This article was written by: Mr. Thompson Lui, FCI Regional Manager SSEA
We have covered in past articles the Sino-American trade war, COVID induced global supply chain restructurings and their implications to our fellow members in the SSEA (South and Southeast Asia) region and Financial Institutions in this Account Receivables, cross border trading (funding), and risk mitigation industry. In this episode of FCI regional insight, we shall bring updates concerning Southeast Asia and South Asia, respectively. This time we have included some latest data. We shall briefly take into account specific observations that involved our members from NEA (Northeast Asia), namely Hong Kong (HK) and Taiwan (TW).
HK and TW have been the first sources of FDI (Foreign Direct Investments) for PRC manufacturing and export-related activities. Entrepreneurs from these two sources not only brought in direct FDI in the form of capital setting up manufacturing bases but also their expertise in terms of know-how. These valuable components, plus an established clientele of overseas buyers, shaped the global supply chain ecology in various industries. To name a few, shoemaking, apparel, toys, jewellery, sundries, electrical appliances, electronic consumable, etc. These fields were amongst many that helped establish the early formation of modern days manufacturing hub of the world-class factories we know today.
In December 2021, a report stated that for the first time in decades(1), at least since PRC opened her arms to welcome FDI since 1978, that dwarfed investments from Taiwanese entrepreneurs to ASEAN countries. From January to October 2021, Taiwanese businesses have invested USD 3.5 billion to ASEAN member nations, and this amount accounted for close to 40% of its total (38.7%). It is not difficult to comprehend the logic behind Taiwanese businesses investing in the PRC due to their sharing of the same linguistics and proximity. For starters, the PRC’s gigantic domestic market, billions in a number of cost-efficient labour supply were vital drivers. Hence, PRC being the first destination of TW funds investing abroad was no rocket science but pure common sense from an economic angle. All components in the above formula play their part. Compared to thirty years ago, wages alone are beyond comparable due to the rapid rising in living standards and composition in the labour force. This particular advantage many ASEAN nations have been proactively playing their catching-ups, and reportedly India, Thailand, and Vietnam were named the top three countries receiving the utmost attention. We shall revisit this topic with more data and statistics in the future, but for now, you can enjoy some stats and numbers here(2) and here(3).
Business Standard(4) reported (quoting McKinsey Global Payments Report 2020) in an article that our world total Supply Chain Finance amounted to a potentially jaw-dropping USD 17 Trillion. In 2020, the global factoring volume was 2.7 trillion Euros. European nations like France clocked at 18.3%, the UK at 17.3%, where these are considered developed markets with a long history in adapting international and domestic factoring. BRICS like PRC at 3.2% and Brazil at 4.1% respectively are considered emerging markets where there is still plenty of room to grow. These percentages are factoring volume (amount) expressed with reference to their national GDP figures presented in a parliamentary report. Guess what kind of percentage we see and the reaction of the Indian government? The answer is 0.2% of GDP. This figure compared to PRC and Brazil, India’s BRICS counterparts are no doubt multiple folds behind (full of potential), and the Indian government has decided to tackle this innovatively and digitally. In short, RBI (Reserve Bank of India) has licensed a limited number of FIs to provide an array of financial services on TReDS (Indian-licensed trade-financing platforms trade and receivables discounting system), this platform (system) facilitates servicing trade receivables, including factoring, financing, discounting, etc. The story does not stop there, though. A special economic zone type of setup adapting the sandbox approach shall allow foreign FIs to participate in the abovementioned activities out of GIFT CITY. IFSCA, the sole regulator of the Gift City-based International Financial Service Centre (The International Financial Services Centres Authority), shall oversee and regulate. As this is a relatively new setup and FCI is engaged in discussions with these FIs mentioned above, stay tuned till we provide further updates.
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References
- https://www.taiwannews.com.tw/news/4407561 - Taiwan invests more in ASEAN than in China; Changes emerge amid supply chain adjustments, COVID pandemic, trade war
- https://www.feb.ui.ac.id/blog/2021/11/08/taiwan-streams-investment-to-southeast-asia/ - Taiwan Streams Investment to Southeast Asia
- https://asia.nikkei.com/Politics/International-relations/Taiwan-makes-new-push-to-drum-up-Southeast-Asia-investment - Taiwan makes new push to drum up Southeast Asia investment
- https://www.business-standard.com/article/companies/four-platforms-get-ifsca-licence-for-factoring-business-at-giftcity-121100400016_1.html - Four platforms get IFSCA license for factoring business at Gift City