It was a sad week in Thailand where a mall shooting in Bangkok led to two deaths and seven injuries. My condolences to the families and friends of those affected.

Hello all,

The recent ASEAN forum and Australia’s 2040 Southeast Asia Economic Strategy made it loud and clear that this is not a region to be overlooked.

Politically, things appear rather complicated with many moving parts, created by the growing US-China tension.

Economically, the recent East Asia and Pacific October 2023 Economic Update by the World Bank indicates that whilst GDP growth in China (4.4%) is clearly slowing due to low consumer confidence and nonfinancial corporate debt (mostly real estate), key Southeast Asian nation’s growth - Indonesia, Philippines, Vietnam (5%+) will outpace that of China due to growth in the services sector and private consumption. It is promising but not all rosy. We shall dig deeper later in the Special Edition.

There was also some excitement following the opening of the region’s first-ever High-Speed Rail in Indonesia connecting Jakarta (population of 10m, largest city) and Bandung (population of 2.5m, 4th largest city) in 40 minutes instead of the previous 3 hours. The development of key infrastructure projects has historically been a leading indicator of future growth but I think it may be a tad bit early to make that call. We will look at what other projects are happening in other countries.

Socially, Thailand is one happy country with the highest well-being score among 14 countries surveyed by Lululemon in their 2023 Health & Wellness Report. But it is also concerning that almost half of the respondents say their well-being is the lowest it has been. Certainly, this appears to be a recurring theme in the rest of Asia too. How can consumer brands make positive contributions?

This week, we go back to our usual format starting with the Special Edition section, moving through statistics, political, economic, social, e-commerce & food, and ending with some graphics.

Enjoy,
Peter Park

P.s. Thank you Peter O for the Lululemon report. Always staying close to the region!
P.s 2 Thank you Deborah B, Elliott J, and Alex G for the feedback. Appreciate your readership and I will endeavour to share more and increase awareness.

Special Edition: East Asia and Pacific October 2023 Economic Update by World Bank

As shown earlier, emerging markets in Southeast Asia (GDP $3.7T) will grow faster than China (GDP $17.7T) in 2024. But let’s be real: China’s $0.8T growth or +4.4% on $17.7T is 4 times larger than ASEAN’s $0.2T or +5% on $3.7T. It’s a small pie vs a big pie. So what makes it worth going for a bigger share of the smaller pie?

First of all, an incremental $0.2T is certainly not a small pie in absolute terms so by all means it is still worth chasing.

Secondly, understanding the size of the small pie requires what makes up the pie.

According to the World Bank, there are 4 correlates to private consumption growth: (1) Income, (2) House Price, (3) Share of working age population and (4) Household debt / GDP. This data is based on 65 emerging markets and developing economies between 2001 and 2022.

For example, a 5% increase in house price or share of the working-age population leads to a +0.2 × 5% = 1% increase in consumption. A 5% increase in household debt would lead to a -0.4 × 5% = -2% decrease in consumption.

So applying this framework to Southeast Asia, what view do we reach?

My initial take is that whilst the growth will persist due to rising income, house prices and a sustainable working-age population, maintaining a healthy level of household debt would be key for the governments.

Not surprisingly, personal income growth is the largest contributor to consumption growth. Excluding inflation, Vietnam’s minimum wage rose net 18% (20% gross - 2% inflation) effective 1 July 2023. Indonesia also saw a moderate net 5% rise (8% gross - 3% inflation). This is important because higher-income earners will require more sophisticated goods and services which bring about market scale and maturity, similar to developed markets such as China, Korea and Japan. Improving infrastructure such as rail and roads would further fuel the growth. GOOD

House price has recently been dampened across the world and Southeast Asia is no exception. I’ve looked at several sources that gave me an average of 1.5% to 2%, with countries such as Singapore and the Philippines showing +10% growth. Improving infrastructure such as rail and roads would further prop up the growth. NEUTRAL

ASEAN has a relatively young population (29 years) compared to Australia (38.5 years) or China (39 years) so that helps with consumption growth, particularly in areas such as fashion and cosmetics where the barrier to entry is relatively low. Food brands may seek strategic opportunities that require some investment. GOOD

The Southeast Asian household debt also has not been leveraged too much since 2010, with the exception of Thailand. As such, the downward pressure on the growth would not have been significant. See the far right chart below. This makes sense because a lower debt means higher savings which provide cheap capital to the government and companies to invest and grow. As for the Thai exception, I cautiously suspect this is due to real estate investment from China. GOOD

Quote of the Week

"The East Asia and Pacific region remains one of the fastest growing and most dynamic regions in the world, even if growth is moderating." _{- Manuela V. Ferro, World Bank East Asia and Pacific Vice-President.}

Statistics of the Week

• Gun ownership in Thailand is one of the highest in Asia, with an estimated 10 million guns in circulation, equating to about one for every seven citizens. (Source: BBC News)

• Arbitrage exists for Australia to tap into the Southeast Asian market. The region's trade grew at an annual rate of 8%, while Australia's trade with Southeast Asia grew at a rate of 5%. (Source: Lowy Institute)

• Singapore’s cost of living continues to rise with a 7% rise in public transportation. To cushion this, the government announced a SG$1.1 billion support package in subsidies and shopping vouchers.(Source: Nikkei Asia)

• The high-speed rail project in Indonesia has cost over $7 billion so far, exceeding the initial budget of less than $5 billion. The train can reach a top speed of 350 km per hour and reduce travel time from Jakarta to Bandung to around 45 minutes. (Source: ASEAN Wonk)

• Ho Chi Minh, Vietnam’s most populous city of 9 million, still has its first-ever metro line under construction since 2012. The total length is 19.7 km (2.6 km underground and 17.1 km elevated) and there will be 14 stations (3 underground stations and 11 elevated stations). (Source: Future Southeast Asia)

Politics

• The ongoing conflict between Israel and Hamas has caused divisions across Southeast Asia, with Muslim-majority nations like Malaysia and Indonesia expressing solidarity with the Palestinians, while Singapore supports Israel and condemns Hamas. Thailand and Vietnam have maintained a relatively muted response. (Source: SCMP)

• What is lesser known behind the launch of the high-speed rail project in Indonesia is China's growing influence in Indonesia's infrastructure landscape under the Belt and Roads initiative and the challenges associated with balancing short-term gains with long-term sustainability. (Source: ASEAN Wonk)

• The Vietnamese Ministry of Transport has outlined a timeline for the high-speed rail project, aiming to finalize the proposal by August 15, 2023, and present it to the Politburo by November 15, 2023. It has been 13 years since the National Assembly’s approval in 2010. (Source: VnEconomy translated from Vietnamese)

Economy

• According to Rober Hoving, CEO of GORO, Indonesia's leading fractional property investment platform, leasehold land is a popular investment option for foreign investors in Bali, allowing them to build and generate a net rental yield of 12-14% for the duration of the lease. (Source: MoneyAbroad)

• Infrastructure is a hard game. Some doing well. Some not.

  • Bangkok's Suvarnabhumi International Airport has opened a new $1 billion terminal to accommodate an expected surge in Chinese tourists. The new terminal will increase the airport's annual passenger capacity from 45 million to 60 million. Compare this to Sydney’s 43 million per year. (Source: SCMP)

  • The construction of Vietnam's Long Thanh International Airport, a multibillion-dollar project aimed at serving the Ho Chi Minh City area is delayed due to land acquisition. The process is typical and complicated in emerging markets like Vietnam, where eminent domain laws may be unclear and land titles may not be formal. (Source: The Diplomat)

  • Singapore's Changi Airport is set to introduce automated immigration clearance, allowing passengers to depart without passports using biometric data. (Source: CNN)

• Chinese tourists are back in Thailand as the country experiences a surge in Chinese tourism due to a new five-month visa exemption program. About 650,000 mainlanders booked trips to Thailand in October alone. (Source: SCMP)

Food & E-Commerce

• The US has become the largest export market for Vietnam. So how much on-site presence is required? The article explores various options like contract manufacturing, establishing a trading company, using a Professional Employer Organization (PEO), or setting up a representative office or a limited liability company. It also mentions the import-export compliance requirements in Vietnam. (Source: Vietnam Briefing)

• China is in discussions with Malaysia to expand the export of fresh durians from Malaysia to China. Malaysia’s annual production is 300K tons compared to 900K tons in Thailand and 200K tons in Indonesia. In 2021, China imported 822K tons. (Source: SCMP)

• The suspension of TikTok Shop in Indonesia can harm 64% of small businesses selling through social media, or over 6 million sellers and 7 million affiliate creators in numbers. Whilst the government's policy shift aims to redirect shoppers to physical stores, this gap may quickly be absorbed by Shopee, a Singapore-based competitor platform that currently makes up 36% of Indonesia’s $50B+ eCommerce market. (Source: Rest of World)

Diagram of the Week

We all know manufacturing is shifting from China to Vietnam. But the real indicator of a nation’s growth is in its transition from secondary industries (manufacturing) to tertiary industries (services). Significant Foreign Direct Investments (FDIs) have been flowing into Southeast Asia. Meaningful growth is shown in the Philippines, Indonesia and Vietnam.