,” Tsai concluded.
Source: TheEdge - 24 May 2023
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