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Enterprises look to Southeast Asia to escape trade winds

Enterprises look to Southeast Asia to escape trade winds

Southeast Asian countries may be the primary beneficiaries from a protracted US-China trade battle, as around one-third of American enterprises in China are open to the idea of moving production to other locations nearby.

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By Jay Banerjee 20.09.2018

Southeast Asian countries may be the primary beneficiaries from a protracted US-China trade battle, as around one-third of American enterprises in China are open to the idea of moving production to other locations nearby. This is according to a new study released earlier this week by AmCham Shanghai and AmCham China.

The maxim that there is a never a winner in a trade war has been stated on a number of occasions by economists during the last two months, but emerging Asia is hoping to dispel that theory as it gears up to support business in the wake of the conflict between the world’s two biggest economies.

Southeast Asia is the top destination for 430 American companies currently operating in China, according to the new study, and many enterprises are putting in the work now to be ready to benefit from further worsening tensions during the next few months.

Vietnamese furniture company Phu Tai Corp has already announced plans to invest US$10m to extend its factory footprint across the country. Its range of goods already support Walmart stores in the US, and the company’s Deputy General Director, Nguyen Sy Hoe, now expects exports to increase by 30% during the rest of the year and into early 2019.

“We see this as a great chance to boost our exports to the US, as we're getting more orders from that market," Hoe noted earlier this month. "Given the escalating trade war between China and the US, many American importers are switching to buy from Vietnam."

ASEAN countries appear to offer compelling reasons for businesses looking to expand or relocate, as the ten-economy bloc of nations generally offers robust economic fundamentals. Monetary Authority of Singapore Managing Director Ravi Menon believes that emerging Asia is ahead of its global peers and well-placed to thrive during the next 12 months.

Hong Kong’s Trade Development Council’s Nicholas Kwan supported this view on Tuesday when he said that Southeast Asia is now an “economic powerhouse” and would be an excellent outlet for any domestic or mainland enterprises seeking new pastures as they look to mitigate the risks stemming from the now two-month-long China-US trade standoff.

With a fresh wave of tariffs targeting US$200bn of Chinese goods and further tit-for-tat measures in the offing, Southeast Asia is likely to see some effects from the circling headwinds, but it does stand to benefit from companies pivoting away from China to avoid levies.

Kangaroo Group CEO Nguyen Thanh Phuong said this week that sales to the US are set to rise by 10% during the second half of the year and that the organization has already received new orders from American clients who have switched from Chinese clients. "The new US tariff is helping our products become more competitive against Chinese ones," he added.

Star Microelectronics Thailand also expects the trend of higher orders to become more prevalent during Q3 and Q4. “Orders came from companies that moved their production lines here, which helped boost the supply chain in Thailand,” the company’s Finance Director, Koratak Weeradaecha, said. "And we think there should be more, as many companies should think about relocating their plants to neighboring countries, as staying in China may be too risky."

A separate report released in mid-week by real estate service company Colliers International found Singapore to be the second-best city in the whole of Asia for tech enterprises with expansion plans. The country’s established financial and communications hub makes it an ideal location, as does its strong talent pool, safety and living standards.

The report noted: “Looking ahead, Singapore should continue to benefit from its position as the natural financial and communications hub of Southeast Asia and from the government-supported transition to the so-called Fourth Industrial Revolution.”

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