Southeast Asia is a top choice for firms diversifying supply chains amid U.S.-China tensions

Southeast Asia has emerged as a top choice for firms looking to diversify production away from China, including Chinese companies, amid escalating tensions between Washington and Beijing.

"Southeast Asia is well-placed to benefit significantly from the China+1 phenomenon as both foreign and Chinese companies diversify their supply chains and operations," said Kuo-Yi Lim, co-founder and managing partner of Southeast Asian venture capital firm Monk's Hill Ventures.

"Geopolitical [tensions have] accelerated these activities, which started during the Covid lockdowns," Lim added.

The "China Plus One" strategy seeks toreduce the risks associated with total reliance on China's market or supply chain through diversifying manufacturing operations, expanding into other countries even as companies' maintain a presence in China.

This has spurred greater investments into the ASEAN bloc. Foreign direct investments into the ASEAN economies of Indonesia, Malaysia, Philippines, Thailand, Singapore and Vietnam rose to $236 billion in 2023 compared with an annual average of $190 billion between 2020 and 2022, OCBC economists said in a May report.

The inflows mostly came from the U.S., Japan, European Union as well as Mainland China & Hong Kong.

"The ASEAN-6 region has benefited from a diversification of global and regional supply chain as well as the adoption of 'China+1' strategies. FDI inflows from Mainland China and Hong Kong SAR into the region have risen, with manufacturing and certain services receiving the bulk of inflows," the OCBC economists said.

Vietnam has become a key manufacturing location for Apple as the U.S. tech giant seeks to diversify the assembly of its products away from China.

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