ASSESSMENTS

China's Economic Pain Will Power Southeast Asia's Gains

Feb 25, 2019 | 10:30 GMT

A Chinese worker checks wheels on Jan. 28, 2019, at a factory in Lianyungang, Jiangsu province.

A Chinese worker checks wheels on Jan. 28 at a factory in Lianyungang, Jiangsu province. Companies looking to relocate outside China have been expanding into Southeast Asia for the past several years.

(STR/AFP/Getty Images)

Highlights

The U.S.-China trade war is speeding up the relocation of low-end manufacturing investment outside China into parts of Southeast Asia.
A highly effective tech supply chain makes it hard for companies to diversify their own beyond China's but political considerations could prompt some Asian tech giants, especially those from South Korea and Taiwan, to look elsewhere.
The U.S.-China trade war and China's weakened export sector will continue to place a drag on Southeast Asian economies, inflicting greater pain on countries highly dependent on trade or with high current account deficits.

As the global trade and investment landscape continues to evolve, Southeast Asia is gaining momentum as a top destination for investors seeking lower-wage manufacturing labor, high returns on their capital and infrastructural investments, and opportunities to profit from the region's sizable and fast-growing domestic markets. U.S.-China trade frictions are set to increase the manufacturing investments into the region that already are underway. The surge of investment into the region will be shared unevenly and felt disproportionately. But in the short term, Southeast Asia's emerging economies must equally contend with supply chain disruptions caused by the U.S.-China trade war, an extended slowdown in the Chinese economy, weak global demand for China's manufactured goods and their individual internal structural issues....

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