The Long Way Out: FDI in Southeast Asia

With tensions around the world so high due to China throwing its political weight around more than usual, many have speculated as to how business and industry will respond to the world “post-corona”.

Nations are now debating on the future of their economic relationship with China and the possibility of decoupling its factories away from it, especially when the Southeast Asian nations are being used as substitutes. This comes at a time when Indonesian President Joko Widodo had recently revealed a series of new policies that present Indonesia as being open for business. “We want companies from China, of course, but also Japan, South Korea, Taiwan, the U.S., and anywhere else in the world to move here,” President Widodo stated on Tuesday while on a nationwide tour of new business parks around Java. At the same time as this, Indonesia has announced the biggest economic recession in its nation’s history.

This is a key part of a growing movement that is taken place across other Southeast Asian nations, characterised by increased efforts to attract foreign investment and attract businesses that are thinking about moving supply chains and decoupling from China during this ‘post-corona’ period.

On the other hand, the United Nations has projected that there will be a “45% drop in foreign investment into emerging Asian economies this year”. The reason for this is largely due to the global pandemic leading to a complex and brutal fight for any remaining foreign direct investment going around. As a response to this, President Widodo has also stated that “if other countries are asking 1 million for land, then we can offer it for 500,000,” and that Indonesia will also be planning on cutting the “corporate tax rate to 22% from 25% this year, then to 20% in 2022, a year earlier than it had previously planned”.

At the same time as this, Thailand’s Board of Investment has also declared several major financial incentives. One of these is for the country’s agricultural sector, which is aiming to shift foreign companies from China into Thailand. Thailand had also recently allowed some 134 foreign companies to conduct business under the first part of this year. Alongside this, Malaysia has also entered the ring of these issues when it proposed a new economic deal that offered tax exemptions for manufacturers if they “invest 500 million ringgit ($117 million) into the country”. Above all, this suggests that the Southeast Asian nations are attempting to solidify itself as a likely successor to China Direct Foreign Investment.

These efforts come as many different companies from around the world consider moving their supply chains out of China. Other nations outside of the traditional region of Southeast Asian politics have also taken advantage of this, with Australia considering a ‘partial economic decoupling’ from China. But despite this, Southeast Asia taking up the mantle of production is still a possibility, with major American technology companies (in this case Tesla) considering opening manufacturing within the region. With this new reluctance to deal with China already being made clear, it may send a strong signal for what the economic future might hold for both China and Southeast Asia.

With nations like China using manufacturing and economics as a diplomatic stick to wield against its neighbours, a period of economic decoupling from China and the moving of manufacturing towards other nations within Southeast Asia might create the impetus for further economic growth post-corona within Southeast Asia. The responses from Southeast Asian nations might offer a great chance to fill the business void that mainland China offers to worldwide business in today’s financial climate. It could lead to a great way out for these nations to establish recovery from the global financial shutdown started by the coronavirus this year.

Featured image credit: Thomas Hawk on Flickr