Southeast Asia is likely to outpace China’s economic growth and inflow of foreign direct investments over the next ten years, a new study led by a Singapore-based think tank showed, as the region benefits from growing demographics and a global supply chain shift.
The Southeast Asia Outlook 2024–2034 report, which was released on August 1 by Angsana Council, US consultancy Bain & Company, and Singapore’s DBS Bank, projected the gross domestic product of six regional economies: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
According to the study, GDP for the six key economies is expected to increase by an average of 5.1% annually until 2034, outpacing China’s projected growth of 3.5–4.5%.
By country, Vietnam is expected to lead with 6.6%, followed by the Philippines with 6.1%, while Singapore—the slowest among the six—is expected to manage 2.5%.
Charles Ormiston, an advisory partner at Bain and Angsana Council’s chair, attributed the drive to the region’s strong domestic growth and companies diversifying production beyond China.
“Multinational investments will be highly contested, with the competition between countries improving outcomes for both businesses and consumers,” he said.
While the report did not forecast the exact FDI figures, it predicted that overseas funding to Southeast Asia will maintain strong growth momentum. Last year, the six economies attracted more foreign capital than China—the first time in a decade. In 2023, FDIs into the six countries totaled USD 206 billion, compared to USD 42.7 billion for China.
In addition to being the largest trading partner, the report noted that China is likely to become the largest investor in the region.
“Not just Western investors [in] China, but Chinese investors are now looking to move offshore, to bypass the tariff restrictions and security concerns,” Ormiston told reporters on July 30.
According to the ASEAN Secretariat, the US was the regional bloc’s largest source of FDI at USD 37 billion in 2022, accounting for 16.5% of the total, with a bulk of around USD 20 billion going into manufacturing and finance sectors. Excluding intra-ASEAN investments, Japan came in second at USD 27 billion, followed by China at USD 15 billion.
In absolute terms, however, China’s real GDP dwarfs the region. The report projects China’s real GDP in 2034 at RMB 154 trillion (USD 21 trillion)—about five times that of the six Southeast Asian economies combined. According to the International Monetary Fund’s World Economic Outlook Database, China’s real GDP in 2029 will be 4.3 times that of ASEAN’s ten members combined.
To spur growth, the report said, countries should prioritize investing in emerging sectors that fit with their established clusters, workforce and natural resources. Fostering a robust startup ecosystem and strengthening their capital markets are key areas to support new companies and financing, it added.
“FDI should not necessarily go to one favorite sector or one favorite company, which then enjoy the monopoly status, or preferred status in the economy,” said Taimur Baig, managing director and chief economist at DBS Bank. “That is a surefire way of actually wasting that FDI.”
“The biggest spillover that comes from FDI is when it allows greater competition,” he added.
Among the newer growth sectors, Thailand and Indonesia are emerging as regional hubs for electric vehicle supply chains. Malaysia, Singapore, and Vietnam are expanding semiconductor production across different parts of the value chain, while the region is broadly benefiting from a boom in data center investments.
But the report warned that low-cost labor, subsidized land and tax holidays—all of which most Southeast Asian countries have traditionally relied on—would not drive high quality FDI.
Instead, Ormiston said the availability of low cost, reliable green energy will become “a major driver” over the coming years for some of the most attractive FDIs, as global companies push for decarbonization.
“This is one one of the biggest growth opportunities for Southeast Asia,” he said.
Southeast Asia has traditionally relied on gas and coal to produce cheap power, and has attracted the lowest level of solar and wind power investment globally over the past five years, second only to sub-Saharan Africa, according to a report last year by McKinsey & Company and Singapore’s Economic Development Board.
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.