Season 3 - Rethinking Asia: Evolving Trends in Trade and Growth in Southeast Asia

In this episode of our series Rethinking Asia, we spoke with Frederic Neumann, Managing Director and Co-Head of Asian Economics Research at HSBC. Currently based in Hong Kong, Fred previously taught graduate level courses at schools in the United States and holds a Ph.D. in International Economics and Asian Studies from the Johns Hopkins School of Advanced International Studies.

Fred guided us through the complex economic dynamics at play between China and ASEAN members.  We learned why intra-Asian trade is expected to increase as more trade agreements are signed within Asia, and how China’s Belt and Road infrastructure investment can best help Southeast Asian economies. Some of our main takeaways from our exchange with Fred include:

An earlier period of fierce competition between China and Southeast Asia has given way to an era of greater complementarity with many areas of mutual benefit in the region including increased trade and tourism and integrated supply chains.

However, as many ASEAN economies now have lower average wage costs than China, supply chains are diversifying into Southeast Asia and increasing intra-Asian trade. U.S. reluctance to join the two major multilateral trade agreements in Asia is accelerating regionalization, or regional engagement and integration fueled by greater economic codependence within Asia. Chinese Belt and Road investment in Southeast Asia can alleviate domestic constraints in engineering know-how and capital availability to improve infrastructure and link markets, particularly if it steers clear of prestige projects. A rapidly aging Northeast Asia will raise labor costs and domestic savings, thus paving the way for more foreign investment to flow into relatively younger Southeast Asian economies. Across Southeast Asia, macroeconomic fundamentals remain sound overall; however, current account deficits in Indonesia and the Philippines appear most vulnerability to global threats.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System.