August 2018 World Business Advisory Center KASIKORNBANK. Going Out Policy China s Strategic Plan in ASEAN

Transcription

1 August 2018 World Business Advisory Center KASIKORNBANK Going Out Policy China s Strategic Plan in ASEAN 1

2 Agenda Overview of China s ODI Belt and Road Initiative (BRI) China s ODI in ASEAN Summary 2

3 Executive Summary One Belt One Road is a China s strategic policy to expand business overseas and reshape the global trade and investment. Going Out Era 1.0 (Year 2000): Purpose: Acquire energy resources Going Out Era 2.0 (2012 Onward): Purpose: Invest more strategically and acquire know-how abroad. Made in China 2025 Purpose: Acquire advanced technologies under Going Global Strategy Investment Opportunities Thailand Cambodia Laos PDR Myanmar Vietnam Indonesia Chinese Investment in 2016 USD225 Million USD501 Million USD701 Million USD206 Million USD969 Million USD355 Million China s Targeted Industries Manufacturing Manufacturing Construction Electricity Supply Electricity Supply Construction Manufacturing Mining & Quarrying Future Investment opportunities Hi-tech manufacturing Infrastructure Light-Manufacturing Tourism Infrastructure Light-Manufacturing Service sector Infrastructure Light-Manufacturing Tourism Manufacturing E-Commerce 3 Logistics Manufacturing E-Commerce

4 Agenda Overview of China s ODI Belt and Road Initiative (BRI) China s ODI in ASEAN Summary 4

5 Overview of China s Going Out Policy After facing various problems of old economy amid foreign reserve pile-up, Chinese authorities have initiated the Going Out strategy with an intention to secure resources, enhance competitiveness, and acquire technologies. Differences between 2 Going Out periods Going Out Era 1.0 (2000) Tap into overseas resources and strengthen local industries in China Solving resource security Going Out Era 2.0 (2012 Onward) Invest abroad more strategically to expand market and to acquire know-how abroad Ensuring return on investment Buying whole value chains Stimulating global demand Buying majority stakes Switching to portfolio investment Seeking local political patronage Projecting the China model Example: China National Petroleum Corp. (CNPC) has invested in Kazakhstan since 1997 Blending with local operators Promoting Chinese brands globally Example: Lenovo acquired IBM; Geely acquired Volvo 5

6 Situation of China s ODI (1/2) Proportion of China s ODI by Sector Going Out Era 1.0 (2000): Purpose: Acquire energy resources Focused Markets: Central Asia, Latin America and Africa Going Out Era 2.0 (2012 Onward): Purpose: aimed at investing more strategically, market expansion and acquire know-how abroad. Focused market: ASEAN, North America and EU Made in China 2025 Purpose: Acquire higher technology under Going Global Strategy Focused market: US and EU Key Trends: Early 2000, China s ODI was focused on mining, water and gas supply in order to secure energy resources. After 2012 when the Going Out Era 2.0 started, China has focused more on business acquisition in order to gain technologies and fast entry into new markets. 6 Source: CEIC compiled by KResearch

7 Situation of China s ODI (2/2) Accumulated China s ODI by continent, 2016 Top host ASEAN countries for annual China s ODI flows (5-year average - data as of 2016) Singapore (58%) Malaysia (5.9%) Vietnam (7.3%) Thailand (5.5%) USD1,357 Trillion Indonesia (7.2%) Cambodia (6.1%) Laos (5.4%) Myanmar (4.3%) o In 2016, Chinese investors invested heavily in ASIA with the compound annual growth rate of 27% within 5 years. o o Chinese investors have relocated some production facilities to ASEAN to leverage lower labor costs and to avoid antidumping duty imposed on Chinese products. Chinese investors have become more engaged in the construction sector, especially in infrastructure projects. 7 Source: CEIC compiled by KResearch

8 China ODI Targeted Industries Largest investment sectors by Chinese Investors ( ) Real estate Finance and insurance Retail and wholesale Manufacturing Chinese Investors are interested in the real estate sector The influx of Chinese investors are booming the Financial sectors. Service sector is attractive for Chinese investors Going Out policy will relieve excess supply in China The growth of ASEAN s real estate sector is attractive for Chinese investors, as it could provide relatively high yields. Residential properties are easier to acquire than other types of properties. To support Chinese investors, and secure the RMB currency, China s financial sector has moved to invest in financial and insurance businesses overseas. Trade with China has become more important after the Hamburger crisis Retail and logistics are still expanding to capture growing markets. In order to avoid anti-dumping from the US, some production facilities have been moved to ASEAN. China could utilize local materials for their manufacturing and exports to other countries. 8 Source: Bloomberg, CEIC estimated by KResearch

9 Agenda Overview of China s ODI Belt and Road Initiative (BRI) China s ODI in ASEAN Summary 9

10 Belt and Road Initiative (1/2) The Belt and Road Initiative (BRI) is aimed at promoting international understanding, developing infrastructure and stimulating economic growth of the countries along the Silk Road Economic Belt bringing together China, Central Asia, Russia and Europe, and the 21 st Century Maritime Silk Road connecting China with ASEAN, South Asia, Africa and Europe. Key Consideration Belt and Road Initiative will connect 68 countries with China and generate GDP to 33.5% of the global value. It will include 6 economic corridors to link with Asia, the EU and Africa under different strategies. Silk Road Economic Belt Inland routes connecting China and East Asia to Europe, including a host of trade and infrastructure projects 21 st Century Maritime Silk Road Sea-based network of shipping lanes and port developments across Asia Pacific region Land bridge between China and Europe 1.linkage between Lianyungang, Jiangsu province of China and Rotterdam, the Netherlands 2.China-Mongolia-Russia Economic Corridor: linkage between northeastern part of China and Moscow, Russia Energy Resource Security 3. China-Central Asia-West Asia Economic Corridor 4. China-Pakistan Economic Corridor Land link between Inland China and Sea-Trading Route in ASEAN 5. China-Indochina Corridor Bangladesh-China-India-Myanmar Economic Corridor

11 Belt and Road Initiative (2/2) Total Value of Construction Contract from China to the World 120, ,560 98, ,000 69,680 74,130 80,000 61,920 60,000 Infrastructure contracts make up around 82% of overall contracts 40,000 20, ,900 8,030 7,360 14,270 19, ASEAN Middle East and North Africa Other regions East Asia (ex ASEAN) West Asia After BRI was proposed in late 2013, overall value of construction contracts from China to the world has risen steadily. West Asia and North Africa where most of BRI countries are located now account for 65% in For ASEAN, Indonesia, Malaysia, and Lao PDR received the highest value of construction contracts between with total share of 69% CAGR % 81.6% CAGR Infrastructure Others China s engagement in infrastructure-related construction contracts has increased after BRI. Most of contracts fell into energy-related infrastructure (coal and hydropower) and transportation infrastructure (Rail and shipping). 11 Source: CEIC compiled by KResearch

12 Belt and Road Initiative - Infrastructure Estimated infrastructure needs in Asia by region, Region Baseline estimate (Climate change adjusted*) - USD billion Investment needs Annual average Investment needs as % of GDP Central Asia East Asia 6,062 1, South Asia 6, Southeast Asia 3, The Pacific Asia Pacific 26,166 1, Note: Climate change may affect demand for basic utilities Source: ADB, compiled by KResearch Belt and Road is not only an infrastructure dream of China but also a long term foundation for regional prosperity According to the Asian Development Bank (ADB), Asia Pacific needs at least USD1.7 trillion a year in infrastructure spending. China could bridge the gap between these huge infrastructure investment needs and BRI countries insufficient ability to fund all projects. Over the past decade, China devoted nearly 50% of its GDP to investment resulting in tremendous industrial capacity and considerable experience gained in infrastructure development. 12

13 China-Indochina Peninsula Economic Corridor Mainland ASEAN as a strategic linkage under China-Indochina Peninsula Economic Corridor. Pan-Asia railway network could serve Silk Road Economic Belt (SREB) between ASEAN and Southern China onwards. Chinese investment is concentrated in the development of railway and deep sea ports in ASEAN. This initiative provides inland China (Kunming) with strategic access to ports in the Strait of Malacca through 3 planned routes Central link through Lao PDR, Thailand, Malaysia, and Singapore Western link through Myanmar, Thailand, Malaysia, and Singapore Eastern link through Vietnam, Cambodia, Thailand, Malaysia, and Singapore Key Consideration Since 2017, the Thai government has explored plans to connect the EEC (Eastern Economic Corridor) to BRI Initiative by investing in mega infrastructure like high-speed railways, airports and seaports, with an aim to become a gateway to connect between Asia, Africa, Middle East and Europe. Thailand could be a part of BRI because of its strategic location in the center of ASEAN; it could also serve as a springboard for the ASEAN neighboring countries including Myanmar, Cambodia, Laos, and Vietnam. Source: *Image Source: Asia Briefing and EEC Office 13

14 Belt and Road Initiative: Projects in the Pipeline BRI projects in ASEAN: Focusing countries based on Silk Road Economic Belt (SREB) and Maritime Silk Road Projects Rail link from Phnom Penh to Ho Chi Minh City Location Length (km) Status Vietnam/Cambodia 384 Proposed Boten- Vientiane railway Lao PDR 421 Under construction Savannakhet- Lao Bao railway Lao PDR 220 Under construction Bangkok- Nakhon Ratchasima railway Kuala Lumpur- Singapore high-speed railway Thailand 615 Construction started in Dec-17 Malaysia/Singapore 350 Finalizing process Jakarta- Bandung railway Indonesia 150 Construction is expected to start in 2018 East Coast rail line Malaysia 620 Under construction Gemas- Johor Bahru track Malaysia 197 Construction is expected to start in 2018 Kuantan port Malaysia Under expansion Dawei port Myanmar Construction is expected to start in Source: DBS

15 Belt and Road Initiative: Benefits for China Direct and immediate benefits Indirect benefits Drive growth of Chinese construction-related sectors (contractors, engineering companies, or construction material producers) in new areas. In the short run, this benefits would help ease existing overcapacity challenges in China resulting from sluggish economic growth by exporting these capacities to BRI countries. Different purpose of infrastructure development that varies from country to country leads to different investment opportunities i.e., land bridge linking inland China with sea-trading routes via ASEAN and South Asia would benefit logistics, real estate development, and trading sectors in host nations. In the longer run, long-term maintenance contracts, esp. in sophisticated and technology-driven accessories, i.e., high-speed rail components or fiber optic cables, would benefit Chinese investors. For short term, lower operating cost is expected as a result of better cross-border infrastructure while for long term, new regional supply chains could emerge along with future industry development of China (Made in China 2025 policy) 15

16 Agenda Overview of China s ODI Belt and Road Initiative (BRI) China s ODI in ASEAN Summary 16

17 Thailand 17

18 China s ODI in Thailand During , China was ranked the second largest investors in Thailand after Japan with average value of approved FDI around USD 937 million. Actual approved investment projects may be higher since some projects were channeled through Singapore or Hong Kong. Top Foreign Investors in Thailand, China FDI inflow to Thailand (US Million ) 1,000 Japan (32.0%) China (8.4%) US (7.2%) Singapore (6.4%) Netherland (4.4%) Hong Kong (3.8%) China is the Thailand s second largest investors after Japan during the period of Thailand is being the strategic location for Chinese investors as the good market, quality service, developed infrastructure, attractive incentive and the good bilateral trade agreement with China (82) M&A Greenfield Chinese investors are more active in M&A activities in Thailand recently as a faster method to have foothold in the Thai market. Source: ASEANstats, Bloomberg, BKPM compiled by KResearch 18

19 China s ODI in Thailand FDI flow from China into Thailand by economic activities (avg ) Wholesale and retail trade 8% Others 5% Manufacturing Sector Manufacturing sector is the largest investment by Chinese companies to avoid anti-dumping and countervailing duty investigation from its trading partners and also leverage abundant natural resource. Recently FDI from China are more diversified, notable in electronic parts manufacturing (PBA, IC), agriculture and food products. Real estate 12% Manufacturing 39% Financial and Insurance Financial and Insurance 36% To facilitate Chinese investors, Chinese financial institute likes Bank of China, ICBC, We chat pay, Alipay and others also expanding their presences in financial and insurance industries. Moreover, e-payment and online solutions also drew some Chinese investors into Thailand, i.e. Ant financial invested in True Money platform 19 Source: ASEANstats compiled by KResearch

20 Location of Chinese Investment in Thailand Chiang Mai Bangkok Pattaya Service sector o To facilitate aforementioned Chinese investment and growing Sino-Thai bilateral trade, Chinese investors have also expanded their presence in financial and insurance industries, especially in the business districts and tourist destination areas. Manufacturer There are many Chinese manufacturers investing in Thailand. Especially in E&E, auto parts, solar cells, etc., which are mainly located in the eastern part of Thailand. Given EEC promotion, Chinese investors are showing more interest to establish high-tech factories in Thailand, for example, digital parks, aviation and electrical vehicles. Real Estate Phuket Service sector Manufacturer Real estate Chinese invest large amount of real estate in the capital city and tourism destination like Bangkok, Chiang Mai, Pattaya and Phuket 20

21 Future Investment Opportunities in Thailand Infrastructure Targeted industries under Thailand 4.0: Existing To be developed Thailand s 10 targeted industries are somehow similar to and match with China s development policy under Made in China Deep seaport Motorway Airport Aviation and Logistics Medicine and Medical Device Industrial estate Double-track railway Next Generation Automotive Robotics To be part of China One Belt One Road, Thailand plans to upgrade its infrastructure, such as double-track railways, high-speed train and airports, to link with China and other ASEAN countries. China could leverage its core strength to export infrastructure-related technologies to Thailand in order to fortify bilateral relations in the future and to help facilitate future Chinese investment in Thailand in higher-value sectors. Smart Electronics and Digital Chemical For longer term, opportunities may arise in industries where China fulfills its Made in China 2025 initiatives and become global leader in terms of technology. Future vehicles, robotics, and advanced medical devices are among those opportunities. 21

22 Cambodia 22

23 China s ODI in Cambodia During , the total FDI in Cambodia was USD1,593 million. Chinese investors, mostly engaged in large investment projects, accounted for more than half of FDI in Cambodia. Top Foreign Investors in Cambodia, China (54.3%) Thailand (6.5%) Japan (11.3%) Vietnam (7.9%) South Korea (4.2%) Chinese investors are mainly engaged in large investment projects (approved investment projects). However, the total FDI contribution of China in Cambodia is relatively opaque due to an inclusion of Hong Kong, Taiwan, and Macau in China definition China s ODI in Cambodia (USD Million ) USD Million M&A Greenfield Most Chinese ODI in Cambodia has gone to greenfield investments, i.e. in manufacturing like garment, agriculture and real estate. Source: ASEANstats, Bloomberg, CDC compiled by KResearch 23

24 China s ODI in Cambodia ODI flow from China into Cambodia by economic activities (avg ) Accommodation & food service 7% Real estate 6% Mining and quarrying 3% Manufacturing Sector A large amount of Chinese investment has flown into the manufacturing sector in Cambodia, particularly in low-end manufacturing base likes garment and textile. Recently, the growing domestic demand on electrical appliances has attracted direct investment in simple electronics parts, which could be another potential sector for Chinese companies. Agriculture, forestry, and fishing 13% Financial and Insurance 13% Other services 18% Manufacturing 40% Other Services One of the largest income sources of the country is tourism. Chinese investors have played an important role to develop the hotel and airline businesses, and entertainment complexes like casino. 24 Source: ASEANstats compiled by KResearch

25 Locations of Chinese Investment in Cambodia Locations of Chinese investment Garment Factories North Coast Manufacturing sector is still considered as the most important sector for Chinese investors in search of lowskilled and low-cost production and assembly (esp. in garment industry. The main purpose is to export these products to GSP granting countries. Most production facilities are located in Phnom Penh and provinces nearby esp. Kandal, Kampong Speu, Kampong Chnang, and Svay Rieng Agriculture To secure agricultural resources, Chinese investors have also invested in sugar plantation and mills (Preah Vihear), rubber (Kratie), and paper pulp (Mondulkiri) in Cambodia. Real Estate Garment factories Agriculture Real estate Residential buildings and entertainment complexes are still booming in Phnom Penh and Sihanoukville to serve increasing number of tourists, esp. from China. 25

26 Future Investment Opportunities in Cambodia Infrastructure Light Manufacturing Tourism Infrastructure: Roads, railways, airports: Cambodia is in a stage of infrastructure development to link with other countries in ASEAN. Energy-related (hydropower, gas generation companies, power plants, renewable energy, coal power): The problem of electricity shortage still exists in some areas, e.g. many industrial estates. Thus, this issue is vital to higher value production. The location could be in Sihanoukville, Kampong Spur, Kampong Cham, etc. Manufacturing: favorable labor conditions should attract various manufacturing industries to relocate from China Business: Food and agro-processing and warehouses: Leveraging existing FDI in agriculture through investment in higher value chain in the already-developed Special Economic Zones (SEZs), esp. rubber, and fishery products to serve rising demand of China s domestic market. Tourism industry along with booming international visitors: Tourism-related facilities, e.g.: accommodations, entertainment complexes, etc. Cambodia launched the China Ready campaign in 2016 to facilitate Chinese tourists, with an aim to increase investment opportunities in hotels, restaurants, and recreational sectors. Strategic locations could be Siem Reap and coastal lines of Cambodia like Koh Kong. 26

27 Lao PDR 27

28 China s ODI in Lao PDR During the , Chinese investors accounted for about 40% of approved investments in Lao PDR, increasing from merely 1.5% in 2003 China FDI inflow to Laos (US Million ) Top Foreign Investors in Laos, China (39.1%) Malaysia (8.8%) Vietnam (17.5%) Netherland (6.6%) Thailand (16.0%) South Korea (4.2%) USD Million Chinese investors have become more eager to invest in Lao PDR as value of FDI reached to USD 700 million in 2016, second highest investment in Cambodia, Laos, Myanmar, Vietnam, Indonesia and Thailand, by emphasizing on large infrastructure development under Belt and Road Initiative M&A Greenfield Greenfield investment is primary entry form of Chinese investors. Completed M&A activities were mostly in mining and energy sectors so as to obtain mining licenses and to access mining areas licensed for mining business. 28 Source: ASEANstats, and Bloomberg compiled by KResearch

29 China s ODI in Lao PDR FDI flow from China into Laos PDR by economic activities (avg ) Financial and Insurance activities 3% Manufacturing 4% Accommodation and food service 2% Others 5% Energy Sectors Major Chinese investors in Lao PDR are State-Owned Enterprises (SOEs) since most of investment projects often require large initial capital investment. The untapped 20,000-MWs hydropower would be tremendous opportunity for Chinese investors Main objectives of an investment in electricity generation are to leverage Laos abundant factor endowments and to ensure adequate power supply for businesses in Lao PDR as well as to reexport electricity to China respectively. Mining and quarrying 8% Construction 14% Electricity, gas supply 64% Construction Chinese investors are engaged in construction of Special Economic Zones (SEZs) and mass transit system China Railway Corp invested in rail transportation and Sinohydro in hydropower generation. 29 Source: ASEANstats compiled by KResearch

30 Locations of Chinese Investments in Lao PDR Boten Luang Prabang Hydropower o With its role as Battery of Asia, Laos hydropower projects have been developed and constructed in various parts of the country along Mekong river, i.e., Central Laos (Vientiane and Bolikhamsai), Southern Laos (Saravane), and esp. Northern Laos (Luang Prabang, Xiengkhouang and Bokeo). Construction VIENTIANE Khammouane Savannakhet o For construction sector, most Chinese investors are engaged in construction of Special Economic Zones (SEZs) across the country. i.e., Boten Beautiful Land, Golden Triangle, or Thatluang Lake to catch up with higher economic activities. Hydropower Construction Real estate Pakxe Saravane Real Estate o Real estate investment in Laos has been driven by Chinese investors. A bunch of projects are located in the capital city and areas surrounding industrial estates 30

31 Future Investment Opportunity in Lao PDR Infrastructure Light Manufacturing Service Sector In order to fulfill the Land-locked to Land-linked initiative (From China to both Southeast Asia and South Asia), investment in transport infrastructure has strong potential for growth, esp. roads and rails. Telecommunication industry has been predominated by inefficient SOEs. Hence, there are opportunities for Chinese investors to provide a broader range of network solutions in Lao PDR by acquiring license through M&A of SOEs. Laos could become one of the lowcost supply chains of China. Potential sectors are light industries, i.e. simple electronic and automotive parts, as well as agro-processing, esp. canned food or organic food. Chinese investors may consider investing in Special Economic Zones, esp. those near Chinese border in the northern part of Lao PDR. The rise of the middle-income consumers and relaxation of trade regulations for foreigners have offered greater investment opportunities in goods distribution businesses, especially in FMCG products. Laos has a geographical advantage as it is located in the middle of Indochina and near Southern China, thus being able to serve Chinese tourists and domestic market. 31

32 Myanmar 32

33 China s ODI in Myanmar Actual investment value tracked by ASEANstats, FDI from China averaged USD 300 million annually ( ), China is the second largest investors in Myanmar; however, the total investment had been declined since the election program announced in Top Foreign Investors in Myanmar, Singapore (48.8%) UK (4.6%) China FDI inflow to Myanmar (US Million ) China (17.3%) Thailand (4.2%) Vietnam (5.9%) Hong Kong (4.2%) Myanmar government has attempted to balance the power of China by attracting other investors, esp. Singapore. As for approved investment projects, China was ranked the first among foreign investors in terms of cumulative approved value of permitted enterprises since Most FDI from China enters utility (power generation), energy, and mining sector to leverage Chinese companies strength (mostly SOEs). Hydropower dam constructions received highest number of projects. 33 Source: ASEANstats, DICA compiled by KResearch

34 China s ODI in Myanmar ODI flow from China into Myanmar by economic activities (2011) Energy Sectors Myanmar has more than 283 million cubic meters of natural gas reserve and around 100,000 MW hydropower, which is a large resource for China s investment. There are more than 26 Chinese companies and their subsidiaries to invest in this sector, most of which are China s State Owned Enterprises (SOEs). Construction Myanmar is considered as a strategic location for Chinese investors to access Indian Ocean. Moreover, the construction sector in Myanmar is expected to grow around 11% p.a. until 2022, mainly in the utility and industrial estate construction. 34 Source: Global Environmental institute Source: ASEANstats compiled by KResearch

35 Locations of Chinese Investment in Myanmar Shan Energy :Hydropower o There are many Hydropower dam projects along China- Myanmar border areas such as Shan State (including Wa Special Region) and Kachin State, which, mainly supply electricity to China s Yunnan province. Kyaukpyu SEZ Construction o For the construction sector, most Chinese investors are engaged in road and utility projects under the BRI connection. Via Myanmar s geographical location, Chinese investors get access to India and Indian Ocean. o The construction of utilities, like oil & gas pipelines, roads, deep seaports and so on, are on the development processes; these projects are located across the country. Energy & Hydropower Construction 35 Source: Global Environmental institute

36 Future Investment Opportunities in Myanmar Infrastructure Light Manufacturing Tourism Road and port infrastructure development would still pose the greatest potential for Greenfield projects linking Southern China with Myanmar. Rakhine state, this hub of Chinese investment has just embarked on deep seaport development, which could attract more investment to construction projects here. With the lowest minimum wage rate in ASEAN, the light manufacturing development would be another investment opportunities to facilitate future economic development. To receive the GSP from EU and US, China has set up the light manufacturing, such as garment, to gain this privilege. Myanmar authorities currently aim for 7.5 million tourist arrivals within 2020 (almost 3 times the current level). Chinese tourists were ranked the second largest group of tourist after visitors from Thailand. Potential areas for investment are hotels and recreational service facilities and tourism-related industries. The booming tourist destinations are Mandalay, Ayeyawady, Bagan and the Shan state. 36

37 Vietnam 37

38 China s ODI in Vietnam Chinese investors have become more active in Vietnam and the trend has continued to rise. M&A activities has been increasing since Vietnam state-owned enterprises were marked for divestment. Top Foreign Investors in Vietnam, 2016 Japan (37.3%) South Korea (19.1%) Singapore (18.2%) China (6.8%) Hong Kong (3.6%) US (3.1%) o ODI flows from China into Vietnam have fluctuated but tends to rise recently and increase over time in total. o Chinese investors are interested in Vietnam because of low minimum wages, regional trade agreements and international connectivity. USD Million 1,200 1, China s ODI in Vietnam (USD Million ) o The growing trend of M&A activities has been observed due to higher availability of targets, e.g. FIH Mobile (subsidiary of Hon Hai group) that took over Microsoft mobile Vietnam M&A Greenfield

39 China s ODI in Vietnam ODI flow from China into Vietnam by economic activities (avg ) Scientific and technical Construction activities 3% 3% Others Electricity, gas 11% supply 3% Manufacturing Sector Vietnam is the prime location for factory relocation of Chinese companies. The majority of Chinese investment in Vietnam is in the manufacturing sector, especially the textile and garment industry. Moreover, Vietnam has received preferential tariffs from several nations, including the EU, that benefit Chinese investment there. Another interesting manufacturing for Chinese investors is automobile parts to support the relocation of Chinese companies. Wholesale and retail trade 6% Real estate 9% Source: ASEANstats compiled by KResearch Manufacturing 65% Real Estate Sector For the real estate sector, there are various investment models, for example, greenfield investment in SEZs construction and M&A in residential property projects. Recently, the real estate sector also attracts Chinese investors to do M&A as an alternative investment opportunity. Prominent deal 39 includes China Fortune Land s acquisition of the Dai Phuoc Lotus project from VinaCapital.

40 Locations of Chinese Investment in Vietnam Manufacturing o Most investment projects are located in the southern part of Vietnam, mainly South-Central Binh Thuan, Southern Tay Ninh. Major industries include power plants and clusters of manufacturing like textile & garment and rubber tire. Trading o Few investments are located in the northern part of Vietnam (Lao cai and Hai Phong) that is close to Chinese border with concentration in trading and mining industry. Manufacturing Trading Real estate Real Estate o The real estate market for Chinese investors is expected to grow further since many M&A deals have been concluded between Chinese businesses and Vietnamese partners in the real estate sector. 40

41 Future Investment Opportunity in Vietnam State Owned Enterprise investment Manufacturing Retail (E-Commerce) During , Vietnamese authorities planned to privatize 137 businesses with total State Capital* around USD13 billion in order to alleviate challenges of public debt that nearly breach 65% Debt-to-GDP limit amid higher demand for infrastructure financing. There are two key interesting sector from SOE, including construction and food & beverage. Vietnam aims to enhance domestic supporting industries to a higher value chain. Manufacturing of textile (yarns and fabrics) and some electronic parts from China could be relocated to Vietnam in order to strengthen its supporting industries. To cover a wide range of vertical integration business activities, related manufacturing industries, such as packaging, have shown a positive outlook. Retail sales in Vietnam are expected to grow by 10% per year between , and to reach USD10 billion by B2B2C and B2C channels are among the focused types of e- Commerce in Vietnam. Currently, there are around 10 e-commerce companies in Vietnam. M&A could be potential investment opportunity in e-commerce business for securing warehousing, delivery systems, customer base, and payment capability. For example, JD.com acquired major stake in Tiki.VN. 41

42 Indonesia 42

43 China s ODI in Indonesia During , FDI from China into Indonesia averaged USD 535 million with some fluctuations despite higher value of realized investment projects approved by BKPM. Top Foreign Investors in Indonesia in China FDI inflow to Indonesia (US Million ) 1,200 Singapore (28.3%) Malaysia (6.9%) 1, Japan (15.4%) China (7.2%) Hong Kong (5.8%) South Korea (5.2%) For approved investment project value, China was ranked the third largest investors in Indonesia after Singapore, and Japan with average value of approved FDI around USD 3,000 million during last 2 years, higher than an average of USD 700 million between , M&A Greenfield Interestingly, before 2015, China mostly invested in mining sector to secure the energy consumption in the country. However, the trend has been shifted as Chinese tech companies are interesting to invest in Indonesian tech company 43 Source: ASEANstats, Bloomberg, BKPM compiled by KResearch

44 China s ODI in Indonesia FDI flow from China into Indonesia by economic activities (avg ) Construction 5% Others 8% Mining and Quarrying Sector Chinese investors have actively invested in Indonesian mining sector in recent years. The major reason for increasing in this sector is due to rising demand for coal (mostly Bituminous coal and lignite coal) as a main source of power generation in China. Manufacturing 14% Mining and quarrying 73% Manufacturing Sectors Manufacturing sector is the second largest sector invested by Chinese companies. Cost-competitive workforce and avoidance of non-tariff barriers (NTB), esp. local content requirement (LCR), are major reasons for investment in production facilities especially in automobile and electronic device sectors. 44 Source: ASEANstats compiled by KResearch

45 Locations of Chinese Investment in Indonesia Mining and Quarrying Manufacturing Mining and Quarrying o Major investment location for mining and quarrying is Sumatra island. China has higher production of coal in order to re-export to their country. Manufacturing o China has been encouraged by local requirements imposed on car and smart phone manufacturers. For example: Sokon SAIC, Oppo and Huawei have decided to set up factory in Java Isaland. 45

46 Future Investment Opportunities in Indonesia Logistic Manufacturing Retail (E-Commerce) Indonesian authorities try to improve country s logistic performance amid currently high logistics cost to GDP (roughly 24%), compared with that of Thailand (14%). The country plan to spend USD385 billion in the next 10 years to upgrade all infrastructure and transportation system. Java is the main construction spot. Vehicles demand is estimated to rise roughly 5% p.a. until 2021, driven by commercial cars and energy-saving passenger cars. Thus, automotive and its supply chain investment will be one of the targeted industries for Chinese investors. To support the auto supply chain, the electronics and electrical business has shown a positive sign for investment. Retail sales in Indonesia are expected to grow 10% p.a. until E-Commerce market will have a higher growth (roughly 15-20% p.a.) as e- Commerce penetration in Indonesia is still lower than Asia Pacific average (9% vs 12% in 2016). Higher M&A activities from Chinese tech companies were observed in For example, Alibaba has invested in Indonesia s Tokopedia. 46

47 Agenda Overview of China s ODI Belt and Road Initiative (BRI) China s ODI in ASEAN Summary 47

48 Summary BRI Opportunities and Challenges for ASEAN While China s BRI has created considerable investments and opportunities for ASEAN countries, the BRI has also produced negative impacts to countries with no defensive measures and effective preparation. Challenges Opportunities Greater investment opportunities for local companies Enhanced regional connectivity Technology transfer from China to ASEAN countries O T Adaptation to local cultures Influx of Chinese products to local markets Sharp increase in land prices because of speculation Summary One Belt One Road has been initiated to set up the foundation for regional prosperity. China has strategized ASEAN to be the manufacturing hubs in order to avoid antidumping and gain access from natural resources and trade agreements. In order to solve the excess supply, China has focused more on ASEAN countries. China also keeps an eye on acquiring high technologies from developed countries like the US and the EU. BRI is a mega-project that needs collaboration among all countries. 48

49 Summary How Thailand could be linked with BRI? (1/2) Thailand could be a part of BRI via Thailand-China railway. When the project is completed, Bangkok will be connected with the southern part of China, and will serve as a hub for electronics, IT and car manufacturing sectors. Infrastructure Linkage Thailand China Railway Source: Picture from raillynews, HKTDC Phase Route Benefit Phase I Phase II Phase III Bangkok- Nakhon Ratchasima Railway (256 km) Nakorn Ratchasima Nongkai Railway (355 km) Saraburi Bangkok Rayong (246 km) Key element of BRI, connected with Phase II Connect with China Laos Railway, after completion a Bangkok Vientiane trip will take 4 hours Long-term plan to connect with the southern line (Kuala Lumpur, Singapore) When Thailand China railway can link with Trans-Asia railway, Thailand can deliver products and services to Poland in Europe within 15 days of rail freight. Thailand-China railway has been seen as a good fit with Thailand's own infrastructure development strategy. It will not only reduce rail-freight transport, but will also increase the number of tourists from both sides. 49

50 Summary How Thailand could be linked with BRI? (2/2) Thailand has not only developed the infrastructure but also accelerate the improvement of technology and innovation to attract Chinese investment. Thailand 4.0 strategy, is seemed to match with Made in China 2025 as Thailand could be part of Chinese supply chain in targeted industries. Industry Linkage (Red) Made in China 2025 Made in China 2025 is the new era of Chinese manufacturing that plans to move up the value chain to be an innovation-driven manufacturer. Thailand 4.0 Thailand 4.0 is the economic model, aims to unlock the middle income trap and enhance country competitiveness by focusing on high technology manufacture base China s 10 Targeted Sectors Thailand s 10 Targeted Sectors Automated Machine and Robotic New Material Automated Machine and Robotic Food for the Future New Energy Vehicle Bio Pharmaceutical Next Generation Automotive Biofuel & Biochemical Aerospace and aeronautical equipment Agriculture Machinery Aviation and Logistics Agriculture & Biotech Modern Rail Transportation and Equipment New Information Technology Medical & Wellness Tourism Smart Electronics Power Equipment High Tech Shipping Medicine and Medical Device Digital 50

51 Summary Why Thailand is suited to BRI? Thailand could become a part of Made in China s supply chain, given its abundant natural resources to support Chinese investors and also its strategic location in the region, which can serve China as the springboard to other ASEAN nation. Opportunities To utilize Thailand as a production hub for export to other ASEAN markets and elsewhere A large array of investment incentives for foreign direct investment, especially in the high-tech industries Abundant natural resources to support the Chinese supply chain O T Challenges Thailand is still in lack of high-skilled labor to support high-technology industries. Chinese investors need to adapt to local regulations and culture. 51

52 AEC+ BUSINESS ADVISORY Prepared by: Jedtika Thanathattanon Senior World Business Intelligence Specialist jedtika.t@kasikornbank.com Apinan Leelashaw Senior Researcher apinan.l@kasikornresearch.com About AEC+ Business Advisory The AEC+ Business Advisory is set up by KASIKORNBANK to support businesses in their regional expansion across the ASEAN+3 market by providing local market intelligence and strategic business advice. What we do: Offer customized and tailor-made advisory services Publish investment guides and industry reports Deliver in-depth insights via seminars Organize business trips to bring first-hand experience Follow Us: Visit our website at: 52

53 OUR SUPPORT - AEC+ BUSINESS ADVISORY AND MATCHING CONTACT US: Seek Supplier How to Invest Find Partners Project Feasibility Kbank_world_business_advisory@kasikornbank.com Market Insights Knowledge Partner Market Access Business Network * Some services are exclusively for KBank clients 53

54 KEEP IN TOUCH FIND out latest market insights and how to do business in AEC+3 JOIN our coming events seminars and business matching SUBSCRIBE to our latest publications and events Website: 54

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