Similar to other companies across the world, we, at Openspace (“OSV”), are finding our own ways to adjust to the ‘new normal’. One of the initiatives we’ve recently taken on is OpenForum – a collective conversation where members of the team discuss a single theme or topic in detail.

Most recently, we spoke about an issue that has often returned to the limelight over the past few years: the relationship between China & the United States. Our team has members from a range of countries (we try to be like the UN…) – Australia, India, China, the US, Indonesia, and Vietnam, to name a few. This made our discussion more nuanced and all-encompassing. Through this, a few themes stood out:

Where It All Began: Globalization & the ‘Bad Guy’

“For many decades, we’ve enriched foreign industry at the expense of American industry; subsidized the armies of other countries while allowing for the very sad depletion of our military; we’ve defended other nation’s borders while refusing to defend our own; and spent trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay.”

– Donald Trump, at his 2017 inaugural address

At the turn of the century, the US markedly voiced the benefits that free trade would bring to the world. Through this stance, and in tandem with David Ricardo’s theory on comparative advantage, the capital-intensive countries of the West, including the US, relied on China and other developing nations for their labor-intensive output. This reliance paved the growth and development of manufacturing across China. Invariably, this led to greater foreign direct investment into China and grew the country’s GDP from $1.2 trillion in 2000 to $14.1 trillion in 2019.

Fast forward to today. The US President is especially vocal about his disdain for the Chinese “stealing” American jobs. He pushes China’s low wages and vast production capabilities as reasons for the unemployment of a wide range of middle-class Americans; coincidentally, this segment of America forms a sizable portion of Donald Trump’s voter base. Lastly, the restriction that China places on US technology companies to operate in the country is not a recipe for collaboration, which gives America a reason to curtail the freedom it provides.

But if we peel back the onion, this narrative is not specific to the implications of the COVID-19 pandemic or Trump’s presidency. This rhetoric has been imposed since the United States-China Relations Act of 2000 was passed, and China was admitted into the World Trade Organization. Since then, politics and economics have merged to form a blame-game, where China has frequently, to the West, been labeled ‘the bad guy’. Granted, this narrative has been amplified in recent years, as the US government has chosen a more nationalist and insular approach.

From China’s perspective, even as US politicians leverage this rhetoric of the ‘bad guy’ to rile up their voter base and attract attention, data suggests a different reality: since 2000, when trade between China and America increased, the purchasing power for Americans (per capita GNP) has risen from $37,900 to $62,600. Lastly, to China, America is not necessarily the quintessential foreign relations leader. Where the single-party state focuses on trade policy to influence foreign relations, the US relies heavily on military strategy and sanctions to do the same.

Ever-Growing Global Dominance from Both Sides

During our discussion, we spoke about the edge that America has, and continues to have, in maintaining its presence on the global stage. From an economic standpoint, the US dollar – being the world’s de-facto reserve currency – allows for extraordinary privileges that other nations do not have access to. Most pertinently, the decade-long program of quantitative easing has left the dollar unscathed, while countries like Indonesia, Vietnam, and India continue to face the brunt.

On the other hand, China has exhibited growing rates of consumption of ~40% of its GDP, not so far behind the ~70% of the US. Additionally, China’s ability to scale and spread their technological innovations globally is an impressive feat; TikTok being a fine example of this. In line with its reputation as the world’s largest exporter, we expect to continue to see Chinese tech firms take a more global approach in the future.

Seat Around the OSV Table

As events have unfolded between the US and China, many of us at Openspace have taken on the roles of spectators. Based on their nationality, each member of our team had a unique position on the issue.

Australia has a unique vantage point. By being China’s 6th largest trading partner, they’ve maintained a cordial relationship with the country. Yet, from a socio-political standpoint, the Australian’s resonate more broadly with American positions.

India’s tension with China – especially with its recent ban of 59 Chinese Apps and conflict in the Galwan Valley – pushes the country to seek as many allies as possible, therefore enabling them to rely more on their ASEAN neighbors, the US, and the UK.

Since the War, Vietnam has always been in a precarious position. While China’s proximity to Vietnam has defined its love affair thus far, the realization that Vietnam needs a powerful ally globally has resulted in a more recent courtship with the US.

For Singapore, the general consensus around the proverbial OSV table is that a “healthy tension” between the US and China is good. Singapore, in usual fashion, chooses the stance to remain neutral and open for business.

Source: Patrick Chappatte, New York Times.

What’s in it for Southeast Asia? 

So, how does the tension between the world’s two superpowers play out for Southeast Asia? The view is that China’s tension with a range of countries, from the US to its South Asian neighbors, will not prove fruitful in the long run; pursuing an insular path in a ‘flat’ world is a headwind for growth. This could potentially allow for certain Southeast Asian counterparts, such as Vietnam and Indonesia, to fill the gaps.

We’re seeing this play out already. Japan has provided a ¥243.5 billion stimulus package to help Japanese companies move production out of China. The largest technology companies – Google, Apple, and Microsoft – are looking to move their production of hardware from China into Thailand and Vietnam. And in the midst of the COVID-19 pandemic during Q1 ’20, demand for inspections and audits from North American buyers surged +45% YoY in Southeast Asian factories. Companies and world leaders are cognizant of the importance in diversifying risk going forward. This trend naturally bodes well for FDI flows into Southeast Asia.

However, nearshoring – moving business to countries in closer proximity – may as well be a long-term trend we are heading towards. In that case, the move of production by nations in the West to countries outside of China could be temporary. While foreign direct investments in infrastructure and traditional sectors might slow down, Southeast Asia has something else going for it: potential for significant technological growth and regional integration. Looking ahead, we see technology as the solution to Southeast Asia’s most vocalized ‘problem’: the region’s fragmentation, with varied laws and unique cultures that hinder the company scaling process. It’s a fair argument – Southeast Asia is incredibly dynamic. But, there are constant similarities across the region: striving consumer aspirations, coupled with a robust willingness for businesses to adapt to digital solutions. With over 350 million technology users, a young population with over 50% of people under the age of 30, and a region where data costs account for less than 1% of monthly per capita income, the tech infrastructure has been built out, and Southeast Asia is well positioned as an attractive candidate for local and international investment.

The recent PayPal and Facebook investment into Gojek after Tencent, Meituan, and JD’s participation is a case-in-point. This is one of the only Southeast Asians companies where both Chinese and US tech giants have invested in. Gojek being the most valuable startup in Indonesia, has its tentacles wrapped around various verticals in Southeast Asia. Through its future partnership with Facebook Messenger/WhatsApp – the primary tool for communication across small businesses in Indonesia – there is room to build deeper connectivity and bring millions more of the population into the digital economy.

It was a dynamic discussion full of insightful views from various perspectives, but we agreed on one thing: technology is the great equalizer and unifier. Despite global uncertainty, there is an immense opportunity for Southeast Asia, in both the short-term and long-term, to leverage its capabilities for continued rapid growth. We, as tech investors in the region, are well-positioned to make this a reality.