SINCE 2018, US-China trade frictions have deteriorated significantly, and the impact on the two countries and the global economy has become increasingly apparent.

With trade protectionism and the mutual increase of tariffs by the US and China, it has led to the overhaul of the current industrial chain around the world.

Despite China and the US having reached an interim consensus to ease trade disputes and engage in negotiations to solve their problems, such development has to be welcomed cautiously.

Instead, Anbound is of the view that the trade spat between the both countries will not end in the short-term.

With geopolitical and geo-economic fluctuations continuing to impact the global economic landscape, the world in 2019 is both complicated and unpredictable.

Notably, the global production layout of enterprises today will not simply move from high-cost to low-cost destinations.

Cultural integration, institutional and security risks, as well as other hidden costs, have been churned out as the new operating costs for multinational corporations (MNCs) today.

Given this fact, any MNCs, including the Chinese enterprises, hoping to invest in other countries must achieve three requirements: calculation of supply and value chains, technological innovation and mutual benefits with the host countries.

In terms of supply and value chains, the cost calculation should be more broad-based today than narrowly defined as in the past.

While low production cost is vital for industrial transfer from developed regions to underdeveloped regions, it is worth noting that the so-called ‘low-cost advantage’ is not feasible because it involves destructive exploitation of resources, low cost of labour, imitation of low-value products, and even, the policy on arbitrage.

However, in today’s world, globalized production layout is no longer in such a state.

As shown in the case of Huawei, the potential problem faced by the Chinese MNCs are not the conventional problems but rather those that may affect international diplomacy as well as other social costs.

Moreover, the international market fundamentally follows the Euro-American standards and is similarly different than the Chinese.

Thus, transaction costs are bound to increase as a result of Chinese enterprises complying with such standards.

In short, those enterprises investing abroad must account for all these overseas operating costs.

In terms of technological innovation, Chinese enterprises should regard international co-operation in the field of science and technology as an industrial intermediary.

It is known that some high-tech industries in China have certain advantages compared with developed countries.

Whether it is aerospace, materials, information or biotechnology, these industries are able to export technology-oriented research and development (R&D), and intellectual property.

With China now focusing on promoting technological innovation co-operation in the Belt & Road Initiative (BRI), Chinese companies should capitalise on such an opportunity presented by the grand co-operation initiative.

Digital economy, artificial intelligence, nanotechnology, quantum computing, Big Data, cloud computing and smart city construction, are but the prospective areas of cooperation between China and participating BRI countries.

In terms of mutual benefits to the host countries, it is understood that Chinese enterprises are repeatedly being criticised in the Western media for not producing trickle-down effects to the masses.

To this, Anbound suggests that the Chinese enterprises should understand this need from their host countries.

One of the ways would be to utilise industrial parks pushed by China and its partnering nations.

The best example would be the Malaysia-China ‘two countries, twin parks’ co-operation model, which has culminated in the establishments of Qinzhou Industrial Park and Kuantan Industrial Park.

Through painstaking exploration of both economic needs and ways to address them, this industrial park model has promoted the industrial cluster development in China and Malaysia.

However, more than that, it has even become a model for deepening co-operation between China and Asean.

For one, other interested countries can work with Beijing in determining the design, construction and services of China’s overseas industrial parks that may satisfy the host country’s development strategy, and social, environmental and investment policy requirements.

For the Chinese investors, such model will encourage them to invest in these industrial parks and create synergies with the existing local companies and industries.

Way forward for Asean

Asean has stood to reap the benefits due to the uncertain US-China trade war.

It is hugely important for all stakeholders – from the governments to the media – to give the right message to Chinese investors.

While ‘politicisation’ of Chinese investments is an unavoidable fact, Asean host countries should provide a stable and conducive investment climate, despite changes of policies or political regimes.

This is especially vital for Chinese investors who are absolute strangers to these domestic political changes, unlike their more experienced American and Japanese counterparts.

This is the first criterion for any Asean country to get the most out of the current US-China trade war as a third party.

Also, Asean businesses should exploit the need for Chinese investors to establish business partnerships and alliances with their local counterparts.

Having relatively shorter presence and experiences of doing businesses in Southeast Asia, Chinese investors are prone to a lot of political, economic and cultural risks that may affect their investments in a fundamental way.

In this sense, business partnerships and alliances with Asean counterparts will help Chinese investors to at least manage these risks effectively and ensure business sustainability in the long-term.

In all, Anbound is optimistic that Asean will be one of the most potential regions to benefit from the US-China trade war even though truce may be visible for both economic powers in the coming months.

There are many more measures to utilise such a rare chance to work for the optimum benefits of Asean’s economic development and upgrading.

By all means, it is really up to Asean to make us even more attractive than before, as a haven for quality Chinese investments.

*Anbound Malaysia is part of Anbound China, an independent think tank based in Beijing.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.