ASEAN Set to Outpace China’s Economic Growth and Foreign Investment: Report

Southeast Asia is poised to surpass China in economic growth and foreign direct investment (FDI) over the next decade, according to a new report by Angsana Council, Bain & Co., and DBS Bank. The Southeast Asia Outlook 2024-2034, released on Thursday, forecasts a robust economic trajectory for the region, driven by demographic advantages and a shift in global supply chains.

The report projects an average annual GDP growth of 5.1% for six key Southeast Asian economies—Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—until 2034. This growth rate is expected to outstrip China’s projected GDP growth of 3.5% to 4.5% over the same period.

Vietnam is anticipated to lead with the highest growth rate at 6.6%, followed by the Philippines at 6.1%. Singapore is expected to grow at a more modest rate of 2.5%, the slowest among the six countries.

Charles Ormiston, advisory partner at Bain and chair of Angsana Council, highlighted the region’s strong domestic growth and the diversification of production away from China as key drivers. “Multinational investments will be highly contested, with the competition between countries improving outcomes for both businesses and consumers,” Ormiston noted.

The report also anticipates continued strong growth in foreign investment in Southeast Asia. In 2023, the six economies attracted $206 billion in FDI, surpassing China’s $42.7 billion for the first time in a decade. This trend is expected to persist, with China likely becoming the largest investor in the region.

Ormiston pointed out that Chinese investors are increasingly looking to move offshore to avoid tariff restrictions and security concerns. “Not just Western investors [in] China, but Chinese investors are now looking to move offshore,” he said.

According to the ASEAN Secretariat, the U.S. was the largest source of FDI into the region in 2022, contributing $37 billion, or 16.5% of the total. Japan followed with $27 billion, while China came in third with $15 billion.

Despite China’s leading real GDP, which is projected to reach 154 trillion yuan ($21 trillion) by 2034—about five times the combined GDP of the six Southeast Asian economies—the region’s strategic investments are poised to drive substantial growth. The report emphasizes the importance of investing in emerging sectors, fostering startup ecosystems, and strengthening capital markets.

Taimur Baig, managing director and chief economist at DBS Bank, stressed that FDI should foster competition rather than create monopolies. “The biggest spillover that comes from FDI is when it allows greater competition,” Baig said.

Emerging growth sectors in Southeast Asia include electric vehicle supply chains in Thailand and Indonesia, semiconductor production in Malaysia, Singapore, and Vietnam, and a surge in data center investments. However, the report cautions that traditional incentives such as low-cost labor and tax holidays may not be sufficient for attracting high-quality FDI.

Ormiston highlighted that the availability of low-cost, reliable green energy will become a major driver for FDI, as global companies seek to decarbonize. “This is one of the biggest growth opportunities for Southeast Asia,” he said.

Southeast Asia has historically relied on gas and coal for power, and has seen limited investment in solar and wind energy. Addressing this gap could enhance the region’s attractiveness to future FDI.