The Chinese economic model that spanned the latter part of the 20th century was straightforward yet highly effective. The nation imported commodities from elsewhere and transformed them into low-value manufactured goods, such as garments, foodstuff and smelted metals. These were either exported abroad or used in the production of other low-value manufactured items that were later shipped overseas.
Coupled with the nation’s high infrastructure spend, this made China the world’s fastest growing economy, with GDP growing at an average of 10 per cent annually between 1980 and 2010, according to the National Bureau of Statistics of China1.
The last few years have seen a shift in the nation’s economic model, as China’s manufacturing base today sits higher up the value chain. The drivers of this trend are twofold: first, the Chinese government is consciously moving the nation from being a low-value chain economy to one where the service sector has an equal standing; and second, other developing nations are today able to manufacture low-value goods at a more competitive price.
China’s rising cost of living, the increasing cost of doing business, and the nation’s move into higher value industries mean that it no longer makes sense for many businesses to produce low-value goods there. China’s manufacturing base now imports goods from countries like Cambodia or Vietnam and in turn either consumes or re-exports elsewhere. China is no longer purely seen as an exporter and will soon surpass the US on import levels.
Progress and activity to date
Southeast Asia stands to benefit greatly from this new paradigm. Not only does this open up exporting opportunities for manufacturers of low-value goods from the likes of Myanmar and the Philippines, but it also creates demand in China for high-value goods and services from ASEAN.
China’s increasing investment flows into ASEAN prove that it sees the region as an important one. For instance, Chinese companies are opening up manufacturing plants across Indonesia in order to capitalise on its rich commodities base and low-wage labour force. They are also investing in infrastructure, such as ports, telecoms and transportation, allowing them to export these goods elsewhere or simply ship them back to China.
Similarly, Singaporean businesses are meeting China’s need for high-value services in sectors like marketing, IT, healthcare and management consulting. Indeed, all these trends present business opportunities for ASEAN-based businesses more broadly, which are widely predicted to grow over the next decade and beyond.
A significant number of ASEAN-based businesses are now going into China, especially in regional commercial centres like Kunming and Nanning in Southwest China. These growing hubs have found success so far in attracting businesses by providing land and other incentives for foreign investors.
The economies of ASEAN and China are forecast to grow annually at rates of between 5-6 per cent and 7-8 per cent2, respectively, over the next few years, according to the World Bank. Furthermore, significant trade growth between the two regions during this time will present an array of opportunities for ASEAN-based companies looking to capitalise on China’s new economic model.
Manufacturers of low-value goods from places like Cambodia, Myanmar and Vietnam have the opportunity to capitalise on China’s increased demand. Similarly, high-value business and services found in Singapore or Malaysia, for example, can take advantage of new openings arising in these segments in China. As China continues to invest in ASEAN, local businesses will also have opportunities to service Chinese companies setting up operations across the ASEAN region.
Nevertheless, tapping these growing Sino-ASEAN trade and investment opportunities requires a banking partner with very specific capabilities. On the one hand, the bank will need a strong local presence in both China and individual ASEAN markets. On the other, it will also need a global network and sophistication capable of connecting ASEAN opportunities with trade counterparties in both China and elsewhere around the world.
For nearly 150 years HSBC has been where the growth is, connecting customers to opportunities. We combine extensive global reach, notable financial strength, and a long term commitment to our clients. In the rapidly developing ASEAN region, where we have had a presence in most of the member countries for more than 100 years, our deep understanding of local markets enables us to help clients realise their business goals. Whether it is trade finance, working capital, foreign exchange, cash or liquidity, HSBC provides the network and expertise businesses need to thrive.
For more information, visit www.hsbcnet.com
Managing Director, Regional Head of Sales, Global Payments and Cash Management, Asia Pacific, HSBC
Tel: (65) 9119 3712
1 http://www.stats.gov.cn/english/Statisticaldata/AnnualData/; http://www.chinability.com/GDP.htm
2 “Global Economic Prospects” World Bank, June 2014. http://www.worldbank.org/content/dam/Worldbank/GEP/GEP2014b/GEP2014b.pdf
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