(5 August 2024 – Asia) For the first time in a decade, Southeast Asia has attracted more foreign direct investment (FDI) than China as investors shift faster towards building “China Plus One” supply chains to offset increasing manufacturing costs and rising tariffs hampering Beijing’s competitiveness.
Su-Lin Tan reports for SCMP that growth in foreign investments in Southeast Asia will continue to outpace China’s over the next ten years, reversing the underinvestment in the region in the past three decades. Much of those lost investments had been allocated to China.
FDI is also growing rapidly in India and faster than China in the last decade, but it still lags behind the FDI growth and size in Southeast Asia.
Southeast Asia’s transformation comes at a time when the world has become increasingly protectionist, with many businesses diversifying away from China to avoid over-reliance on one market, rising tariffs against China which reduce the competitiveness of its products, and increased costs of inputs like labour. Still, China remains the lowest-cost producer in the world.
“As a result of strong domestic growth and the China Plus One strategy, we are increasingly optimistic that Southeast Asia will outpace China’s growth in both GDP and FDI in the next decade. However, multinational investments will be highly contested, with the competition between countries improving outcomes for both businesses and consumers” said Bain Advisory Partner Charles Ormiston.