ASEAN Surpasses China in Manufacturing Foreign Direct Investment (FDI)

The Association of South-East Asian Nations (Asean), which has become a key target of manufacturing investment for multinationals due to diversification from China and geopolitical dynamics.

Key Takeaways

• ASEAN has become a major destination for manufacturing investment, surpassing China as the top choice for OECD countries in 2022 and 2023.
• The five largest ASEAN economies – Indonesia, Thailand, Singapore, Vietnam, and Malaysia – attracted the majority of manufacturing FDI, with China also significantly increasing its investment in the region.
• Geopolitical tensions and trade restrictions are driving politically motivated FDI trends in strategic sectors like electric vehicles, semiconductors, and critical minerals within ASEAN.

The region attracted significant foreign direct investment (FDI), particularly in countries like Indonesia, Thailand, Singapore, Vietnam, and Malaysia. Asean has overtaken China as the top destination for manufacturing investment from OECD countries.

In 2022 and 2023, over 124 billion dollars have been pledged to new foreign direct investment (FDI) manufacturing projects in Southeast Asia, according to fDi Itelligence. This comes as countries in the region move past pandemic-related restrictions and emerge as natural destinations for projects that would have likely been based in China in the past.

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The rise in investment is driven by supply chain diversification, accelerated by the Covid-19 pandemic and geopolitical tensions. Chinese FDI in Asean has also significantly increased, driven by strong diplomatic ties and diaspora connections. The FDI trends are politically driven, reflecting heightened global competition and interest in trade and investment in the region.

The five largest ASEAN economies – Indonesia, Thailand, Singapore, Vietnam, and Malaysia – accounted for 96.5% of the manufacturing FDI pledged to the region in 2022 and 2023.

Not only Western multinationals have increased their investment in ASEAN, but also a third of the region’s manufacturing FDI in 2023 came from China, which is an increase from 18.5% before the pandemic in 2019. Chinese investment exceeded that from other major source markets such as the US, South Korea, and Japan, according to fDi Markets.

Malaysia has attracted substantial semiconductor investments from Western firms, as well as Chinese companies like Shenzhen HFC. Thailand has also drawn in Chinese electric vehicle (EV) makers such as SAIC and BYD. Meanwhile, Indonesia has been a major beneficiary of increased Chinese investment, particularly in metals like aluminum and nickel, as well as the broader EV supply chain.

This shift in foreign direct investment (FDI) signifies a noteworthy transformation in the worldwide manufacturing industry. ASEAN is now emerging as a major player, fueled by government interests amidst heightened geopolitical tensions and trade restrictions in strategic sectors.