Foreign investment is growing rapidly in Southeast Asia, driven by the appeal of political stability and expansive markets. The region’s importance as a buffer within the face of intensifying competition between the U.S. and China is attracting significant global investment, with record inflows of $222.5 billion in 2022.
Vietnam played a major role and was touted by the United States as a possible partner in strengthening the semiconductor supply chain. This support coincided with an expression of strong interest in Vietnam by American firms akin to Marvell Technology and Synopsys. Amkor Technology’s opening of a $1.6 billion semiconductor plant in Bac Ninh has cemented this position, which is able to change into their largest global manufacturing center and generate 10,000 jobs.
Meanwhile, Malaysia has secured a $10 billion investment from China’s Zhejiang Geely Holding Group for an auto manufacturing base in Perak and is considering constructing an electrical vehicle factory in Thailand. US and Chinese firms are increasingly acquiring firms in Southeast Asia, as seen in deals akin to Kimberly-Clark’s $1.2 billion acquisition of Softex Indonesia and Alibaba Group Holding’s multi-billion dollar investment in Lazada.
Over the past five years, foreign direct investment in Southeast Asia has increased by 40%, outpacing other regions of the world amid heightened trade tensions between the U.S. and China. The United States leads this wave of investment with $74.3 billion, followed by China with $68.5 billion, specializing in semiconductor ventures and a wide range of projects akin to electric power plants and mining development across the region.
The major impulse of those investments is the change in the situation of production bases. U.S. firms are “friendshoring,” shifting supply chain roles from China to allied countries, while Chinese firms are relocating facilities to facilitate exports to the West.
Southeast Asia is seen as an acceptable region as a result of its proximity to China’s manufacturing capability, political stability and huge domestic markets with greater than 600 million people. This positioning amid escalating U.S.-China tensions allows it to function a neutral ground, as described by Ikumo Isono, senior economist on the Economic Research Institute for ASEAN and East Asia.
Japanese investment, once dominant in Southeast Asia, has fallen to $43.5 billion over the past five years as a result of increased demand from host countries for investment in cutting-edge sectors that Japanese firms have been hesitant to pursue. As the United States and China step up investment efforts, Japanese firms are being forced to re-evaluate their strategy within the region, facing an urgent have to adapt.
