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For most of the past three decades, all economic and business thinking about East and South-East Asia has been centred on China. It has focused on China as a production site, China as a market, sometimes on China as the hub of a pan-Asian supply chain, and more recently also on other countries as part of a ‘China-plus-one’ strategy to diversify production or suppliers. This is now changing.
Of course, as befits the world’s second largest economy and a country with a population of 1.4 billion, China is always going to remain extremely important. But what is changing is that other countries in East and South-East Asia are also becoming important, in economic and business terms, and they are becoming important in their own right, not just because of their connection to China.
If you look at future projections, based on current population sizes and economic growth, this becomes more obvious than it might seem based just on monthly or quarterly data. These suggest that by the 2040s, in other words in just 15-20 years’ time, not just India but also Indonesia will have joined China and Japan among the world’s five or six biggest economies. Vietnam may not be far behind.
Indonesia, with its 277 million population, and Vietnam, with 100 million, have both recently been recording annual growth rates in real GDP of between 5% and 8%. As the Chinese experience showed us, if an economy can grow by 7% per year, its total GDP will double in just 10 years. With such large populations, these economies will thereby become large markets as well as large producers of materials and manufactures for export.
All countries suffer fluctuations in their growth performance, as political instability, economic policy mistakes and global factors weigh on their businesses and consumers. No forecasts or projections can be considered completely reliable. But from the point of view of corporate planning what can be said is that three big factors look like combining with one another to produce a favourable outlook for these South-East Asian giants as well as their smaller neighbours.
The first is the evolution of China itself. We cannot yet know whether China, with its property collapse and big corporate debt overhang, is going to suffer ‘Japanification’ and see a ‘lost decade’ or more. But we do know already that the property and debt problems are severe, that as in Japan household consumption promises to be depressed, and that the population is now ageing and even declining in its total numbers. Economic growth in China looks likely to be slow, unless there is a dramatic change in government policies.
It was already true that China’s economy was becoming more self-sufficient, with trade playing a smaller role than it had done 20 years ago. In this sense, China was becoming more like other big economies such as the United States and Japan; it was normalising.
This is, however, now being reinforced by the second big factor: “de-risking” so as deliberately to reduce companies’ and countries’ dependence on Chinese suppliers, and China’s own deliberate policy to reduce its dependence on foreign supplies and technology, under its so-called “dual circulation” strategy. As a huge economy, China will always maintain a high level of connections with other countries, whether through trade or finance, but those connections are nonetheless likely to diminish gradually. This will create opportunities for other efficient and cost-competitive producers in South-East Asia.
The third big factor adds to those opportunities. This is the worldwide push to reduce emissions of greenhouse gases to slow down global warming. This is creating huge demand for critical minerals used in green technologies including electric vehicles, battery storage, wind turbines and solar panels, as well as opening up chances for new producers to enter these and related markets.
This growing demand creates opportunities for many countries around the world, especially those fortunate enough to contain deposits of these critical minerals. This is very favourable for Indonesia, which is rich in such deposits. The reason why this is especially good for South-East Asia is that this is a region in close proximity to big markets for these products, especially China, Japan and South Korea, but one which also promises to become a big market itself. And meanwhile, it benefits from a desire among businesses of all nationalities, including Chinese ones, to avoid creating new dependencies on China itself.
The world is accustomed to rapid economic growth in East Asia. But this is the first time for several decades in which that growth is now faster outside China than inside it. There is plenty of understandable attention being devoted to China’s domestic problems. But too little attention is being devoted to the strong, positive story in South-East Asia.
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