Destination, South East Asia

By Global Thought Leadership
27 June 2019

A highly anticipated event in this weekend’s G20 gathering is the meeting between U.S. President Donald Trump and Chinese President Xi Jinping. The issue of trade will no doubt be on the table. However, the likelihood of a definitive deal is low. Global and domestic economic uncertainty combined with local and international political machinations have created a tense backdrop.

Amongst keen observers will be businesses on the ground trying to decipher what transpires from Osaka.  A recent American Chamber of Commerce (China Office) survey of American businesses based in China corroborated the less than positive sentiment of the protracted trade negotiations on current business conditions and future business planning. In particular, out of the near 250 respondents, close to 40% were thinking of relocating business operations; even though the process of uprooting and relocating is tedious and fraught with costs, labor and regulatory uncertainty.

It is worthy to note that South East Asia is the overwhelming favorite alternative location. Increased ease of businesses, improving infrastructure and a capable workforce make the case. Closer proximity to a large number of captive rising middle class consumers within the region is also enticing.

The Bottom Line

Business leaders will commit where they are confident and where there is operational visibility and commercial viability.

South East Asia looks to benefit as an amicable conclusion to the current trade situation appears a tall order. 

CHART 1: Close to 40% of American businesses in China are considering relocating if trade tensions continue to hinder. South East Asia is the stand out alternative. 
Source: Legg Mason, 27 June 2019. American Chamber of Commerce (AmCham) China, AmCham Shanghai, Joint Press Release. 22 May 2019. The survey received nearly 250 responses, with companies represented as follows: 61.6% manufacturing-related, 25.5% services, 3.8% retail and distribution, and 9.6% from other industries. G20 refers to the group of finance ministers and central bank governors from 19 of the world's largest economies, along with the European Union. Formed in 1999, the G-20 has a mandate to promote global economic growth, international trade, and regulation of financial markets.

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