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China’s ambitious plans to develop new maritime and overland “Silk Routes” between Asia and Europe, combined with a huge change in Asia demographics, could threaten Singapore’s role as the transport hub of south-east Asia.

Richard Martin, managing director of consulting firm IMA Asia, told delegates at this week’s TOC Container Supply Chain event in Singapore that the creation of the Asian Infrastructure Investment Bank, with $100bn in funds, along with the $63bn that China has committed to the Silk Road fund could transform the less developed countries of south-east Asia.

“China will spend this money in south-east Asia and south Asia, and while Singapore is the logistics hub of today, we think this will become Kunming after this infrastructure has been built.

“I generally steer clients away from investing in and sourcing from Laos, Cambodia and Myanmar, but if the infrastructure linking Singapore to Kunming comes together, then suddenly these fragile economies become a lot more interesting, especially with the movement of garment production,” he said.

While so far thin on details, Chinese premier Xi Jinping has outlined a vision of a string of infrastructure projects designed to foster trade between Asia, central Asia, Europe and even Africa.

Mr Martin explained that changes in production in other parts of Asia, as well as the ongoing transformation of the Chinese economy had already had a knock-on effect on south-east Asia nations.

“The factory labour market is shrinking in China, and one of the beneficiaries is Thailand, which has seen automotive companies moving there. But Thailand has just 1% unemployment, so the automotive firms have taken labour from the garment sector, which has instead moved to Cambodia,” he said.

Another contributing factor is a growing weakness of manufacturing in North Asia, he added, with South Korea’s production looking particularly vulnerable, partly as a result of fiscal policy.

“At the start of the GFC (2008), Korea stole a march on its North Asian competitors with a 16% devaluation, while the Yen rose 14%. Anytime the Won is weaker than 10 to 1Yen, Korean firms beat their Japanese competitors,” he said.

At one point it got to 16Won to 1Yen, but since thenJapanese prime minister Shinzo Abe’s quantitative easing policy has pushed it down to 1Yen equalling 9Won.

“The weaker Yen won’t lift Japanese exports because there are other issues such as labour reform, and Japanese companies are off-shoring; but with the Yen moving to 135 to $1, it does make it an attractive place for foreign firms to look to manufacture there.

“Meanwhile, the South Koreans believe manufacturing growth is going to return to 6% but I don’t think that is going to happen – South Korean firms are moving out of the country, and they are moving down to south-east Asia,” he said.

At the same time, with Chinese export growth slowing, and the size of its middle class continuing to grow – according to a Global Demographics forecast, the country is expected to have 250m households in the $20-50,000 annual income bracket – its trade flows could dramatically reverse.

“In my view this trend will make China the world’s largest importer of finished goods in the next decade,” Mr Martin concluded.

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  • Myo Naing

    June 29, 2015 at 1:47 am

    Good article.
    Please emphasis over advantages of Myanmar after silk road ‘s completion.