Hey Reader,
Southeast Asia just overtook China
When I moved to the region a decade and a half ago, Southeast Asia was seen as an interesting side story, at best. The region had growth, but at the same time it was rarely viewed as globally significant. China dominated every macro conversation. Most investors barely even registered Southeast Asia (ASEAN) on the map.
Almost 15 years later, as of early this year, the region suddenly exports more to the US than China does. Quietly, Southeast Asia has become the most important manufacturing hub for the world’s largest economy. That alone should force a fundamental rethink around global trade and the relevance of this region.
ASEAN-6 = Indonesia, Vietnam, Philippines, Thailand, Malaysia & Singapore
For years, the argument was that the Southeast Asian economy was too small and too fragmented to matter. China had the scale, the capital, the momentum to outshine all other emerging markets. However, this outdated economic map no longer fits today's reality. With roughly half the population (700 million vs. 1.4 billion), Southeast Asia is now more important to US imports than China is. Even just a decade ago, this was unimaginable and I must admit that not even I (with all my pro-ASEAN inclinations) was expecting Southeast Asia to move into this pole position already in 2025. Yet here we are: ASEAN-6 > China in US imports.
This kind of outstanding position in global trade comes with many long-term implications. It shapes capital flows, industrial investments, job creation, large scale wealth creation, and geopolitics. It also serves as yet another significant signpost that global manufacturing, engineering and supply chains have gone through a game-changing phase of fundamental restructuring.
(I know what you are thinking, the strawman objection here is usually that Southeast Asia's exports are "all re-routing from China". Sure, it's always going to be part of the mix (as is true for most countries), but when you dig into the data, this turns out to be a much smaller phenomenon than most expect. Harvard Business Review has studied this on multiple occasions and put the number at only ~16% of total exports for Vietnam for example. In addition, what has taken place on-the-ground after the latest Liberation Day wave of tariffs is that also Chinese firms have onshore:d their production into Southeast Asian countries, in turn driving additional investments, productivity and per capita gains).
The population powerhouses of Southeast Asia are Indonesia, Vietnam and the Philippines - together they house ~500 million people. Their average GDP per capita is only roughly one-third of China’s (~13,500 USD). That gap is now likely to narrow fast.
A different phase and type of growth
Southeast Asia is not early-stage anymore, but it’s also not yet mature either. The average GDP/capita in Southeast Asia is ~5,900 USD (i.e. the region has just recently entered the bracket that the World Bank defines as "upper-middle-income" country/region).
The population powerhouses of Southeast Asia are Indonesia, Vietnam and the Philippines - together they house ~500 million people. Their average GDP per capita is only roughly one-third of China’s (~13,500 USD). That gap is now likely to narrow fast. As it does, the impact will be felt across all aspects of life and economy of Southeast Asia - from domestic consumption, to life expectancy, to capital markets.
Looking back, China’s rise from 2011 (when China had similar levels of GDP/capita to of Southeast Asia today) to 2021 created trillions in wealth. The core underpinning of all that wealth creation was the fact that China held the exact position Southeast Asia just stepped into this year: the world’s (and the USA's) primary factory.
China's GDP/capita
...a 10 year compound annual growth rate of 8.7%, across a population base of over 1 billion people. Wow.
In terms of GDP per capita, China was at roughly 5,600 USD back in 2011 as it was in the middle of a rapid growth phase. A decade later, China's GDP per capita had hit 12,900 USD per capita. This equates to a 10 year compound annual real growth rate of 8.7%, across a population base of over 1 billion people. Wow. Is Southeast Asia about to enter into a similarly benign development phase over the coming decade? If it is, you need to also add Southeast Asia's steady population growth on top (+0.7% p.a.) - you then get to 9.5% real GDP growth on average for a decade. If you are wondering what that could mean for the trend revenue growth of Southeast Asia's listed companies, you need to also add ~3-4% inflation p.a on top => ~13% average p.a revenue growth over the coming decade (i.e the average company would be set to ~3.5x in total over the coming decade). Wow II.
...if you are wondering what that could mean for the revenue growth of Southeast Asia's listed companies, you need to also add ~3-4% inflation p.a. on top => ~13% average p.a revenue growth over the coming decade (~3.5x growth in total)
Above is not to say that Southeast Asia is the next China - we fundamentally believe that this is a significantly oversimplifying view. Primarily as its core growth engines are much more akin to economies like South Korea (engineering-driven, outward-focused, and without any geopolitical super power ambitions whatsoever). For example, Vietnam's share of exports coming from electronics, engineering and machinery (Financial Times below refers to it as "High technology") has gone from less than 10% 15 years ago, to approx. 50% today. Malaysia ranks as the world’s 6th largest semiconductor exporter, handling ~15% of global assembly, testing, and packaging.
We should expect a different version of the story here in Southeast Asia. Not identical, not linear, but with some of the same structural ingredients: young, well-educated & growing populations (Southeast Asia's annual population growth of ~0.7% means ~5 million Southeast Asians more per year), improving infrastructure, rapidly rising foreign-direct-investments, rising productivity & urbanization, and relentlessly increasing global trade relevance.
In parallel, the region’s digital economy is rising rapidly - already today the world's fastest growing. The region's internet economy is today worth more than 250 billion USD p.a and is projected to double by 2030. Smartphone penetration is (very) high and payments infrastructure is now strong enough (which is a massive contrast vs. 10-15 years ago where many ASEAN countries where >90% cash-on-delivery). A new generation of founders is building businesses adapted to local needs, not copy-pasted from Silicon Valley.
And then there’s the middle class. Southeast Asia is expected to have over 400 million middle-income consumers by 2030 - a structural engine for domestic demand. Most Southeast Asian economies are already today much more domestic consumption-driven (constituting ~60-80% of most main economies in the region) than China is.
The mechanics behind the shift
...didn’t happen in a vacuum. It’s the outcome of a multi-decade grind to become more competitive, more investable, more reliable - combined with the USA's singular focus to get out of its lethal China dependency.
What were the catalysts for this transition? A few key factors are worth mentioning:
- Trade tensions between the US and China made diversification both necessary and urgent. Please keep in mind that this shift started already in earnest during the first Trump term. Since then, Southeast Asia has become a/the primary destination for firms and factories relocating/diversifying away from China (which also partly ties back to Southeast Asia's strategic geographic location, right at the doorstep of incumbent China-centric supply chains).
- Southeast Asia has signed more trade deals and offers better cost profiles in many industries (e.g. Vietnam has signed free trade agreements with ~60% of the world's GDP, excl. USA)
- Crucially, the region is not just attracting low-end manufacturing. The main asset of many of Southeast Asia's key economies remains a young (often English-speaking), well-educated (often engineering-related) and hard-working population.
- Policymakers in key markets have relentlessly improved logistics, capital markets, industrial zones, investment frameworks, etc.
ASEAN-6 overtaking China in US imports didn’t happen in a vacuum. It’s the outcome of a multi-decade grind to become more competitive, more investable, more reliable - combined with the USA's central focus to get out of its lethal China dependency.
Behind Southeast Asia's growing export numbers are real on-the-ground upgrades at massive scale: port and airport upgrades, power infrastructure, doubling down on educational investments, and relentless pro-market deregulation agendas. Southeast Asia's rise is about building durable industrial and engineering depth with global competitiveness.
Still early in many ways - that's the opportunity
Even though Southeast Asia is home to just below 10% of the planet's entire population (or ~2x the USA's population), its headline economic metrics still deeply underappreciates the opportunity at hand over the decade ahead.
These two diverging perspectives tell us that the actual real economic clout of Southeast Asia has raced far ahead of where global investors' understanding and appreciation for the region sits. This type of setup is often where the really attractive long-term investment opportunities arise - between what has already happened "on-the-ground" and what has been perceived and priced in.
A word of caution
Nothing about investing in Southeast Asia is easy. I have seen many international teams arrive with capital and confidence, only to burn through both.
Emerging markets don’t reward playbooks from elsewhere - instead you have to build new muscles. When we started out in the region, we underestimated how different things were. Local entrepreneurs move with lean discipline and a different tolerance for risk. You can’t shortcut local knowledge. You have to put in the time, the reps, earn trust, and learn how value is actually created in these environments.
In practice, that means investors have to dig deeper, build local networks, and think in cycles (much) longer than quarterly updates. You won’t find an edge in this region by looking at screens. You find it by being on the ground and meeting the local economy, face-to-face, daily.
Of course, there are still many friction points. Corporate governance needs work. Infrastructure is far from state of the art, albeit rapidly improving, etc. That being said, it's critical to not make the standard mistake of the Western investor looking at emerging markets: don't get stuck on the absolute level of things, instead obsess over the rate of change (that's where all the value creation is accumulating).
The foundations have been laid. What happens next depends on who can get in early, and compound.
Play long-term games with other long-term players
The reordering of global manufacturing is already upon us. The share of US imports chart is merely yet another visible milestone.
Southeast Asia is stepping into a bigger role. Production is moving. Capital inflows are accelerating. Domestic demand and spending power is rising. The region will not replicate China’s journey, nor should it try - it will follow its own, but it is set to be a rapid one.
The numbers are already telling us that we have entered a different chapter of the story of Southeast Asia. The question is who is paying attention, and who is still operating from an old and dated trade map.
The growth will be uneven. Not every country and company will win equally. Political risk, execution risk, and macro volatility are all part of the game.
However, long-term the base case is clear: Southeast Asia’s role in the global economy is expanding unexpectedly fast. The vast majority of global observers and investors do not have this on their radars, yet. The foundations have been laid. What happens next depends on who can get in early, and compound.
Christopher B. Beselin
Investing, compounding & exiting
Christopher B. Beselin - is the Chief Investment Officer of Endurance Capital. The views & opinions expressed in this newsletter is for informational and educational purposes only and should not be considered investment advice.
PS. If you're a qualified professional investor and you’re not sure where to begin structuring your emerging market investment exposure - feel free to schedule a 1-to-1 emerging market strategy call with Christopher B. Beselin via this link. DS.
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