ASEAN, the new workshop of the world

19 March 2012
Source: ICB

Labor shortages and wage inflation in China, plus longer-term demographic trends, mean the ASEAN (Association of Southeast Asian Nations) will become the new engine of global economic and chemical industry growth, according to German-headquartered Bayer MaterialScience (BMS).

Many cost-conscious manufacturers have already shifted their production away from China to ASEAN countries such as Cambodia, Laos, Thailand, and Vietnam: countries with a large, young, highly educated workforce and lower wage costs. The chemical industry is bound to follow, says BMS CEO Patrick Thomas.

© Rex Features Production moving away from China

China's one-child policy means there is already a limited workforce to staff the country's huge manufacturing base along the east coast. There has been a steady stream of reports of labor unrest and staff shortages affecting the region. In the long term, the policy means that China's population demographic will become very top heavy, with large numbers of old people. In this environment, growth is bound to slow. Thomas has been looking beyond China and thinks he has spotted the next big opportunity. "A lot of the electronics industry that is relatively low margin, such as ink jet printers and fax machines, games machines that are really cost conscious, were moving from the coast inland to the west but now they're moving down to SE Asia and the northern ASEAN group of countries."

He says countries such as Thailand have lots of well-educated, able people and a culture where precision assembly and manufacture is successful.

"People are very disciplined, labor costs are relatively low. That's attracting the construction of quite a few electronics factories and injection molding plants, which are following where the manufacturing is going."

ASEAN ECONOMIC UNION

By 2020, the ASEAN bloc is planning to achieve aclose level of economic integration, which includes lowering trade barriers within the region, as well as striking deals with countries such as China and Japan.

Thomas says: "They are already 80% of the way towards their target for union and it will be an incredibly attractive trade environment. Couple that with the growing, young, literate, skilled population; and you've got the next workshop of the world moving from China down to that region. That's where a lot of growth will be in major industrial sectors, including the chemical industry."

He believes it will be important to have a presence inside the bloc because it will become a real economic union: "So it will be very important as we start to think about the future beyond the current wave of investment - the next 10-15 years."

BMS already has a 220,000 tonne/year polycarbonate (PC) plant at Map Ta Phut, Thailand, which Thomas says positions the company well to take advantage of ASEAN growth as well as its manufacturing hub at Caojing in China.

In the medium term, China growth will remain important for BMS, which is still investing heavily in expansions there.

China represents more than 30% of the global market for PC, with Asia as a whole accounting for 60%. BMS moved its PC headquarters to Shanghai in 2011 and it has a slew of new projects planned over the next five years, including expansions in methyl di-p-phenylene isocyanate (MDI), PC and coatings technologies.

Thomas says China has moved from "chapter one", in which development was based on the exploitation of raw materials, to chapter two, where the domestic market grows swiftly and becomes more sophisticated, demanding western-standard goods. "Chapter three will be one to two decades from now where we have an ageing population with slightly different needs and so demands a different nature of growth.

"A lot of manufacturing will have moved offshore and then China plans to move to become a technology- and knowledge-based economy. Dependence on manufacturing will reduce, though [it] may become a major exporter of vehicles."

MAJOR OPPORTUNITIES IN CHINA

China's latest five-year plan aims to have 1m electric vehicles on the road by 2015 and this should present major opportunities for companies such as BMS, which can provide lightweight construction materials.

The ageing population will also drive increased demand for medical and healthcare products. He says we've been seduced for a decade by the concept of the BRICs (Brazil, Russia, India, China) driving global growth. "I'm much more bullish about those that didn't fit into the original BRIC," he adds.

The company is still committed to Europe, says Thomas, where a €170m ($222.92m) investment will yield a world-scale 300,000 tonnes/year TDI plant, which is designed to replace older facilities.

By: Will Beacham
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