ASEAN Surpasses China as Top Manufacturing FDI Destination

Manufacturing investment in the Association of South-East Asian Nations (ASEAN) is experiencing a significant FDI surge, positioning the region as a pivotal destination for multinationals amid global power competition. With a population exceeding 660 million, the 10-country bloc has evolved from being an alternative to China into a primary target region, particularly in the wake of the COVID-19 pandemic.

According to fDi Markets, more than $124 billion was pledged to greenfield foreign direct investment (FDI) manufacturing projects in ASEAN during 2022 and 2023. This growth signifies a strategic shift as businesses increasingly diversify their supply chains across ASEAN countries, reducing their dependency on China.

The five largest ASEAN economies – Indonesia, Thailand, Singapore, Vietnam, and Malaysia—dominated the manufacturing FDI landscape, accounting for 96.5% of the investments pledged to the region between 2022 and 2023. Meanwhile, the remaining ASEAN members – Cambodia, Laos, Myanmar, and Brunei – collectively attracted a smaller share of the investment.

John Evans, Managing Director of Tractus Asia, highlights the diversity within ASEAN, noting that while countries like Myanmar, Laos, and Cambodia compete for investment, Malaysia, Thailand, and Vietnam remain the primary contenders outside Singapore. Evans also points out that the Philippines has imposed restrictions on foreign investment, limiting its attractiveness to investors.

In a noteworthy development, ASEAN has surpassed China as the preferred destination for manufacturing investment by investors from OECD countries. fDi Markets data reveals that OECD-headquartered companies pledged more than $55 billion for factory construction in ASEAN during 2022 and 2023, outpacing the $21 billion invested in China. This contrasts sharply with 2018, when China attracted double the FDI pledged to ASEAN.

The shift towards ASEAN was initially propelled by companies seeking to circumvent US tariffs on Chinese goods and was further accelerated by pandemic-related disruptions in China. Andrew Keable, Managing Partner of KW Group, emphasises ASEAN’s growing independence as an alternative to China.

Moreover, Chinese FDI in ASEAN has surged, accounting for a third of the region’s manufacturing FDI in 2023, up from 18.5% in 2019. This robust investment is driven by China’s strong diplomatic ties with ASEAN countries and the significant diaspora from China residing in the region.

Alicia Garcia-Herrero, Chief Economist of Natixis, describes these investments as China’s strategy to establish a vast regional presence. Chinese multinationals have initiated mega projects across strategic industries in ASEAN, from Vietnam to Indonesia, contributing to the region’s economic development.

FDI trends in ASEAN are increasingly influenced by geopolitical tensions, trade restrictions, and strategic interests in sectors like EVs, semiconductors, and critical minerals. Heather Taylor-Strauss, an economist at the UN’s Economic and Social Commission for Asia and the Pacific, emphasises the politically driven nature of these investment trends, reflecting the global interest in engaging more deeply with ASEAN in trade and investment.