Banks build regional platforms to tap China+1 strategy

Asean is in particular focus following the pandemic, wars and geopolitical tensions. Asian economies such as India, along with Asean, are emerging as sig­nificant players in internation­al trade and investment, as well as being part of the global value chain (GVC).

“Concerns persist over the risk of geoeconomic fragmentation, with two blocs centred around the US and China. As a result, giv­en China’s dominant position in numerous sectors, the ‘China+1’ strategy has become a viable solution for the MNCs to diversi­fy the supply chain and increase its resilience with security being the greater concern, hence, we have observed an acceleration of near-shoring and friend-shor­ing of activities in recent years. More often than not, the ‘plus one’ tends to be Vietnam,” the BoA re­port says.

Case in point, China’s glob­al export share declined by 1.7 percentage points (ppt) between 2013–2018 and 2019–2022, while Vietnam’s global export share rose by 0.7ppt over the same period.

The Asean banks with an Ase­an network including a banking li­cence in Vietnam (known as a for­eign-owned subsidiary bank) are Public Bank, Hong Leong Bank, CIMB and UOB. Of these, Public Bank and UOB have capital of VND6 trillion ($327 million) and VND5 trillion respectively. Seven other foreign banks have banking licences in Vietnam. These are ANZ, Hong Leong, HSBC, Public Bank, Shinhan Bank, Standard Chartered and Woori.

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FDI flows into Asean

Between 2019 and 2022, China accounted for almost 20% of Ase­an’s trade vs 16% in 2013–2018. The step-up is broad-based across the Asean-6, especially Indonesia due to China’s heavy investments in Indonesia’s base metals sec­tor, BoA says.

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An indication of the gradual pivots in these flows is FDI flows. According to BoA, in 2022, Chi­na attracted 15% of global FDI (US$189 billion), only behind the US (US$285 billion) as a single country and almost double its av­erage level of 8% in 2013–2018.

For Asean, FDI into the region doubled and surpassed that of China in most years since 2017. As of 2022, China/Asean have accounted for 14.7%/7.7% of the global trade, and the two regions remained as top FDI recipients worldwide, attracting over 30% of the world FDI in recent years.

“Asean economies have bene­fited from demographic tailwinds, with ample labour dividends, com­petitive labour costs, as well as favourable investment policies. Trade data over the past dec­ades suggest Asean manufactur­ers have increased their market shares in traditional labour-inten­sive sectors over the years, such as apparel & footwear. They have also started to expand to higher value-added categories, includ­ing autos and semiconductors,” the BoA report says.

As a result of geopolitical ten­sions, BoA reckons that the elec­tronics and electrical sectors in China may face higher substitu­tion risks from Asean. “Strategi­cally important sectors have ex­perienced the most direct trade re-location amid rising geopolit­ical tensions,” BoA says.

Laptops, smartphones, and semiconductor devices to the US accounting for 42.8% of US imports in 2022 have been from China, Asean and other Asia (Tai­wan, South Korea and India). In 2023, “China’s share has dropped drastically from 36.4% to only 22.7% most recently, while market shares of these latter economies have risen by almost the same magnitude, with Asean benefit­ing the most (+5.3ppt in share)”, BoA says.