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China-ASEAN Corridor Opening Doors to Diverse Opportunities Contents Borderless Business: China-ASEAN Corridor Opening doors to diverse opportunities Contents: Overview of the China-ASEAN Corridor: Opening New Doors for Chinese Businesses 3 Our Growth Watchlist: Three Sectors Driving the Future of the China-ASEAN Corridor 8 Acting with Impact: Five Focus Areas for Chinese Companies to Drive Resilient Growth in ASEAN 18 Overview of the China-ASEAN Corridor: Opening New Doors for Chinese Businesses Overview of the China-ASEAN Corridor ASEAN presents a major growth opportunity (ASEAN), an emerging economic powerhouse for Chinese companies looking to interna- as the fifth largest economy in the world by GDP tionalise. The region’s fast-growing consumer (~USD 3 trillion), offers significant trade and markets, rapidly maturing supplier landscape, investment opportunities given rising consump- and regional trade links offer Chinese compa- tion and improved manufacturing capabilities. nies strong growth potential in sectors such as high-value manufacturing, energy, and digital Economic linkages between China and ASEAN services. ‘Borderless Business: China-ASEAN have strengthened, accelerated by the former’s Corridor’ is a strategic point-of-view commis- meteoric rise to the world’s second largest econ- 1 sioned by Standard Chartered and prepared by omy by GDP. China is ASEAN’s largest import PwC, looking at high potential opportunities for partner with merchandise imports valued at cross-border growth and showcasing key USD324 billion in 2019, accounting for 23 per areas of focus for Chinese companies to suc- cent of all imports in the region and growing at ceed in the ASEAN region. In addition, this re- a compound annual growth rate (CAGR) of 7.5 port also includes insights collated via a survey per cent from 2014-19. In 2020, Chinese exports of senior-level executives from Chinese compa- into ASEAN stood at a sizeable USD315 billion nies that are currently engaged in cross-border despite COVID-19-related disruptions. Foreign activities across the China-ASEAN corridor. direct investment (FDI) from China into ASEAN had also risen steadily from USD17.4 billion in Economic linkages between 2014 to USD20.0 billion in 2019. China and ASEAN to deepen through trade and investment Maturing and more sophisticated businesses in China are looking abroad for growth opportuni- ties and new consumer markets. The Association of Southeast Asian Nations Figure 1: Imports and FDI from China1 into ASEAN Source: ASEANStats 1 Trade and FDI data cover both Mainland China and Hong Kong. Borderless Business: China-ASEAN Corridor 4 Overview of the China-ASEAN Corridor Going forward, further growth is expected Looking within ASEAN, Singapore and across the China-ASEAN corridor. A pulse survey Malaysia have typically been considered as of Chinese companies2 focusing on ASEAN hubs for Chinese investments, providing a revealed that more than 60 per cent of platform for growth throughout the region. This respondents are looking to expand their sales/ trend is expected to continue, with over 60 per production in the region by over 10 per cent over cent of survey respondents from China focusing the next 12 months. There are various drivers for on Singapore and Malaysia for expansion. this targeted growth – whether it is a growing customer base in ASEAN or enhanced manu- facturing capabilities within the region. Accord- ing to our survey, 56 per cent of respondents are focusing on ASEAN to gain access to the large and growing consumer market, while 44 per cent are expanding to diversify their production footprint3. Figure 2: Key Drivers for Focus on ASEAN and Major Economies Offering Expansion Opportunities 56% Access to the large and growing ASEAN consumer market 54% Local government incentives and support for project sustainability/ stability 51% Presence of a mature and reliable supplier base 47% Access to a global market (from ASEAN), enabled by a network of FTAs 44% Diversification of production footprint 28% Availability of abundant and skilled workforce 21% Enhanced connectivity in digital and physical infrastructure Note: Survey questions asked: ‘What are the key drivers for your focus on ASEAN?’ and ‘Which of these major economies within ASEAN do you think offers the best expansion (sales / production) opportunities for your company?’ For Key Drivers - values indicated above refer to the % of survey respondents who included the driver as one of the top 3 ranked choices Source: Standard Chartered Survey, 2021 2 Survey commissioned by Standard Chartered in April 2021 and completed by senior executives at 43 companies based in China and focusing on the China–ASEAN corridor 3 For key drivers, values refer to the % of survey respondents who included the driver as one of the top 3 ranked choices Borderless Business: China-ASEAN Corridor 5 Overview of the China-ASEAN Corridor Growth of the China-ASEAN corridor is expect- Potential boost to regional trade ed to be driven by China-led initiatives, such as the Belt & Road Initiative (BRI) and Renminbi expected post ratification of internationalisation. Ratification of the Region- the Regional Comprehensive al Comprehensive Economic Partnership (RCEP) Economic Partnership Agreement will further support this growth, through increased collaboration and alignment The 2010 ASEAN-China Free Trade Area between China and ASEAN. (ACFTA) was the first major initiative between China and ASEAN, which has led to growing The Belt & Road Initiative will cross-border trade and investment. More facilitate Chinese investment recently, the RCEP Agreement is expected to usher in enhanced economic cooperation and into the region trade in the region, not only in goods but also in services, once it is ratified. Trade between the The BRI has elevated economic cooperation 15 signatories could increase by USD428 billion and connectivity between China and ASEAN, by 2030, according to the Peterson Institute for with a cross-industry focus supporting Chi- International Economics, with China’s exports nese companies’ internationalisation across alone projected to rise by USD248 billion. Our multiple sectors. While the BRI began with an survey respondents share positive sentiments, emphasis on large-scale infrastructure projects with almost 50 per cent of respondents looking to improve the region’s transport and logis- to increase their investment into ASEAN by 25- tics network for facilitating trade with China, 50 per cent over the next 3-5 years, once RCEP greater investment from Chinese companies in is ratified. fast-growing sectors such as renewable energy and digital solutions (cloud computing, artificial Several sectors within high-value manufactur- intelligence and Internet of Things) is expected. ing, energy, and digital, stand to benefit from cross-border expansion with the magnitude China’s RMB internationalisation and growth potential of the China-ASEAN gathers pace corridor. Chinese companies moving into ASEAN should focus on certain key themes to With increased support from the Chinese succeed, including exploring partnerships for government and positive long-term economic market access, stronger digitalisation and cyber prospects, Renminbi internationalisation will resilience, enhanced governance and risk man- continue to expand. The BRI complements the agement, and a greater focus on environmental currency’s internationalisation as it fuels the and social initiatives. These are explored further demand for cross-border Renminbi services. in the following sections. As China-ASEAN trade and investment grow, wider usage and enhanced convertibility of Renminbi will also simplify cross-border settle- ments. Chinese companies targeting ASEAN can benefit from this via reduced for- eign exchange risks, lower transaction costs, and more efficient cash flow management. With the People’s Bank of China’s announce- ment of the digital yuan, the role of central bank digital currencies (CBDCs) in enabling and promoting cross-border trade is also a key highlight. Borderless Business: China-ASEAN Corridor 6 Overview of the China-ASEAN Corridor “ASEAN is core to Standard Chartered’s “As Chinese companies with international business strategy. As the only expansion aspirations continue to look for international financial institution with growth opportunities, ASEAN has clearly presence in 10 ASEAN markets, we emerged as one of their top choices, with continue to support our clients in tapping its increasingly close trade relationship the myriad of opportunities this region with China and more investment has to offer. In particular, and over our opportunities brought about by the more than 160 years history in China, signing of RCEP. We have been in China we have built strong relationships and and ASEAN for more than 160 years and partnerships with Chinese corporates have an excellent track record helping our in ASEAN from various sectors and Chinese clients venture into the ASEAN industries, offering them our sustainable market. Clients in China tell us that they finance and digital solutions and helping are keen to invest in the 10-nation bloc them evolve their businesses, deliver for the long term, to capture the many their internationalisation strategies and opportunities fuelled by governments leverage the ASEAN opportunity.” and businesses’ focus on environmental sustainability, supply chain optimisation priorities and accelerating digitalisation. Standard Chartered has been with these clients every step of their ASEAN growth journey, extending our extensive cross- border financial products and services as
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