Wherever you look, projects abound. Among the confetti that make up Southeast Asia, the city-state of Singapore is setting the tone more than ever. In 2023, the American foundry GlobalFoundries opened a $4 billion semiconductor production site there. Soitec, a French supplier of materials for the electronic chip industry, plans to double the capacity of its site there, while two other French groups, Air Liquide and Arkema, have chosen Singapore for its lesser-known skills in chemistry.
Not far away, neighboring Malaysia is also riding the wave of the planet’s gargantuan appetite for chips. In the northwest of the country, the arrival of Intel at the turn of the 1970s transformed the state of Penang into a small Asian Silicon Valley. Today, it is home to 13% of the world’s semiconductor testing and assembly activities. These stages have lower added value than wafer manufacturing, but are just as essential. Building on this success, the monarchy wants to attract more than $100 billion in investment in the sector.
On the continent, the long-standing presence of Japanese manufacturers allows Thailand to dream of becoming an electric car manufacturer. At the beginning of July, the ambitious Chinese manufacturer BYD opened two factories there, one with the French equipment manufacturer Forvia, while its rival Chery prefers to set up in Vietnam – like Apple, which locates part of its computer and telephone production there. Unless Indonesia wins the day, having just opened its first battery factory thanks to Hyundai and LG?
ASEAN ahead of China
When geopolitical tensions hamper certain trade relations, this part of the world literally attracts investment. In 2021, all ten member countries of the Association of Southeast Asian Nations (ASEAN) overtook China as the destination of choice for OECD investors. And the gap continues to widen. The subsidiary of the Financial Times fDi Intelligence estimates that between 2022 and 2023, companies from OECD countries have committed to building new factories in the region for a total amount exceeding $55 billion, while Beijing has only captured $21 billion in projects over these two years.
However, in 2018, it was China alone that garnered nearly $57 billion in manufacturing investments since the OECD! Times have changed. The standoff between the United States and China under Donald Trump and, to a lesser extent, Europe’s recent efforts to “de-risk” Beijing are leading to a reorientation of investments. The time has come for “China + 1”, for the diversification of locations to reduce dependence on the sole Chinese supplier. And here is Southeast Asia propelled to the center of the global industrial chessboard.
“ASEAN benefits from a fast-growing market of 670 million people and a sectoral diversity that is rarely seen elsewhere. Trade connectivity is important: in addition to free trade agreements within ASEAN, countries in the region have signed the RCEP, an agreement with China, South Korea, Japan and Australia, and a trans-Pacific alliance with countries such as Canada and Mexico. Many bilateral agreements also directly link some ASEAN countries with other regions, such as the European Union,” relates Michael McAdoo, partner at the Boston Consulting Group in Montreal, for whom ASEAN is the big winner in the reorganization of trade flows.
© / The Express
An attractive labor cost
In addition to advantageous tax policies, the region has a major advantage: with the exception of Singapore, labor costs are still low, and significantly lower than in China. Ideal for large companies keen to “contain their costs,” to use the euphemism of choice. China, which has long placed Southeast Asia at the heart of its “new silk roads,” also finds its advantage there.
“Current trade tensions are pushing China to rebadge [NDLR : écouler ses produits sous une autre marque] in third countries. But above all, the country is starting to invest there to produce locally what it will sell in the region. The graft is starting to take hold in Southeast Asia: it is destined to intensify. Given China’s financial power, the phenomenon could take on considerable proportions. We can already see the beginnings of this offensive in Europe, for example in Hungary,” analyzes Marc Lautier, professor at the University of Rennes II and co-author ofEconomy of Southeast Asia (ed. Bréal, 2019) with Jean-Raphaël Chaponnière.
Because the strategy intended to convert ASEAN into a simple export base remains risky for Beijing. “In Malaysia, the authorities are wondering whether the United States will impose customs barriers on Chinese products assembled in the country,” illustrates Elsa Lafaye de Micheaux, researcher at the Southeast Asia Center, a research unit of the CNRS and the EHESS. A crucial issue for Malaysia, which is considering building a new port and thus consolidating its place in the electronics industry.
“A blessing…and a curse”
Enough to allow it to establish itself, like the rest of ASEAN, as a new global industrial hub? The change in scale is not obvious. For host countries, the massive influx of foreign investment is a double-edged sword. “It is a blessing… and a curse. The strong presence of Intel and other Infineons complicates the emergence of Malaysian companies, which must be able to pay their engineers at the level of salaries charged by foreign firms,” notes Bruno Jetin, lecturer at the Sorbonne Paris Nord University.
In Indonesia, the rise of local players across the entire electric vehicle value chain is due as much to the restrictions on exports of raw nickel decided in 2014 by President Joko Widodo as to the know-how of Chinese manufacturers in key areas such as refining. Lured by the country’s immense resources – considered the largest in the world – they have helped propel Indonesia to the top of global production of the famous “devil’s metal”. A forced progression, which is not without consequences.
At the beginning of the year, the NGO Climate Rights International warned about the deforestation practices at work in the country, judging that “the Indonesian government actively promotes the nickel industry to the detriment of the well-being of its citizens”, particularly certain indigenous populations. Not to mention that nickel production remains very carbon-intensive due to the predominance of coal and oil in the Indonesian energy mix. Difficult to sustain in a context of climate emergency. “The region is particularly vulnerable to climate change,” recalls Elsa Lafaye de Micheaux. But while awareness is visible, governments are still too focused on welcoming foreign investment.”
The ASEAN shift towards a greener industry is therefore far from being initiated. At the same time, “many countries in the zone are led by authoritarian governments and suffer from a lack of public freedoms. This political configuration restricts their capacity for innovation. They will probably be able to reach a relatively high industrial stage, but perhaps not take the final steps that would make them real inventors in key technologies”, predicts Bruno Jetin. Unless a democratic wind rises, inflated by economic growth and the emergence of a middle class. This famous “theory of modernization” which we thought would apply to China. Without effect so far…
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