22 January 2018

ASEAN Growth

It’s been 50 years since the Association of Southeast Asian Nations (ASEAN) was first established by Indonesia, Malaysia, Philippines, Singapore and Thailand.

When the intra-governmental organisation’s declaration was signed in Bangkok on 8th August, 1967, the average life expectancy of its combined 185 million people was just 56 years and GDP averaged US$122 per person, in 2017 terms 1.

Much has changed in the five decades since. ASEAN has grown in strength and stature and now includes Brunei Darussalam, Vietnam, Laos, Myanmar and Cambodia among its 10 members. The group’s population has also swelled and encompasses more than 634 million people, many of whom have helped propel the region to significant economic growth; GDP now measures US$4,021 per person and life expectancy now averages 71 years 2.

Economic progress in ASEAN hasn’t always been steady, but in the past decade member nations have thrived as their economies have matured and their largest neighbour, China, has rapidly expanded. China’s influence looks set to continue as President Xi Jinping’s signature foreign policy, the Belt and Road Initiative (BRI), aims to pave a new path of growth in ASEAN, which HSBC predicts will be the third largest economy globally by 2030.

HSBC’s Global Head of Growth and Innovation, Vivek Ramachandran, says China will undoubtedly play a significant role in the region’s next decade, with ASEAN and China sharing a goal to double their bilateral trade from US$500 billion in 2016 to US$1 trillion in 2020.

However, with more than 57 million new middle class households expected in ASEAN in the next ten years, he believes expansion at home will be equally important for Australian business.

“There’s the obvious China theme, and then there’s the economic growth being driven by the emergence of increasing affluent domestic consumers,” Mr Ramachandran says of ASEAN’s economic future. “People shouldn’t discount the growth expected from ASEAN itself.”

China calling

Looking to the future, intra-ASEAN trade—and middle class growth—is likely to get a significant boost from China’s Belt and Road Initiative (BRI), according to Ramachandran.“President Xi Jinping’s BRI is already increasing trade and providing economic benefits around the region,” he says, noting the huge amounts of capital starting to flow into the region.

This is evident in the $US5.5 billion rail link Thailand and China recently agreed to build3 , as well as the Malaysian government’s US$13 billion East Coast Rail Link4 deal with a Chinese construction firm. Both projects will forge stronger supply chain links within the region, as well as widen China’s logistical links and influence across ASEAN.

This investment allows China to connect these economies by exploiting its own industrial overcapacity, according to Mr Ramachandran, but he says “the infrastructure is just the beginning of a wider evolution”, which is spreading to Australia.

“All of the infrastructure investment connects to a larger economic ecosystem,” Mr Ramachandran explains.

“The BRI is creating momentum as it connects to the ASEAN economies and we’re seeing HSBC’s clients getting involved in the Asia-Pacific region. They’re tapping into this larger ecosystem surrounding infrastructure projects, as first-, second-, or third-tier suppliers, and in supporting the economic growth that these infrastructure projects unlock.”

Mr Ramachandran believes the savvier companies operating in the region are already taking advantage of the wider opportunities the BRI offers, and notes that the present projects are just scratching the surface of what’s likely to follow.

He cites infrastructure opportunities in the region that Australian businesses can already be looking towards, from the large railway corridor projects to public utilities and agricultural development. Other downstream opportunities lie in providing technology services to ASEAN nations who still trail China on their digital transformation journey, and—as new consumer classes emerge—the provision of education, financial, healthcare and tourism services.

“Inputs into infrastructure projects provide opportunities in the short term but these flow-on into larger opportunities especially in the provision of professional services.” Mr Ramachandran says. “Digital technologies also provide a huge potential upside in the region especially in the payments space and in financial services more generally.”

“Many ASEAN markets have economic and political nuances that can make them particularly complex,” he adds. “Working with partners on the ground like HSBC, who know both ASEAN and the Australian business environment, can help companies who do want to target these opportunities but may not be sure where to start.”

  1. “Celebrating ASEAN: 50 Years of Evolution and Progress: A statistical publication”, Jakarta, ASEAN Secretariat, July 2017.
  2. “Celebrating ASEAN: 50 Years of Evolution and Progress: A statistical publication”, Jakarta, ASEAN Secretariat, July 2017.
  3. “Thailand greenlights first phase of $5.5 billion rail project with China”, Reuters, 11th July, 2017
  4. “East Coast Rail Link: Malaysia touts rail trade route as rival to Singapore”, The Straits Times, 10th August, 2017


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