De-Risking, but where to?

There is no way around China. Due to their limited economic power and numerous structural challenges, the Emerging ASEAN countries do not present an alternative to China in the foreseeable future. Nevertheless, they offer diversification potential for German and European companies within the framework of their China+1 strategies.

The Emerging ASEAN countries, especially due to their young populations, low wage levels, and advantageous geographical location, have potential as production locations for European companies. However, problematic aspects include low educational levels, low productivity, weak regulatory frameworks, high trade barriers, and poor infrastructure quality.

High population numbers and an emerging, consumer-oriented middle class also make the Emerging ASEAN countries attractive as markets. However, relatively low income levels and high trade barriers reduce the attractiveness for European companies.

As the largest trading partner of the Emerging ASEAN countries, China dominates the markets and supply chains in the region. For European companies, there is a risk that shifting production capacity could lead to pseudo-diversification, where supply chains run outside China’s borders, but essentially remain Chinese-dominated.

The EU should conclude its remaining trade negotiations with Indonesia, Malaysia, the Philippines, and Thailand. This requires a more pragmatic trade policy that does not overload trade negotiations with unrelated demands.