Geopolitical tensions in East Asia have escalated in the last year as China uses its considerable soft power to push its neighbors when it feels national interests are threatened.
Well, those countries are coming to the conclusion that enough is enough, and they’re heading to places like Southeast and South Asia to turn their fortunes around, according to analysts.
“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, South Korea’s decision to allow the U.S. to deploy an advanced missile defence system on the peninsula has culminated in a series of retaliatory measures from Beijing, including closing Lotte stores in China, limiting South Korean pop cultural imports and curbing tour groups to its neighbor.
South Korean firms have already started investing in the fast-growing Southeast Asia region as its spat with Beijing simmered for a few years.
In Vietnam, South Korea has invested heavily in establishing electronics production facilities, and that trend is likely to accelerate following the recent Chinese economic measures against the country, said IHS’ Biswas.
Since 2014, the country’s share of outbound direct investment (ODI) into countries in the Association of Southeast Asian Nations has exceeded investment into China and that’s likely to accelerate as Korean firms aim to reduce their dependency on their influential neighbor, Natixis’ senior economist Trinh Nguyen wrote in a report released last week.
“China will continue to be an important market for South Korea. That said, dependency comes at a great cost,” she added.
