FKI: "The World's Factory Shifts from China to ASEAN... Urgent Need for FTAs and Commercial Flights"

[Asia Economy Reporter Su-yeon Woo] An analysis has emerged that the role of the "world's factory" is shifting from China to ASEAN countries due to the accelerated global supply chain restructuring after COVID-19. As the importance of ASEAN countries in the global supply chain is emphasized, there are also calls for the prompt implementation of free trade agreements (FTAs) and an increase in commercial flights.

According to the analysis titled "Characteristics of the ASEAN Shift in the Global Supply Chain and Korea's Trade Policy Tasks," released by the Federation of Korean Industries on the 54th anniversary of ASEAN's founding on the 17th, global direct investment in ASEAN from 2016 to 2020 recorded $731 billion, a 30.4% increase compared to the previous five years (2011?2015), surpassing direct investment in China ($698.9 billion).

Changes in Global FDI to China and ASEAN10 from 2011 to 2020 (Unit: 100 million USD, Net Investment Basis) / Source: Federation of Korean Industries

This can be interpreted as a deepening of the ASEAN shift in the global supply chain due to the US-China trade war that began in 2018 and the impact of COVID-19 last year. It is the result of a combination of factors, including the withdrawal of some foreign investments within China to avoid export restrictions to China and the shutdown of production bases in China during the COVID-19 pandemic.

The share of the 10 ASEAN countries in global direct investment also surpassed China in 2017, and the gap widened to 2.6 percentage points in 2019. However, in the previous year, due to delays in new investment projects within ASEAN caused by COVID-19, China regained the lead. From 2016 to 2020, cumulative direct investment from major economic regions (countries) such as the EU, the US, and Japan into ASEAN all increased compared to the previous five years. Korea ranked first with the highest growth rate in direct investment (74.2%), followed by China (65.4%), Taiwan (40.6%), and Japan (21.8%).

Since 2016, direct investment into ASEAN by Asian regional countries such as Korea, China, Japan, and Taiwan has increased by double digits, raising ASEAN's status in intra-Asian intermediate goods trade to a level nearly equal to China. As of 2019, China accounted for 31.2% of intra-Asian intermediate goods trade, while six ASEAN countries (Indonesia, the Philippines, Vietnam, Thailand, Singapore, Malaysia) accounted for 30.8%.

In terms of net investment, Korea's investment amount in ASEAN countries was higher than its investment in China. From 2016 to 2020, Korea's overseas direct investment in ASEAN increased by 66.3% compared to the previous five years, reaching $31.6 billion, while direct investment in China increased by 11.0% to $18.1 billion. Among these, direct investment in manufacturing in ASEAN recorded $12.2 billion, a 37.1% increase compared to the previous five years.

The Federation of Korean Industries emphasized that as ASEAN's importance in relation to the Korean economy is highlighted, the prompt ratification and implementation of the Korea-Indonesia Comprehensive Economic Partnership Agreement (CEPA), submitted to the National Assembly last April, and the Korea-Cambodia FTA, concluded in February, are necessary. They also added advice to actively support the resumption of commercial flights to major investment countries such as Vietnam and Indonesia.

Kim Bong-man, Director of International Cooperation at the Federation of Korean Industries, said, "To enhance connectivity between Korea and ASEAN, government policy support should be strengthened to expand the participation of Korean companies in large-scale ASEAN infrastructure projects such as the construction of Indonesia's new administrative capital and the development of infrastructure in Thailand's Eastern Economic Corridor."

This content was produced with the assistance of AI translation services.