Southeast Asia the ‘new China’ for supply chains: business group

Kuala Lumpur, Malaysia – Southeast Asia is the “new China” and should be the centre of the global supply chain, the head of an influential regional business body has said.

In an interview, Arsjad Rasjid, chairperson of the ASEAN Business Advisory Council (ASEAN-BAC), said the 10-member Association of Southeast Asian Nations (ASEAN) should be the “supply chain of the world.”

“ASEAN should be the supply chain of the world, the new China is ASEAN,” Arsjad said in an interview with Al Jazeera last week.

Arsjad, who also leads the Indonesian Chamber of Commerce and Industry, said the bloc is on track to take China’s spot “good as tomorrow” due to the region’s rich resources of nickel and other key minerals.

“ASEAN countries also have food and agriculture,” said Arsjad, who was in Kuala Lumpur to meet with government officials and business leaders.

The comments come as China and Chinese companies, especially critical sectors such as advanced chips, face growing Western-imposed restrictions amid the heated geopolitical rivalry between Washington and Beijing. The tensions have pushed industry giants such as Apple, Google, and Samsung to seek out new bases for manufacturing outside of China, particularly in Vietnam.

ASEAN-BAC, the private sector arm of ASEAN, is mandated to facilitate economic cooperation and integration in the region. Indonesia is the chair of ASEAN this year.

Indonesia has the world’s largest nickel reserves at 21 million tonnes, which accounts for nearly one-quarter of the global total, according to data from the US Geological Survey. The Philippines has the fourth-largest reserves, with 4.8 million metric tonnes. Nickel is a crucial element in the manufacture of stainless steel, electronic devices and electric-powered vehicles.

“Indonesia contributes 40 percent of the nickel [output] to the world. If you add the Philippines, it becomes 50-60 percent,” Arsjad said.

Indonesia, along with Thailand and Vietnam, is aiming to become a key player in the electric vehicle supply chain by leveraging its large nickel reserves to attract investment.

Arsjad said that although Southeast Asia is rivalling China’s position at the heart of global supply chains, firms in the region are keen to complement and work together with China.

“We are always open to China. We are saying to China to invest here [in ASEAN] … not just buy the raw materials. Create the value added [production] here,” he said

“It is time for us to create our own down-streaming … our own ecosystem, to add more small and medium-sized enterprises … and create jobs.”

Yose Rizal Damuri, executive director of the Jakarta-based Center for Strategic and International Studies, said ASEAN has the resources to be at the heart of the global supply chain.

“But each of them needs to realise that individually, they cannot do much. There must be a regional supply chain that they first need to build,” said Damuri.

“They have to cooperate and allow for certain production stages to be developed in [fellow] ASEAN countries,” Damuri added.

Fithra Faisal, an economist at the University of Indonesia, said China’s transition to high-end production has created an opportunity for Southeast Asian countries with lower labour costs.

“China is now leaving behind the middle and low stage of production. Most ASEAN countries will fill the gap. We see the Chinese stage of production as being more complementary with its ASEAN counterparts,” Fithra told Al Jazeera.

China leads the world in 37 out of 44 critical technologies, with Western democracies falling behind in the race for scientific and research breakthroughs, according to a report released by the Australian Strategic Policy Institute think tank earlier this month.

Fithra said the spillover from Chinese advanced production could help ASEAN countries to establish their own production networks.

“It will be a much more significant production line and network in the globe in the next 20 or 30 years,” Fithra said.

ASEAN-BAC’s Arsjad said the region also needs policies that encourage financial institutions to treat farmers as entrepreneurs, which remain a backbone of ASEAN’s economy and have helped ensure food security amid the Russia-Ukraine war.

“This helps to reduce what bankers see as risks and helps farmers gain access to capital,” said Arsjad.