Bangkok Vietnam underpins its rapid economic rise with colorful building blocks. The toy manufacturer Lego is planning a new factory in an industrial park 50 kilometers north of the Vietnamese economic metropolis Ho Chi Minh City for a billion dollars.
Construction of the major project is to start shortly: The Danish group wants to use an area of more than 160,000 square meters in the Southeast Asian country and offer jobs to 4,000 people – one of the largest investments in Vietnam this year.
With the planned start of production in 2024, Lego’s supply chain will be much more crisis-resistant. So far, the company has only produced in Asia in China. Now it gets a strong second mainstay on the continent.
Lego is one of a long line of Western companies that, while not turning their backs on China entirely, are nonetheless working hard on alternatives. Vietnam is one of their most popular destinations. The electronics giant Apple is also massively expanding its presence in the country: the group already has iPads and AirPods headphones manufactured there – now MacBooks and the Apple Watch are also to be added.
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The shifts in production are part of a major shift in Asia’s investment landscape. In view of geopolitical tensions and China’s corona policy, the People’s Republic is increasingly being sidelined when it comes to investment decisions by international corporations. Instead, Southeast Asia and India are increasingly coming into focus. This is also due to the fact that the economy there is booming compared to China.
Investments in China are declining sharply
The development can be seen in the data for cross-border company takeovers and mergers (M&A) for the first half of the year, which economists at the French investment bank Natixis evaluated. Accordingly, the deal volume in China has fallen massively since the beginning of the corona crisis: In the first half of 2020, the country including Hong Kong recorded investments of more than 24 billion dollars. Two years later, only around six billion dollars were left.
In the Southeast Asian community of states Asean – which, in addition to Vietnam, also includes Indonesia, Malaysia, Thailand and the Philippines – the trend is going in the opposite direction: the region received investments with a volume in cross-border M&A transactions in the first six months of this year of almost 16 billion US dollars. Two years earlier it was just over five billion dollars in the same period.
Compared to the same period of the previous year, the transaction volume fell in all regions of the continent. However, the balance of power has clearly shifted: China’s share of international acquisitions in the Asia-Pacific region fell from 37 to 13 percent within two years – according to Natixis, the lowest value since 2006.
Southeast Asia’s share, on the other hand, grew from eight to 33 percent. Including India, South Asia even accounts for 56 percent of the transaction volume – ten percentage points more than at the beginning of 2020. Alicia Garcia Herrero, Chief Economist for Asia Pacific at Natixis says: “Inflows have been diverted, among other things to meet the increasing need for diversification of supply chains.”
In their analysis of the investment landscape, the bank’s analysts focused on acquisitions because comparable data on this is available earlier and in more detail than other forms of direct investment abroad. The Natixis analysis does not include the construction of completely new business premises, such as in the case of Lego.
According to the authors of the study, however, there is a positive correlation between the two types of investment. Wherever M&A deals increase, the number of new factories usually increases as well.
Strong rebound in Southeast Asia
Herrero cites the growing geopolitical gap between the West and China as well as the “rapidly deteriorating macroeconomic outlook and adherence to the zero-Covid policy” in the People’s Republic as reasons for the shift in investment focus. Corona lockdowns in China had repeatedly led to disruptions in the supply chains. According to forecasts by the International Monetary Fund, China’s economic output will increase by just 3.3 percent this year – the lowest value in more than four decades.
In Southeast Asia and India, a strong economic recovery has started with the almost complete elimination of corona restrictions. In Malaysia, GDP increased by 8.9 percent in the second quarter, significantly more than analysts had expected. Vietnam also reported strong growth of 7.7 percent for the period.
Indonesia, Southeast Asia’s largest economy, beat analysts’ expectations with a growth rate of 5.4 percent. In India, which will present its data for the second quarter on Wednesday, economists even expect growth of around 15 percent – partly because of a relatively weak quarter in the previous year and a strong increase in consumption.
Indonesia is Southeast Asia’s largest economy.
(Photo: dpa)
Broken down by country, India and Indonesia received the largest M&A inflows in the first half of the year, according to the Natixis analysis. In relation to its size, Indonesia benefits particularly strongly, the report says. Indonesia’s economy is not even a tenth of China’s economic output – yet the country recently attracted more than twice as much M&A capital as the People’s Republic.
The data published by the government in Jakarta on total foreign direct investment also shows unprecedented interest in the country: In the second quarter alone, inflows amounted to 10.9 billion dollars – 40 percent more than in the previous year and the highest level since the beginning of the Data series a decade ago.
The mining sector is particularly attractive. Indonesia’s government is relying on export bans on raw materials such as nickel ore – an important basis for batteries in electric vehicles. Buyers are thus encouraged to set up processing plants on site.
The government hopes to persuade the largest electric car manufacturer Tesla to invest. A few weeks ago, the responsible ministry in Jakarta announced that Elon Musk had already agreed to buy locally processed nickel products worth billions.
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