Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
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Speaker: And now onto today's show.
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Speaker: Hello and welcome to Under the Banyan Tree, where we put Asian markets and economics in context.
Speaker: I'm Fred Newman, head of Asian economics research at HSBC.
Speaker: Today we continue our special series on ASEAN with a focus on Vietnam, Malaysia and Singapore.
Speaker: Joining me in the studio is Jung Liu, one of our Hong Kong-based ASEAN economists.
Speaker: We're going to be discussing what makes these economies tick from the rising middle class to global supply chains and tourism, even the pulling power of Taylor Swift.
Speaker: Much to discuss, so let's get the conversation started.
Speaker: I'm Bill Ben Yen-Tree.
Speaker: Let's start with some facts and figures to help put these economies in context.
Speaker: When you think about Vietnam, it produces about half of all Samsung smartphones manufactured globally, clearly a very large amount.
Speaker: In fact, these exports of Samsung smartphones account for about 13%
Speaker: of Vietnam's GDP.
Speaker: Meanwhile, when you look at other semiconductors, a fifth of world processor chips are actually made in Malaysia and Singapore.
Speaker: That's a big chunk of these processor chips made in these two economies.
Speaker: Singapore's Changi Airport was ranked as the world's fifth busiest airport last year in 2023.
Speaker: And the one hour flight between Singapore and the Malaysian capital Kuala Lumpur is officially the world's busiest international route.
Speaker: So we're joined today by Yuen Liu, who is our economist for Vietnam, Malaysia and Singapore.
Speaker: And welcome to the podcast, Yuen.
Speaker: Thank you, Fred.
Speaker: Now, these three economies are interesting because one thing they have in common is that there are big beneficiaries of the supply chain diversification that we're seeing enormous amounts of foreign investment pouring in.
Speaker: And maybe we should start with Vietnam, which has been sort of the darling, if you will, of the foreign investment community for quite some time now attracting investors.
Speaker: investment in its plants and factories.
Speaker: Could you kind of detail where we are in terms of the electronics, particularly electronic sector in Vietnam?
Speaker: How important is Vietnam in global supply chain terms?
Speaker: Has it become a big player nowadays when it comes to electronic supply chains?
Speaker: Oh, definitely it is.
Speaker: I mean, especially in the consumer electronic space, Vietnam has an edge over others.
Speaker: And I mean, a lot of people thought about it.
Speaker: Oh, the whole story started as recent as the U.S.-China trade tensions.
Speaker: But it's actually not.
Speaker: It started way earlier than that, as early as 2008, when some Korean companies have started to move their value forward.
Speaker: chain to Vietnam.
Speaker: And since the US-China trade tensions, what we have seen is the trend has been accelerated and it really has attracted a lot of the big tech giants from different countries, from different economies to Vietnam.
Speaker: One interesting thing about Vietnam is that if we look at its export composition, 20 years ago, the largest basket of its exports were just taxile and food waste.
Speaker: But now, just within 20 years' time, consumer electronics, which was only 5% of exports 20 years ago, now the ratio is as high as 35%.
Speaker: So this is really thanks to this consistent FDI inflows from the tech giants.
Speaker: So you have inflows in consumer electronics.
Speaker: They're assembling smartphones, for example, tablets, smartwatches, I believe.
Speaker: Is there also kind of higher value added investment coming through?
Speaker: I'm thinking about semiconductors, for example.
Speaker: Correct.
Speaker: So Vietnam's ambition does not stop there.
Speaker: Vietnam really has this ambition of climbing up the value chain.
Speaker: Well, for now, it's, you know, manufacturing is still relatively labor intensive.
Speaker: But what we have seen is some of the semiconductor investment also have been flowing to Vietnam in recent years.
Speaker: And one interesting fact here, if we look at global processor chips here, Vietnam's share doubled in just one year's time to 7.5%.
Speaker: It's quite impressive.
Speaker: Well, you're talking about ambition, for example.
Speaker: We also read a lot about Vietnam even wants to produce electric vehicles at some point, join the boom that China has experienced.
Speaker: Is that going to be a major player anytime soon in terms of exporting electric vehicles, do you think?
Speaker: Well, I mean, for now, I think it's still very much at the nascent stage, but it's always good to diversify sectors, especially from electronics to probably something else.
Speaker: Now, we talk a lot about the electronic sector and foreign direct investment in Vietnam, and I think that story is very well known, generally speaking, although obviously the nuances that you put around this help.
Speaker: But let's talk about Vietnam as an economy in its own right.
Speaker: Paint us a picture.
Speaker: How many people are in Vietnam?
Speaker: How important is the domestic market?
Speaker: Are foreign investors also going to Vietnam because you have a burgeoning middle class, for example?
Speaker: That's really the trend that we've been seeing, especially in the past five years.
Speaker: I mean, Vietnam has a large population, close to 100 million.
Speaker: And, you know, with the rise of middle class and this increasing urbanization, there are a lot of opportunities in the domestic market, as you mentioned.
Speaker: And I think one interesting thing is, especially if we look at the FDI that has been flowing to Vietnam, I mean, for now, it's still very much concentrated in manufacturing.
Speaker: But incrementally, we have seen this rise in, well, from foreign investors who are interested in the domestic market.
Speaker: You know, we're talking about retail giants here from Japan, food and beverage companies here.
Speaker: So I think that's really the trend that we've been seeing.
Speaker: Vietnam has emerged from this emerging hub for manufacturing.
Speaker: But increasingly, there has been a lot of attention on its own domestic market, on its own potential here.
Speaker: That's really indicative of how far Vietnam has come.
Speaker: I remember traveling to Vietnam in the mid-1990s and there were barely any cars on the street, let alone motorcycles.
Speaker: People were walking.
Speaker: But today you walk through Ho Chi Minh City and you can barely cross the street.
Speaker: It's so jam-packed with cars.
Speaker: So it really shows that enormous development there.
Speaker: Let us maybe shift to Malaysia.
Speaker: And there are some parallels here, right?
Speaker: Malaysia has actually kind of bounced back in recent years as a manufacturing hub.
Speaker: Tell us about some of the key sectors that Malaysia is involved in.
Speaker: Yeah, so Malaysia is actually a very interesting case here.
Speaker: If we look at its export base, it's very much well diversified.
Speaker: It's not only a commodity exporter, if we think about oil, LNG, to a lesser extent palm oil, but also it has quite a sizeable tech manufacturing sector.
Speaker: This is not really a widely known story compared to its other regional peers here.
Speaker: But if we look at the particular products that Malaysia has been producing, well, for now, it's still relatively labor intensive, but it actually produces a large part of the world's automotive chips.
Speaker: And especially during COVID, if we recall back, there was quite a period of chip shortages specifically for automotive chips.
Speaker: And that was the time when we saw Malaysia's exports just boomed by like 30% electronics exports.
Speaker: And a lot of this, I think, semiconductors, as you say, automotive, but it's not so much that they produce the wafers.
Speaker: That's produced elsewhere.
Speaker: But Malaysia is really specializing in testing and packaging, for example, which actually is a quite important part of the chip supply chain.
Speaker: That's correct.
Speaker: Yeah.
Speaker: So it's still, I mean, Malaysia and Singapore are the only two other countries here with boundaries.
Speaker: But if we look at Malaysia's tech manufacturing, it's still relatively a lower value end here.
Speaker: It's chips is not as high end as other countries.
Speaker: But I think in terms of the world share, Malaysia really has gained substantial market share in the past 10 to 15 years.
Speaker: So electronics exporter here, part of these shifting supply chains in Asia, particularly with semiconductors.
Speaker: But there's obviously much more to the Malaysian economy with commodities.
Speaker: You mentioned that.
Speaker: But then there's tourism.
Speaker: Not many people think of Malaysia as being a top tourist destination, but that's actually wrong.
Speaker: Tell us about the importance of tourism in Malaysia.
Speaker: Yeah, I think Malaysia is quite an underrated country when it comes to tourism in ASEAN.
Speaker: I mean, it really has a well-diversified of tourism resources.
Speaker: If you think about, you know, an island experience, go to Langkawi.
Speaker: If you think about, you know, K.O., it's very much a city experience, Penang.
Speaker: So it really has been stepping up its efforts in marketing itself as a popular tourism destination.
Speaker: And, of course, apart from the delicious food in Malaysia as well, one of my favorites being Nasi Lamak, the fried chicken, actually, with rice.
Speaker: But is there a prospect for this year of actually attracting more tourists?
Speaker: There's some talk, I think, about visa waivers, for example, Chinese tourists.
Speaker: Would that make a big difference?
Speaker: And how would you see that play out?
Speaker: Yes, I do think there is quite an upside risk to tourism for Malaysia in 2024 if we think about the visa-free schemes here.
Speaker: Malaysia joined Thailand actually last year to be the second ASEAN country to announce a visa waiver for Chinese tourists.
Speaker: And Singapore also announced a similar scheme, but we're still waiting for exact timing, the details to be announced.
Speaker: But if you think about it, this traditional, very much popular regional route of Thailand, Malaysia, and Singapore, I think it really increases this attractiveness for a lot of Chinese tourists to do a regional tour for a very short period of time.
Speaker: So, yeah, I mean, I know there has been some disappointment when it comes to the return of Chinese tourists, but I think the visa waiver might be one of the boosts that we're going to see for 2024.
Speaker: Well, there you have it.
Speaker: I mean, both Vietnam and Malaysia, key, key cogs in that regional electronic supply chains, both actually also quite the tourism industry, quite important as well.
Speaker: And both are seeing continued foreign investment coming in, expanding market share.
Speaker: It's probably one of the reasons why we see
Speaker: growth accelerating despite these challenging global headwinds that are building up.
Speaker: I think this is a great time to take a quick break.
Speaker: And when we come back, I want to ask you a bit more about Singapore because that's sort of the third country under your coverage.
Speaker: And there are some parallels here, but also there's some unique traits for Singapore.
Speaker: So we want to talk about that when we come back.
Speaker: So, Yon, we just talked about Vietnam and we talked about Malaysia.
Speaker: Let's turn to Singapore.
Speaker: And Singapore also has had very strong, resilient performance through the pandemic.
Speaker: Part of this is still manufacturing-based, interestingly.
Speaker: So despite being a small city-state that is largely, we think of it as services-led, there's still an important manufacturing component.
Speaker: Can you talk to us about that and one of some of the leading industries?
Speaker: How well are they doing?
Speaker: Are they losing jobs or are they actually still holding their own?
Speaker: Yeah, so if we look at the manufacturing share in GDP, it's still as high as 20% for Singapore.
Speaker: I mean, especially when we think about the electronic sector here, it's definitely the largest manufacturing segment, but it's actually quite well diversified.
Speaker: If we think about pharmaceuticals, very capital intensive, but very much high end in terms of value.
Speaker: It also has a petrochemical production, as well as high-end aerospace engineering parts.
Speaker: So it's quite a well-diversified picture.
Speaker: It's not only the story of electronics.
Speaker: Now, over the years, we've talked a lot about the potential for integration between Singapore and sort of the hinterland, if you will, the border region with Malaysia, for example, where, you know, you've seen the integration of manufacturing production, for example.
Speaker: How much of that has really happened?
Speaker: Johor, for example, Southern Malaysia is one of these key areas.
Speaker: So one way to think about this is sort of
Speaker: Hong Kong and Shenzhen across the border, right, where Hong Kong, you know, had the capital, had some of the engineering skills.
Speaker: And over the years, we built factories in Shenzhen.
Speaker: Do you have a similar relationship to some extent between Singapore and southern Malaysia?
Speaker: Or is that not quite as?
Speaker: I think it's quite similar to Hong Kong and Shenzhen.
Speaker: I mean, this is really a scheme that has been pushing by both Malaysia and Singapore.
Speaker: Both authorities have set up a special economic zone in JB and really trying to drive that integration.
Speaker: And I think one of the key issues that two countries want to solve is this traffic congestion between the two.
Speaker: Now, you mentioned JB.
Speaker: I think you mentioned Johor Bahru.
Speaker: That's the southern part of the Malaysian Peninsula, of course, that lies closer to Singapore.
Speaker: So manufacturing is still a surprising bright spot for an economy of Singapore's level of development.
Speaker: But then, of course, services, all key in Singapore.
Speaker: And yeah, they come off the other pandemic really strong.
Speaker: Financial services are expanding.
Speaker: So is tourism, still an important sector.
Speaker: There is also this idea that the term you coined, which is the concert economy.
Speaker: What do you mean by that?
Speaker: Well, I mean, we're seeing quite a lot of line up of concerts this year.
Speaker: We've had a Coldplay this year at the end of January.
Speaker: And then Taylor Swift is also going to come in March.
Speaker: So I think really this year, after the COVID ended, there has been this revenge concert watching.
Speaker: It's still been pretty much ongoing.
Speaker: How does that help the economy, though?
Speaker: Taylor Swift coming into town, a lot of T-shirts being sold, or how did you see that somehow in terms of the impact on the economy?
Speaker: Well, so it definitely helps with its retail sales.
Speaker: And then what we heard on the ground is that because it's so popular, a lot of people couldn't really get tickets.
Speaker: What some banks did on the ground was they offered...
Speaker: Credit cards, if you apply for a credit card, then you are entitled to an early access to buy, to get a ticket for Taylor Swift concert.
Speaker: And it was quite popular on the ground.
Speaker: So we obviously see booming manufacturing.
Speaker: We see financial services doing well.
Speaker: We get the concert economy now thrown in for good measure.
Speaker: But Singapore is a limited geographic place.
Speaker: It's still a fairly small economy.
Speaker: Does all that investment, that increase in demand, ultimately stretch the resources?
Speaker: For example, I'm thinking about housing.
Speaker: Does that push up house prices?
Speaker: Is there an inflation problem as a result of this because of that strong growth?
Speaker: Yeah, correct.
Speaker: So what we've been seeing is this property market really has been booming and there really reflects a mismatch between demand and supply.
Speaker: Well, the good news is that we're starting to see some signs of cooling property market, but we still probably still have a long way to go.
Speaker: And especially if we look at the inflation data here, disinflation is definitely a trend in Singapore, but it seems like that core inflation is so sticky.
Speaker: That last mile of disinflation is just very hard to achieve.
Speaker: We still have a long way to go.
Speaker: Well, thanks, Jun.
Speaker: I think you really shed light on three key economies in Southeast Asia.
Speaker: And I think they really helped to illustrate why we're so optimistic on that region.
Speaker: Despite the negative global headlines about the global economy, there is these micro foundations that you see in Vietnam and Malaysia.
Speaker: and Singapore coming through.
Speaker: So thank you for joining us and highlighting this.
Speaker: I should also say when I think about the concert economy, of course, we have a big event coming up in Hong Kong, actually, which is the HSBC Global Investment Summit in early April.
Speaker: I'm not sure it will have the same effect on the local economy, but certainly people are getting very excited about that because we'll have key speakers from around the world.
Speaker: And of course, dear audience, stay tuned for more details
Speaker: on that.
Speaker: But, Yuen, Harold is not here.
Speaker: So in his absence, would you do the honor about some of the other announcements that we usually give on this podcast?
Speaker: Sure.
Speaker: Don't forget to listen to The Macro Brief, our other weekly podcast from HSBC Global Research, bringing you the big picture on the global economy every Friday.
Speaker: That's right.
Speaker: So there you have it.
Speaker: More than one podcast to listen to at HSBC.
Speaker: But of course, we do hope you tune back into the Banyan Tree next week.
Speaker: And once again, thank you, Youn, for joining us.
Speaker: And thank you, everybody, for tuning in.
Speaker: Thank you.
Speaker: Thank you.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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