The Next
‘Factory of the World’

Manufacturers are looking to opportunities in Southeast Asian countries as the cost of operating on their traditional sites in China grows. This could boost much-needed growth in the regional ASEAN economy. The low cost of labour in ASEAN nations like Indonesia, Laos, Myanmar, and Vietnam is a competitive advantage for multinational firms as well1. In contrast, China's labour force is about to reach an inflexion point and see a peak in its labour force growth. This reinforces ASEAN’s dominance in terms of its share of labour in production.

1Source: Jetro, CLSA, December 2016

FDI Flows into ASEAN

Foreign Direct Investment (FDI) in ASEAN has risen for the third consecutive year. Despite a 16% decline in global FDI flows in 2014, FDI inflow to ASEAN increased from USD 117.7 billion in 2012 to USD 136.2 billion in 2014, exceeding inflows to China for the first time since 1993.2

An estimated USD 7 trillion FDI is projected to come into ASEAN to support its infrastructure and real estate growth over the next 10 years3.

As China’s economy rebalances away from an investment-led economy to a consumption-based one, it will rely less on imports and investments, leading FDI to move away from China and into ASEAN3.

2Vietnam ASEAN portal, en.asean.vietnam.vn
3“Southeast Asia at the crossroads: Three paths to prosperity”, McKinsey Global Institute, November 2014

Rise of the Middle Class*

ASEAN’s middle class is expected to more than double in size from 135 million (24% of the population) in 2015 to 334 million (51% of the population) in 2030. It is set to be one of the fastest growing segments of the global population4.

4Sources: International Monetary Fund; UN Department of Economic and Social Affairs; Homi Kharas, "The Emerging Middle Class in Developing Countries”, OECD Development Centre Working Papers, No. 285. East West Center, 2017.
*Middle class is defined as those households with daily expenditures between US$10 and US$100 per person in purchasing power parity.

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