Singapore banks, having established themselves in markets within Asean and China in years past, are now in a good position to help companies and clients break new grounds and conquer new markets, thanks to shifting trade alliances and friend-shoring
Asean is taking on a whole new meaning in the age of geopolitical tensions. During the pandemic, companies were forced to reroute their supply chains. Since then, geopolitical tensions between the US and China have led companies to invest in new supply chains with “friend-shoring” becoming the new norm.
As China’s economy cools and its working-age population declines, businesses are likely to look for new sectors and new geographies.
Within Asia, Asean, with its 660 million-strong population and US$3.9 trillion ($5.2 trillion) economy, is emerging as an economic block providing a manufacturing base for tech and other products while its growing middle class provides a consumer base.
The two economies that appear to be picking up the slack from a slowdown in mainland China and benefitting from this state of affairs are India and Vietnam. Through Free Trade Agreements (FTA) and the Closer Economic Partnership Arrangement (CEPA) between mainland China and Hong Kong as well as enhanced participation in global supply networks, Asean is both integrating into the global economy as well as enhancing the attractiveness of its internal market for foreign investment. Asean has an FTA with South Korea and CEPs with China, Japan, India, the EU, the US and Australia-New Zealand.
According to the OECD Development Centre, Asean’s average real GDP growth is forecast to reach 4.6% this year and 4.8% in 2024, weaker than in 2022. To be sure, forward-looking Singapore banks, which have been strengthening their foothold in China for the past 30 years, have been expanding in friend-shoring economies.
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Among the three local banks, DBS Group Holdings has a presence in India, Hong Kong, China, Taiwan, Indonesia and Singapore; and is well placed to capture the flows into and between the two Asian giants. China and India are also sources of wealth for DBS Private Bank, one of the largest in Asia Pacific.
Oversea-Chinese Banking Corp (OCBC) has a significant presence in Hong Kong and Macau. It plans to increase its presence in the Greater Bay Area (see story on page 11). It also has an Indonesian franchise and a sizeable presence in Malaysia.
Among the three, United Overseas Bank (UOB) has been able to build an Asean presence through a standardised platform serving companies in Singapore, Malaysia, Thailand and Indonesia which have regionalised and globalised (see story on Page 9).
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With FDI Advisory Units in 10 countries including Vietnam and North Asia, UOB is ready to intermediate and capture ever-increasing FDI flows.
DBS, which opened its first branch in India in 1995, strengthened its presence by acquiring Lakshmi Vilas Bank in 2020, just before the friend-shoring phenomenon.
In 2017, UOB was awarded a foreign-owned subsidiary bank (FOSB) licence in Vietnam, the only Singapore bank to be awarded one. The licence allows UOB to expand branches and expand beyond wholesale banking into the SME and retail sectors.
In 2011, UOB set up its Foreign Direct Investment (FDI) Advisory Unit to capture intra- and inter-regional flows from outside of Asean into Asean. Two years later, UOB set up a dedicated FDI Advisory Unit in Vietnam. Since its formation, the FDI Advisory Unit has supported close to 4,000 companies investing more than $43 billion in the region.
UOB’s FDI Advisory is a sort of one-stop shop helping companies set up regional operations in Asia. UOB collaborates with government agencies, trade associations and professional service providers to help companies understand legal, regulatory and financial regulations in Asean markets where it has a presence — mainly Malaysia, Thailand, Vietnam and Indonesia.
On June 8, UOB opened its 10th FDI Advisory Centre in Tokyo to help Japanese companies expand in Asean. UOB has nine other FDI Advisory Centres in Asia. These are Hong Kong, China, India, Myanmar, Indonesia, Singapore, Thailand, Malaysia and Vietnam.
According to Jetro, Japan’s trade promotion board, from 2020 to 2022, Japanese FDI into Southeast Asia grew 15% to JPY2.65 trillion ($25.4 billion).
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In 1H2023, in terms of registered capital, South Korea was the largest investor in Vietnam (see Table 1 on page 9), followed by Singapore and Japan. Meanwhile, other Asean economies such as Thailand and Malaysia were also sources of investment in Vietnam. Additionally, Singapore is one of the largest sources of FDI in Vietnam.
According to the World Bank, in the five months to May this year, Singapore’s FDI flows into Vietnam was US$1.73 billion, followed by Hong Kong with US$532 billion, Taiwan with US$499 billion and Japan with US$317 billion. This geographical spread puts UOB in a pole position to benefit from intra-Asean investment flows and flows from North Asia into Vietnam and the rest of Asean.
Demographically, Vietnam has an edge over North Asia, home to the world’s lowest birth rates with the fastest-shrinking and ageing populations. These are South Korea, China, Japan and Singapore in Southeast Asia although the city-state has differentiated itself by allowing the inflow of talent through immigration.
In contrast, within Asean, Vietnam’s population is projected to grow to 100 million this year from around 99 million to become the 15th most populous country in the world. The young working-age population is likely to continue growing until 2035, according to the United Nations Population Fund (UNFPA).
“Vietnam has a large working-age population (15–64) which is twice as high as the dependent age group (under-15 and 65 and older). The demographic window of opportunity allows the country to tap into the demographic dividend,” the UNFPA says.
Vietnam’s population can also provide companies with a sizeable domestic market as Vietnam’s GDP per capita continues to rise, eventually forming a significant middle class, which bodes well for its economic future
