As China uses its considerable soft power to push its neighbors when it feels national interests are threatened, geopolitical tensions in East Asia have escalated in the last year.
And according to analysts, to turn their fortunes around, now those countries are heading to places like Southeast and South Asia after having come to the conclusion that enough is enough.
“South Korean multinationals may decide to diversify their manufacturing supply chain and also production facilities to other Asian locations, in order to reduce their vulnerability to future Chinese economic measures,” said Rajiv Biswas, IHS Markit’s Asia Pacific chief economist.
Currently, a series of retaliatory measures from Beijing, including closing Lotte stores in China, limiting South Koran pop cultural imports and curbing tour groups to its neighbour has been the result of South Korea’s decision to allow the U.S. to deploy an advanced missile defence system on the peninsula.
And as South Korea’s spat with Beijing simmered for a few years, South Korean firms have already started investing in the fast-growing Southeast Asia region.
IHS’ Biswas said that this trend is likely to accelerate following the recent Chinese economic measures against the country as in Vietnam, where South Korea has invested heavily in establishing electronics production facilities.
Natixis’ senior economist Trinh Nguyen wrote in a report released last week that as Korean firms aim to reduce their dependency on their influential neighbour, the trend of investing in the countries in the Association of South East Nations (ASEAN) is likely to accelerate and since 2014, the country’s share of outbound direct investment (ODI) into the ASEAN countries has exceeded investment into China.
“China will continue to be an important market for South Korea. That said, dependency comes at a great cost,” she added.
Tapping into the fast-growing middle class of Vietnam is Lotte and it is one of the South Korean companies doing so.
Reflecting strong linkages between the electronics supply chain between the two countries, South Korean exports to Vietnam soared in the first two months of 2017, jumping 40 percent from a year ago, according to HIS. According to Biswas, another potential market where South Korean presence will grow is India.
The footsteps of Taiwan and Japan, both of whom have incurred Beijing’s ire, is likely to be followed by South Korea in its foray beyond the shadow of China.
More than doubling from 2011 to 2015 is Taiwan’s ODI into emerging Southeast Asian nations, like South Korea. According to calculations by Singapore’s DBS Bank released late last year, while 51 percent of the territory’s ODI went to China—down from 84 percent in 2010, now, some 15 percent of all Taiwanese ODI goes to Southeast Asia, up from 6 percent in 2006 to 2010.
IHS’ Biswas said that meanwhile, following anti-Japanese protests in China in 2012 due to territorial disputes, foreign direct investment of Japanese multinationals has veered toward Southeast and South Asia.
(Adapted from CNBC)