US-China trade tussle is creating winners in South-east Asia

South-east Asia is shaping up as the one region which may notch some gains as the US and China exchange trade blows.
South-east Asia is shaping up as the one region which may notch some gains as the US and China exchange trade blows.PHOTO: REUTERS

SINGAPORE (BLOOMBERG) - "No one wins from a trade war," is a standard refrain among economists. South-east Asian businesses are trying to prove that maxim wrong.

The region is capitalising on a rush of new orders and production moves as firms reconsider their business in the US and China amid a deepening trade war.

About one-third of more than 430 American companies in China have or are considering moving production sites abroad amid the tensions, according to survey results released on Sept 13 by AmCham China and AmCham Shanghai. South-east Asia was their top destination.

Vietnamese furniture producer Phu Tai Corp is among those looking to cash in. The maker of home furnishings for Wal-Mart Stores outlets in the US is planning for a 30 per cent increase in its exports this year and in 2019, according to deputy general director Nguyen Sy Hoe. It'll invest about US$10 million to expand two factories at its base in Binh Dinh province and to upgrade production lines in two other factories in Dong Nai further south.

"We see this as a great chance to boost our exports to the US as we're getting more orders from that market," Mr Hoe said by phone on Sept 4. "Given the escalating trade war between China and the US, many American importers are switching to buy from Vietnam."

The 10-economy bloc of the Association of Southeast Asian Nations, or Asean, is a natural magnet for new factories thanks to low production costs and well-trodden manufacturing plants, solid growth with the five biggest economies expanding at about 5.3 per cent on average, and improving ease-of-doing-business rankings - not to mention geographical proximity to China.

Hong Kong's Trade Development Council recognizes South-east Asia's clout. Nicholas Kwan, research director of the territory's statutory body that supports local firms, called South-east Asia "an economic powerhouse" and pointed Hong Kong businesses to the bursting region as a safe haven amid trade-war tensions in a press conference on Tuesday.

Producer sentiment indicators around the world have shown negative impact from the tariffs on US$50 billion in goods the US and China have imposed on each other since July.

With another US$200 billion in Chinese imports targeted and China announcing retaliatory tariffs against US$60 billion of US goods, trade-reliant South-east Asia will also be exposed to that overall drag. But unlike many developed economies, the alternative production bases also stand to gain as companies shift orders to them to avoid levies.

Nguyen Thanh Phuong, chief executive officer of Kangaroo Group, a Vietnamese producer of home appliances, forecast a 10 per cent increase in sales to the US in the second half of 2018. His company has received orders from American clients who used to buy from Chinese makers, Phuong said in a Tuesday interview in Hanoi.

"The new US tariff is helping our products become more competitive against Chinese ones," he said.

Koratak Weeradaecha, finance director for Star Microelectronics Thailand, also has noticed fluctuations in orders that correlate with the trade tensions - first, a delay as some adjusted to new tariffs, he said in an Aug 24 interview. Orders have now increased by at least 15 per cent from 2017 and "we expect the trend to be more apparent later this year."

"Orders came from companies that moved their production lines here, which helped boost the supply chain in Thailand," said Mr Koratak. "And we think there should be more as many companies should think about relocating their plants to neighboring countries, as staying in China may be too risky."

Electronics manufacturers aren't the only ones in Thailand bound for a boost. Malayan Banking Bhd cites automobiles, seafood, rubber, and tourism all as markets that stand to benefit as Chinese goods become less attractive.

The Thai government agrees that the seafood sector will win amid the US-China disputes, with those goods being targeted on both American and Chinese tariff lists, said Pimchanok Vonkorpon, director general for the commerce ministry's trade policy and strategy office.

"Canned tuna should be a prime beneficiary sector," she said.

Thailand makes up about 21 per cent of China's fruit imports, so that market stands to gain against US competitors that hold an almost 8 per cent share. Judging by the ability to offer substitute goods, Thailand is among the best-placed in the world to find opportunity amid the chaos, according to a July report from Krungsri Securities.

While companies have been reluctant to act prematurely on production shifts, there have been some scouting areas in Thailand as potential factory sites, Nattapol Rangsitpol, director-general of the Ministry of Industry's Office of Industrial Economics, told reporters Aug. 28.

It's a similar story in Malaysia. "We've got so many inquiries that our greatest problem is how to ramp up capacity," including in electronics, steel production and automation from both China and the US, Malaysian Finance Minister Lim Guan Eng told reporters on Sept 13 in Hong Kong. "Once they come in it is very hard to pull out."

Malaysia could see the benefits both as a trans-shipment point and because it's a neutral country in which Chinese and American companies both would have an interest in investing.

Malaysian billionaire Robert Kuok's Kerry Logistics Network Ltd is seeing "numbers are looking up a bit more" as companies divert distribution centers from mainland China and into places like Hong Kong and Taiwan, and parts of South-east Asia, according to the company's chairman, George Yeo.

"They're thinking of the next factory, and they're less likely to put it in China," Mr Yeo, a former trade and foreign minister in Singapore, told Bloomberg Television on Sept 14. He acknowledged that some firms already were planning to move business to lower-cost manufacturing sites outside of China.

The complication of calculating aggregate benefits for some economies is evident in Malaysia, which could score wins in some areas while also taking a hit to its parts-makers that sell heavily to China. For now though, South-east Asia is shaping up as the one region which may notch some gains as the US and China exchange trade blows.

Vietnam has "more opportunities than challenges" from the US-China trade tensions, Prime Minister Nguyen Xuan Phuc told Bloomberg Television in a Sept 10 interview. The premier views the dramas as helping push Vietnam toward enhancing other trade relationships and embarking on domestic reforms to keep its development apace amid turbulent times.