China exodus a boon to Asean
Rising costs were the main driver of industrial relocations even before the trade war began
More manufacturers have relocated from China to Southeast Asia over the past few years, largely because labour costs on the mainland have become less and less competitive. The trend has been reinforced by the China-US trade war that began in 2018. A new research report by the property consultancy JLL indicates that Vietnam, Thailand and Malaysia are winning more manufacturers moving out of China.
Foreign direct investment in the manufacturing sectors of Southeast Asian countries has risen strongly in the last three years to US$46 billion, according to JLL. Relocations of manufacturing companies from China to take advantage of lower labour costs have contributed to this growth.
Offering the availability of high-quality workforces and competitive wages, Vietnam, Thailand and Malaysia are winning more manufacturers expanding or relocating not only from China but also from Korea and Japan, JLL said.
Thailand and Malaysia, for example, have a "mid-tech" workforce for which the cost is now 60% lower than in China, compared with 33% in 2010. Even if there were no trade war, businesses in China would be taking a hard look at their costs and what they need to do to remain competitive.
"The ongoing China-US tension has reinforced the trend of more manufacturers relocating from China to Southeast Asia in efforts to minimise the business impact of the China-US trade war," said Subyagorn Sansugtaweesub, head of industrial property at JLL.
So far, the US has slapped tariffs on $250 billion worth of Chinese products and China has placed tariffs on $120 billion in US goods. While the American and Chinese presidents agreed at the G20 summit last month to restart trade negotiations, there is still no clear path to ending the trade war.
"Thailand launched its Eastern Economic Corridor (EEC) at the right time," Mr Subyagorn said, referring to the government's flagship innovation-focused industrial scheme. "It has drawn strong interest from foreign companies, including those looking to relocate from China.
"We have already seen many of these companies looking for opportunities to acquire land in the promotional zones to develop their manufacturing and logistics facilities. Some are looking to acquire built-to-suit facilities. Others are looking for existing facilities that are put up for sale in the EEC with specifications that suit or could be easily adjusted to suit their operational requirements."
Spanning three provinces -- Chachoengsao, Chon Buri and Rayong -- the EEC has become Thailand's most attractive industrial destination for key industries identified as high-potential future growth engines for the country: automotive, intelligent electronics, robotics, aviation.
The government has put in place a number of incentive policies and programmes to facilitate future growth in the EEC. They include substantial tax breaks, permission for foreign ownership of land for Board of Investment-promoted projects, and the right to lease state land on a 50-year term with an option, upon approval, to renew for another 49 years.
"Even if the China-US tariff war comes to an end, we believe that Thailand, particularly the EEC, will continue to retain its position as one of the most attractive industrial and logistics destinations in Southeast Asia," Mr Subyagorn said. "This is due to appealing incentive offers, availability of skilled labour, continued improvement in infrastructure, and the country's advantageous location in the centre of the subregion."