CARI Captures Issue 650: South Korean firms based in Viet Nam face competition from China

VIET NAM, SOUTH KOREA
South Korean firms based in Viet Nam face competition from China
(04 April 2024) South Korean companies have historically dominated foreign direct investment in Viet Nam, but they are facing increasing competition from Chinese counterparts. Despite South Korea ranking first in cumulative investment in Viet Nam since 1988, recent years have seen stiff competition from China. In 2023, South Korea ranked fourth in foreign direct investment in Viet Nam, behind Hong Kong, China, and Singapore. Factors such as rising labour costs and increased presence of Chinese companies have made Korean firms cautious about new investments in Viet Nam. Additionally, Viet Nam’s implementation of a global minimum corporate tax of 15% may impact its attractiveness as an investment destination, with South Korean companies expected to bear a significant portion of the tax burden. Despite challenges, Viet Nam’s open trade and investment environment, along with diplomatic relations with the United States and the influx of investment from multinational companies leaving China, are expected to contribute to the country’s economic growth.

INDONESIA, MALAYSIA, BRUNEI DARUSSALAM
Bruneian company pitches first high-speed railway on the island of Borneo
(01 April 2024) Brunergy Utama, a Brunei-based infrastructure company, has proposed the Trans-Borneo Railway, a high-speed railway spanning 1,620 kilometers across the island of Borneo. The railway would connect Brunei Darussalam, Indonesia, and Malaysia. The project aims to connect major cities and districts in Borneo, including Pontianak, Kuching, Kota Kinabalu, and Tutong, with plans to extend to Indonesia’s new capital of Nusantara on the western side of the island. The railway is designed to have four terminals, 24 stations, and trains reaching speeds of up to 350 kilometers per hour, with an estimated cost of US$70 billion. The project’s outlook is currently unclear, as neither Malaysia, Indonesia, or Brunei Darussalam have committed to the project.

THE PHILIPPINES, UNITED STATES, JAPAN
The Philippines, United States, and Japan to collaborate on semiconductors and clean energy
(04 April 2024) Japanese Prime Minister Fumio Kishida stated in an interview that Japan, the U.S., and the Philippines plan to collaborate in various sectors such as semiconductors, digitalization, and clean energy. This is with the larger aim of providing an alternative to China’s influence in Southeast Asia. The leaders will hold a trilateral summit in Washington to discuss regional challenges. They will explore economic and security cooperation, including the development of semiconductor facilities by U.S. companies in the Philippines (with Japan providing training for Filipino engineers), the setting up of 5G networks in the Philippines, cybersecurity, and development of supply chains for critical minerals such as nickel.

THAILAND
Thailand’s post-pandemic recovery sluggish compared to neighbors
(01 April 2024) Thailand is facing economic challenges, with household debt reaching nearly 87% of GDP and informal loans amounting to US$1.5 billion. The economy is exhibiting signs of the middle-income trap, characterized by low productivity and limited opportunities for the workforce. Despite other Southeast Asian countries’ strong recovery from the COVID-19 pandemic, Thailand’s economy grew by only 1.9% in 2023. Thai Prime Minister Srettha Thavisin has proposed measures such as cash handouts and legalizing casinos to stimulate economic growth, but these policies have faced criticism. The Bank of Thailand has refused to lower interest rates, pointing instead to the country’s loss of competitive edge due to factors like China’s slowdown and inadequate investments in digital literacy and training.

SINGAPORE
Singapore government bonds worst performing in Southeast Asia in 2024
(04 April 2024) Overseas investors in Singapore government bonds are facing challenges as the debt has performed poorly in 2024, with a loss of over 4% in dollar terms. The upcoming policy review by the Monetary Authority of Singapore (MAS) is unlikely to provide relief due to persistent inflation and robust economic data. The strong link between Singapore bonds and the US market means that any moves in Treasury yields often influence local yields. Despite expectations of easing by central banks, including the Federal Reserve, the timing of rate cuts has been delayed as the US economy remains resilient. Singapore bonds are expected to be less affected by rate cuts compared to regional peers due to the relatively lower increase in Singapore dollar (SGD) rates compared to US dollar (USD) rates. MAS policy is not anticipated to change until October 2024 unless there are significant declines in Singapore inflation. The impact of US events on Singapore bonds is considered more significant than domestic factors, with a stronger USD potentially leading to upward pressure on yields.

SINGAPORE
Total startup investment in Singapore reached US$6.1 billion in 2023
(04 April 2024) In 2023, Singapore emerged as the top startup investment destination in Southeast Asia, attracting a total investment of US$6.1 billion across 522 deals, according to a report by government agency Enterprise Singapore. Early-stage funding accounted for 94% of the deal volume and nearly half of the total deal value, marking an increase from the previous year. This contrasts with a 40% year-on-year drop in global early-stage funding for startups in 2023. The report suggests that startups in Singapore demonstrated resilience in securing funding compared to their counterparts. The director for the startup ecosystem at Enterprise Singapore argued that these funding results reflect investors’ confidence in Singapore as a prime destination for startup development in the region.

CAMBODIA
Cambodia approves investment projects worth US$2.2 billion in first quarter of 2024
(05 April 2024) In the first quarter of 2024, Cambodia experienced a significant surge in fixed-asset investment, reaching US$2.2 billion. This marked a 649% increase compared to the same period in 2023. This increase was accompanied by the approval of 106 investment projects during this period, generating approximately 107,000 jobs. The investments primarily targeted industries, infrastructure, hydroelectric power, agriculture, agro-industry, and tourism. China, Singapore, Vietnam, South Korea, and the United States emerged as the top five foreign investors in Cambodia, with China accounting for 35% of the total investment at US$777 million. The Secretary of State and Spokesperson for the Cambodian Ministry of Commerce highlighted the role of agreements such as the Regional Comprehensive Economic Partnership (RCEP) and the Cambodia-China Free Trade Agreement (CCFTA) in attracting foreign direct investment to Cambodia.

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RCEP Monitor

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SOUTH KOREA
Korean companies may boost share sales as authorities look to enhance corporate governance
(04 April 2024) Goldman Sachs Group Inc. predicts that South Korean companies may increase share sales as authorities aim to enhance corporate governance and lift a short-selling ban. The investment bank suggested that a plan to encourage firms to enhance valuations through better management practices could lead to more share sales, particularly from low-value traditional businesses. The proposed “Corporate Value-up Program,” aimed at improving profit, unwinding cross-holdings, and boosting shareholder returns, is expected to be finalised in May 2024. South Korea’s equity capital market (ECM) activity has seen a significant increase, accounting for 3% of global deals in the first quarter of 2024, up from 1% in the same period in 2023, with block sales and share placements reaching a record US$4.1 billion between January and March. Investors are also anticipating the potential end of the short-selling ban in June 2204, which  could pave the way for derivative-based equity products like convertible or exchangeable bonds.

JAPAN
Japan’s Nikkei average jumps 2% due to heightened domestic investor interest
(04 April 2024) The Nikkei Stock Average surged on 04 April, closing at 39,773.14, up 321.29 points or 0.81% from the previous day. Semiconductor-related stocks, buoyed by a rebound in U.S. tech stocks, led the rise, with Tokyo Electron hitting an all-time high. Investor sentiment was bolstered by Japanese companies’ improved asset efficiency, with trading house Itochu and cosmetics company Kao experiencing significant gains. The extended uptrend is also attributed to increased purchases of Japanese stocks through the revamped Nippon Individual Savings Account (NISA) program, which is designed to encourage people to move some of their savings into the stock market. According to a survey on NISA account openings at 10 securities companies, average monthly purchases in January and February tripled compared to the same period last year, reaching 1.77 trillion yen (US$11.67 billion).

AUSTRALIA
Government seeks to revitalize Australian manufacturing through US$9.7 billion fund
(04 April 2024) The Australian government is making efforts to revitalise its manufacturing sector through a US$9.7 billion National Reconstruction Fund fund aimed at commercializing local innovation. This initiative comes amidst concerns over the country’s economic resilience, particularly highlighted by recent trade tensions with China and vulnerabilities exposed by the Covid-19 pandemic. The decline of traditional manufacturing industries since the 1970s has left Australia heavily reliant on raw material exports, prompting calls to move up the value chain. However, Australia lags behind in research and development spending, with only 1.68% of GDP allocated to R&D, well below the OECD average. The National Reconstruction Fund aims to address these challenges by investing in maturing companies across various sectors, including renewable energy, medicine, defence, agriculture, and mining. While the vision to rebuild Australia’s manufacturing prowess is realistic, there are concerns about the country’s ability to compete with global players like China.