Geopolitical tensions in East Asia have escalated in the last year as China uses its considerable soft power to push its neighbors when it feels national interests are threatened.
Well, those countries are coming to the conclusion that enough is enough, and they’re heading to places like Southeast and South Asia to turn their fortunes around, according to analysts.
“South Korean multinationals may decide to diversify their manufacturing supply chain and also production facilities to other Asian locations, in order to reduce their vulnerability to future Chinese economic measures,” said Rajiv Biswas, IHS Markit’s Asia Pacific chief economist.
Currently, South Korea’s decision to allow the U.S. to deploy an advanced missile defence system on the peninsula has culminated in a series of retaliatory measures from Beijing, including closing Lotte stores in China, limiting South Korean pop cultural imports and curbing tour groups to its neighbor.
South Korean firms have already started investing in the fast-growing Southeast Asia region as its spat with Beijing simmered for a few years.
In Vietnam, South Korea has invested heavily in establishing electronics production facilities, and that trend is likely to accelerate following the recent Chinese economic measures against the country, said IHS’ Biswas.
Since 2014, the country’s share of outbound direct investment (ODI) into countries in the Association of Southeast Asian Nations has exceeded investment into China and that’s likely to accelerate as Korean firms aim to reduce their dependency on their influential neighbor, Natixis’ senior economist Trinh Nguyen wrote in a report released last week.
“China will continue to be an important market for South Korea. That said, dependency comes at a great cost,” she added.
According to IHS, South Korean exports to Vietnam soared in the first two months of 2017, jumping 40 percent from a year ago, reflecting strong linkages between the electronics supply chain between the two countries. India is another potential market where South Korean presence will grow, according to Biswas.
Like South Korea, Taiwan’s ODI into emerging Southeast Asian nations has more than doubled from 2011 to 2015 . Now, some 15 percent of all Taiwanese ODI goes to Southeast Asia, up from 6 percent in 2006 to 2010, while 51 percent of the territory’s ODI went to China—down from 84 percent in 2010, according to calculations by Singapore’s DBS Bank released late last year.
Meanwhile, foreign direct investment of Japanese multinationals has veered toward Southeast and South Asia following anti-Japanese protests in China in 2012 due to territorial disputes, IHS’ Biswas told CNBC.
Changing tracks on tourism
Even the tourism industry in South Korea is changing its itinerary as the country aims to lure non-Chinese visitors.
In January, the Korea Tourism Organization said it is aiming to draw 3.6 million tourists from Southeast Asia this year, drawing on the popularity of its pop cultural exports, Yonhap news agency reported. According to the organization, it welcomed over 2 million tourists from the ASEAN countries last year.
Taiwan has already walked the same path as it sought to attract visitors form Southeast Asia after Beijing started limiting group tours to the island after Tsai Ing-wen from the independence-leaning Democratic Progressive Party won the presidential election last year.
Tourist numbers to Taiwan rose to a record 10.7 million in 2016 even despite a sharp fall in mainland tourist arrivals. That was due in part to strong growth from the Southeast Asian markets.
Meanwhile, Thailand is eyeing the possibility of more Chinese tourists, who may now travel further amid the curbs.
On Tuesday, Ronnarong Chewinsiriamnuai, president of the Thai-Chinese Tourism Alliance Association, said the Chinese-Korean tensions could boost tourist arrivals to the Land of Smiles, Reuters reported.
“That’s an opportunity for Thailand to see its tourism active again as more Chinese visitors are coming,” Ronnarong said.