Techblog
How will China’s development impact small businesses in South East Asia?
Southeast Asian small and medium sized businesses are facing a significant shift in the economic landscape thanks to China and its potential trade war with the U.S. because of tariff hikes plus the Belt and Road Initiative.
A trade war
Earlier this year, U.S. President Donald Trump imposed US$60 billion worth of tariffs on imported Chinese technology products, including steel and aluminum. This included restrictions on certain Chinese investments, according to a pending World Trade Organisation case on intellectual property violations against China.
This move is based on Trump’s campaign to ‘restore prosperity’ to the U.S. Rust Belt, where local manufacturing jobs have been allegedly hit by Chinese trade. While this same campaign may affect U.S. relationships with other Southeast Asian allies like Japan and Korea, it offers new and unexplored opportunities for several emerging enterprises in the SEA region.
In response China drew up a list of U.S. goods, worth US$50 billion, that it might hit with a 25% tariff. Items on the list included soybeans, light aircraft, whiskey, American beef and industrial chemicals.
China’s exported goods to the U.S. contain foreign components, many of which are purchased from the U.S itself. So economically and politically, Beijing has a much more secure position in the trade war than it initially appears. Also, a more connected China offers great potential growth for SEA’s SMEs.
For SMEs in the region, especially those reliant on selling materials to China which feed the country’s massive export business, tariffs could close certain markets. To find alternate markets, SMEs will need to look internally or around the local region. Countries in the region, such as Indonesia and Thailand, are looking to grow their domestic markets to cushion the blow from any trade war fall out.
Belt and Road Initiative
Recently, China and Singapore have signed a deal known as the Belt and Road Initiative (BRI). The plan is for BRI to forge stronger and more economically viable partnerships between their companies and other countries affiliated with them. Outside of Singapore other countries involved in the BRI include Thailand, Myanmar, Indonesia and Malaysia.
Proposed by Chinese President Xi Jinping, BRI plans to invest around US$4 trillion in infrastructure such as roads, railways, and airports connecting China and other participating SEA countries to other BRI partners in Europe, Africa, and Asia. Singapore’s role is to give legal and banking support to the campaign and ensure each project’s sustainability through software transfer.
In the long run, Asian economists predict, BRI may be sustainably profitable to smaller businesses in the region.
For starters, local enterprises in Hong Kong anticipate faster flow of trade, people, culture, investment, and information, which would come from an increase in their global customer base. BRI’s Digital Free Trade Zone (DFTZ), led by Alibaba, is geared towards making cross-region shipments more affordable for technology-based SMEs, which happen to be the majority of businesses in Malaysia. And in the Philippines, several emerging B2B enterprises run strongly on leveraging technology and digital resources to provide steady growth opportunities to the trade economy, which may be strengthened further through financing from BRI affiliates.
There may be a few tradeoffs, though:
- At the onset, the arrangement between countries involved in BRI may present several credit and security risks, since several of the businesses involved have a low credit rating, and many of them are SMEs.
- China’s expanding influence is also beginning to overstep India’s geopolitical boundaries, which has resulted in border disputes. But if push comes to shove, India could use the Himalayas--which sits between India and China--as its strategic defense against Chinese aggression.
China’s global strategy may still be in the primary stages of development, but it is promising as to how it could benefit SMEs that are aiming to partner with larger companies and state-owned enterprises (SOEs).
Overall, BRI is a way to create stronger and more mutually profitable trade routes for more affordable small-scale products and services that would have otherwise been inaccessible to bigger corporations. It creates more economically innovative avenues for customer resources, promotion channels, production costs, brand awareness, financing opportunities, and a skilled workforce that growing businesses need to bolster overall economic stability in their respective locations.
Summary:
- Despite the U.S. imposing tariffs on imported Chinese products, this imposition offers new opportunities to businesses in the SEA region.
- China's ambitious foreign policy Belt and Road Initiative (BRI) will be beneficial, in the long run, to SMEs in the Southeast Asian region by giving them partnerships with more economically powerful companies in BRI-affiliated countries.
- One of BRI's main selling points is that it creates mutually profitable trade routes between corporations across the region. Also, BRI may create financing opportunities and customer resources.