The rise of Asean manufacturing (The Business Times)

As the markets navigate the COVID-19 pandemic, it can be tempting to take our eyes off the longer-term fundamentals of ASEAN’s manufacturing bloc. Despite disruptions in global supply chains during Covid-19, Cushman & Wakefield’s latest Global Manufacturing Risk Index has assessed that Asean and the markets of Vietnam, Thailand, Singapore and Indonesia have a high bounce-back-ability. We look at some of these drivers of Asean manufacturing.

Economics and population

The Asean bloc is a significant economic powerhouse. It has the sixth largest global economy in 2019 at around US$3.0 trillion, which equates to about 11 per cent of the Asia Pacific total. China contributes 49 per cent, Japan around 16 per cent and India at 9.5 per cent. Over the next decade, Asean is forecast to grow at an average annual rate of 4.9 per cent per annum to reach US$4.9 trillion.

From a demographic perspective, the region’s credentials are equally impressive. Asean is currently home to over 660 million people – equivalent to a little under half the population of China – of whom 450 million are of working age (15 – 64 years). Over this decade to 2030 these numbers will swell to 725 million and 488 million respectively. It is this demographic windfall, combined with economic expansion that will power the region forward in the decade ahead.

The current China-US trade war and the Covid-19 pandemic may be catalyst for change but they are not the underlying drivers for the growth of ASEAN manufacturing. The manufacturing shift towards Southeast Asia has been a long time in the making.

As minimum wages in China grew, more orders for labour intensive products, such as clothes, toys and shoes, shifted to less expensive locations in India, Bangladesh, Myanmar and Vietnam. However, despite government initiatives to attract manufacturers by Southeast Asian countries, China retains a clear infrastructure advantage with the ability to efficiently move goods via road, rail or sea transport.

Nevertheless, costs for industrial land rent and labour in Shenzhen have increased in recent years to such an extent that they both are among the top echelon in the region. For Tier 1 Chinese cities such as Beijing and Shanghai, increasing rents have pushed them to be amongst the most expensive in the region, notwithstanding lower labour costs. In contrast, Suzhou and Guangzhou are relatively cheap
on industrial rent but more expensive for labour.

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The Business Times

17 August 2020

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