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: Hello from Hong Kong and welcome to Under the Banyan Tree where we put Asian markets and economics in context.
Speaker: I'm Fred Newman, Chief Asia Economist, back in the hot seat.
Speaker: I assure you, Harold and I will be back in the studio together soon, but I'm delighted to welcome a podcast first-timer today, my fellow Asian economist, Ines Lam.
Speaker: US-China tensions are all over our news feeds right now, prompting the question, have we reached the end of globalization?
Speaker: Well, spoiler alert, not if regional trade integration in Asia is anything to go by.
Speaker: Let's take a deeper look beyond the headlines right here under the banyan tree.
Speaker: Well, to delve deeper into this topic, I'm joined now by Enes Lem, our Asia economist, who has written extensively on this topic of Asia integration, cross-border investment and globalization.
Speaker: So welcome to the podcast, Enes.
Speaker: Hi, Fred.
Speaker: Thanks for having me on the podcast.
Speaker: So, Enes, to start with, let's set the scene a little bit.
Speaker: When we talk about economic integration, where does Asia stand at the moment?
Speaker: Indeed, if we look at all the news headlines, we would get the feeling that globalisation is over.
Speaker: But if we look deeper into the statistics, I would actually say that Asia is integrating at a more rapid pace in the past 10 to 20 years and trading more within itself.
Speaker: So we're seeing more integration in Asia, but there's obviously certain driving factors of this.
Speaker: And historically, of course, Japan was the first economy to industrialize.
Speaker: So we had a lot of Japanese investment in Thailand, for example, in Southeast Asia, and that factory supply chains were integrated.
Speaker: This is changing quite rapidly.
Speaker: What's at the center of this regional integration today?
Speaker: I would say that the greatest factor driving integration today is that China's moving up the global value chain.
Speaker: When we hear that multinational companies are shifting their production to ASEAN economies, at the same time, they are importing more raw materials, parts and components from China into these ASEAN economies.
Speaker: So that's the single most important factor in driving supply chain integration.
Speaker: So it's a really China-centric economic integration now, but it also, as you say, reflects the changing role of China in global supply chains.
Speaker: It's no longer importing components for end assembly, rather it is exporting components for end assembly in other markets.
Speaker: And so there's this great statistic whereby China's number one export market today is not the U.S., it's not Europe.
Speaker: It's actually the ASEAN economies because China's exporting
Speaker: components that had further assembled, move into supply chains in Southeast Asia.
Speaker: And I think that's part and parcel of, of course, this regional integration that we're seeing.
Speaker: But it's not just trade, isn't it?
Speaker: We also see cross-border investment actually strengthening these ties.
Speaker: What have you seen in terms of Chinese overseas investment, Chinese companies actually investing in other economies?
Speaker: That's right.
Speaker: We look at the outbound direct investment of China and we see that China is investing a lot in the manufacturing industry in the Southeast Asian economies.
Speaker: Part of the incentives is to take advantage of the lower labour costs in countries like Vietnam and Malaysia.
Speaker: And recently, an additional incentive for Chinese companies to move their production abroad is to expand into the massive and growing consumer market in Southeast Asia.
Speaker: That's, I think, a key point you make here, and that is that we're seeing economic integration in Asia not purely because of supply chains optimization that, as you mentioned, cheaper labor costs, for example.
Speaker: There's also, I guess, some tariff arbitrage coming through there as well.
Speaker: But we're also seeing Asian companies going across borders really to tap into consumer markets in neighboring economies.
Speaker: I think one great example for this is the tech industry in China that is invested in ASEAN, you know, consumer retail, online consumer retail names, for example, going in there.
Speaker: Obviously, ASEAN is a 500 to 600 million people economy that is still growing rapidly.
Speaker: So there's a lot of business opportunities.
Speaker: But another promising sector is electric vehicles.
Speaker: What have we seen there in terms of cross-border investment from Chinese names into Southeast Asia?
Speaker: You're right.
Speaker: But just to get back to the point of Chinese tech companies expanding in Southeast Asia, a number of Chinese e-commerce companies are setting up shops in ASEAN.
Speaker: They also establish very extensive distributional logistics networks that will help them expand into the ASEAN consumer markets.
Speaker: And coming back to your question on electric vehicles, indeed a lot of Chinese EV companies such as BYD are expanding their production networks in Southeast Asia and a prime example is BYD is building factories in Thailand which is itself a huge car making country.
Speaker: Chinese companies are also investing a lot in Indonesia because of its substantial lithium and other metals processing facilities.
Speaker: So there you have it.
Speaker: It's really Chinese-centric regionalization, if you will.
Speaker: But it also implies that actually there is more globalization still going on within the region borders.
Speaker: Cross-border trade is increasing.
Speaker: Cross-border investment is increasing.
Speaker: although the slight shift here was China really being at the center of that regionalization, if you will.
Speaker: This is maybe a great point to take a quick break.
Speaker: And when we come back, we're going to look at some of the non-China related economic integration across the region as well.
Speaker: So welcome back.
Speaker: And we just talked about China's role in this regional economic integration in terms of supply chains, in terms of cross-border investment.
Speaker: Of course, the EV sector is prominent there.
Speaker: Chinese e-commerce platforms are investing in ASEAN.
Speaker: There's still very, very strong and growing ties between some of the Northeast Asian economies and ASEAN in particular.
Speaker: I'm just thinking about the Koreans, for example.
Speaker: Koreans have major, major ties to Vietnam, for example.
Speaker: Most of the smartphones that come out of Korea really assembled in Vietnam.
Speaker: We also have Taiwanese companies who used to do a lot of assembly in mainland China, moving it partly, and I stress only partly,
Speaker: to Southeast Asia.
Speaker: That raises the question of India's role in this as well.
Speaker: This is more than a billion people economy that's coming into its own in terms of its economic influence.
Speaker: How much have we seen in terms of economic integration between the ASEAN economies and India, for example?
Speaker: Indeed, India has been a growth outperformer in the region in the post-COVID period.
Speaker: We are seeing from the trade statistics that India is importing a lot more from ASEAN economies, and we have very positive expectations for this trade corridor.
Speaker: Because India is growing at a decent pace, we expect that India's demand for consumer products and intermediate products from ASEAN will continue to grow.
Speaker: And that, of course, that relationship is not just limited to exports of goods from ASEAN to India, but there's another aspect of regional integration.
Speaker: That's actually tourism.
Speaker: Tourism is increasing across the region.
Speaker: Famously, Chinese tourists are flocking to Southeast Asia.
Speaker: But I was struck, actually, one of the fastest growing categories is Indian tourists venturing to Thailand.
Speaker: And that, I think, also underlines regional economic integration because that often brings with it people-to-people contacts, trade opportunities, investment opportunities, et cetera, with it as well.
Speaker: That raises kind of the broadens the issue here.
Speaker: When we talk about cross-border tourism, cross-border services, for example, what are some of the other interesting integration trends that we're seeing in that category?
Speaker: You're right.
Speaker: India itself, it's also becoming a bigger exporter of services.
Speaker: In fact, during COVID, we see an acceleration in India's exports of digitally delivered services.
Speaker: And a lot of multinational companies are setting up so-called global capability centers in India to provide IT services and R&D services in India.
Speaker: to the rest of Asia, of course, and we often tend to think of India selling these services back to Europe or the US, but actually what we see also, a lot of these services are provided to companies in East Asia, for example, so there is certainly that integration on
Speaker: India services exports to the rest of the region as well.
Speaker: Here in Hong Kong, we import services from India, Singapore, of course, as well.
Speaker: And that highlights other angles, I think, of integration.
Speaker: So in that sense, so taking a step back, we ask, is this deglobalization, is the end of globalization?
Speaker: And I think from an Asian perspective, actually, we certainly see
Speaker: much more regionalization, regional integration, trade barriers are coming still down, tariffs are being cut, cross-border investment is increasing.
Speaker: But you might argue that's regionalization, that's not globalization.
Speaker: But I think one thing that comes out in your research as well, Enos, is that
Speaker: we're really not just seeing rising integration within the region.
Speaker: It's not exclusive at the expense of economic relations with the US or Europe.
Speaker: In fact, we still see quite a bit of connectivity to other parts of the world.
Speaker: In particular, Europe is negotiating free trade agreements, for example with Indonesia.
Speaker: At the moment, there might be free trade agreements coming through this year.
Speaker: And then we have, of course, the US still being engaged here through the IPAF, which is the Indo-Pacific Economic Framework Agreements.
Speaker: which is not outright trade liberalization, but it's still a way to try to encourage more cross-border trade flows as well.
Speaker: And I think all of that really speaks to the fact that we still see enormous momentum and desire to liberalize trade and increase cross-border trade because Asia remains reliant on cross-border trade.
Speaker: And so at least here in this part of the world, there's still very much an ingrained constituency that has an interest in pressing forward with a greater
Speaker: trade integration across borders.
Speaker: That's right, Fred.
Speaker: We're focusing a lot on the news headlines that US-China trade tensions, but we may be overlooking the fact that within Asia, countries are still very active in forging economic ties with each other by signing bilateral agreements.
Speaker: And like you said, outside of Asia, Europe is very keen at signing bilateral trade agreements with individual Asian economies.
Speaker: Well, there you have it, ladies and gentlemen.
Speaker: Globalization is not quite dead, as Mark Twain said.
Speaker: The news of the death of globalization is greatly exaggerated, at least from an Asian perspective.
Speaker: Still a lot going on.
Speaker: We need trade.
Speaker: And I think
Speaker: The numbers speak for themselves.
Speaker: Actually, trade continues to grow very fast across the region, as does cross-border investment, and certainly policy is still encouraging that, and with ASEAN in particular being in sort of the crossroads, if you will, of an increasingly integrated economy.
Speaker: Asian economy.
Speaker: So thank you very much, Ines, for joining me to discuss this topic of is globalization dead?
Speaker: And the deeper look at Asian integration.
Speaker: Thank you.
Speaker: Thank you, Fred.
Speaker: And that leaves us just enough time for a couple of announcements.
Speaker: Firstly, Harold and I will be back together on the podcast next week, so do make sure you join us for that.
Speaker: And like and subscribe to the podcast if you haven't already.
Speaker: And remember, there's also enough time to still sign up for a Global Investment Summit taking place from the 8th to the 11th of April here in Hong Kong.
Speaker: And if you're an HSBC client, you can contact your representative for more details.
Speaker: But suffice to say that we'll be bringing you more than 2,000 investors, corporates, keynote speakers, and of course, HSBC research analysts under one roof.
Speaker: That's a wrap for this week's podcast.
Speaker: See you again next week.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
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