THE ASEAN economy in the next decade will continue to outperform much of the world, and could become the second-largest export region, driven by direct investment from China and Japan, which both will see Asean as the top choice for their production bases.

Speaking at a One Asset Management seminar on the region’s growth opportunities, Usara Wilaipich, senior economist at Standard Chartered Bank (Thai), said Asean was already attracting foreign direct investment with its large labour force and growing numbers of middle-income consumers.

Even though the exports of Asean countries including Thailand have been affected by the global slowdown, looking ahead in the next decade, export will be a key growth engine because of China’s economic reforms and a new round of economic growth in Japan, Usara said.

She said China could no longer rely on cheap labour, leading it to look for manufacturing bases abroad. Wage costs in China increase by 6.9 per cent per annum, so the country needs to shift from labour-intensive to high-value-added production.

For its part, Japan is entering a new round of economic growth, while the depreciation of the yen has had an impact on the revenue of its manufacturers. At the same time, it is an ageing society, so Japanese manufacturers have to go outside as well, she said.

Asean is the choice of China and Japan and Thailand is a mainstay of Asean, hence the governments of those two countries in recent months have met with the Thai government to voice their interest in investing in the Kingdom’s infrastructure development.

Vietnam and Cambodia are China’s top choices for production bases and Indonesia is the top choice for manufacturing bases for Japan, Usara said.

The new wave of Japanese direct investment in Thailand has gone into consumer and pharmaceutical products, she said.

However, Asean has a huge gap in productivity, affecting the flows of investment. Usara noted that the GDP per capita in Singapore was more than 55 times that in Cambodia.

Countries in Asean are improving their infrastructure and regulations to deal with the new wave of investment, so public investment will be a main theme, because without a complete infrastructure, productivity will not improve, said the economist.

Thailand will be able to grow over the next decade if it is able to improve its logistics and transport and manufacture products to serve the growing numbers of middle-income people in the region, she said.

StanChart recently lowered its forecast for this year’s Thai GDP growth to 4.1 per cent from the previous projection of 6 per cent. The house believes that exports in the second half of 2015 will recover and public investment will be kicked off in the period.

Public investment will increase the confidence private investors, so the Bank of Thailand might not cut its policy rate again. StanChart expects the policy rate to stay at 1.5 per cent throughout this year. –SUCHEERA PINIJPARAKARN, THE NATION