Southeast Asia Unpacked: Business Opportunities in a Polarised Political Landscape
Key Takeaways:
Southeast Asia’s polarised diplomatic landscape is marked by intense US-Chinese competition for influence and ongoing geopolitical conflicts within and beyond its territory, such as the South China Sea disputes.
A key player in regional diplomacy, Singapore has built up a reputation as the ‘Switzerland of Asia.’ This reputation has largely enabled it to resist pressures from both Washington and Beijing.
Singapore’s prime geostrategic location and role as a non-aligned intermediary make it an attractive hub for businesses seeking a secure base in the region.
The city-state’s strategic model of non-aligned foreign policy is increasingly emulated by neighbouring states, including Cambodia, Thailand, and Indonesia, who have observed its repeated success.
While opportunities across much of the region appear abundant, businesses must stay vigilant to adapt to potential volatilities and capitalise on growth prospects.
Overview
The rise of global multipolarity has forced Southeast Asia to navigate a complex diplomatic landscape. Countries in the region are balancing diverse interests, shifting alliances, and geopolitical challenges while also pursuing shared goals. Competition for influence between China and the US is intensifying, and Southeast Asia increasingly views China as the dominant economic and strategic force regionally. China's Belt and Road Initiative (BRI) highlights its economic commitment to the region, though there are concerns about its potential dominance. Meanwhile, the US remains respected for its role in global governance. New data reveals that exports from the Association of Southeast Asian Nations (ASEAN) to the US have amounted to USD 67.2 billion in the January-March quarter, beating Chinese exports for the first time in six quarters by over USD 10 billion. This shift is attributed to the ongoing US-China trade wars.
In the region, Indonesia and Singapore are seen as neutral in world affairs, with Singapore often called the 'Switzerland of Asia' for its seemingly impartial stance. This reputation comes from Singapore's hedged foreign policy, which allows it to balance relations between the US and China, and cooperate with both. By leveraging its non-aligned status, Singapore is emerging as a growing leader in Southeast Asia and on the global stage.
Singapore and Indonesia are key contributors to ASEAN's long-term development, with Singapore frequently acknowledged for its robust regional leadership and Indonesia noted for its active and influential diplomatic efforts. Despite not having formal alliances, Singapore also secures itself among the top countries for defence networks. Ongoing conflicts like the Russo-Ukrainian War, South China Sea disputes, and Israel-Gaza Crisis challenge regional unity. Recent elections in Southeast Asia raise questions about regional cooperation, but also offer opportunities in areas related to AI, Smart Cities, and Electric Vehicles (EVs). Amidst these uncertainties, states must skilfully navigate diplomacy to shape their own future rather than bow to the influence of global powers. With concerns that ASEAN is becoming ineffective, the region may seek new leadership, and many see Singapore as a strong candidate for this role.
Singapore’s Strategic Non-Alignment
Singapore gained independence in 1965 during a period of domestic and regional turmoil. Quickly joining the United Nations, the small island state understood the need for flexible and friendly foreign policy. Strategically located in the Malay Archipelago, Singapore controls access to the crucial Malacca Strait, a vital passage for global shipping. The Singapore port handles over 140,000 vessels annually, linking the Pacific and Indian Oceans, and facilitating the transit of crude oil from Saudi Arabia, LNG from Qatar and Australia, as well as commodities like iron ore, coal, palm oil, and soybeans from surrounding countries. This strategic position has made Singapore a key player in international trade and regional diplomacy.
In 2023, logistics accounted for roughly USD 32.2 billion, or 6.5% of Singapore’s GDP. Given the economic importance of this sector, Singapore implemented additional measures to enhance shipping operations, ensure minimal disruption to supply chains, and guarantee ports remained open throughout the COVID-19 pandemic. The country allocated over USD 27 million in support measures through the MaritimeSG Together Package, signalling unparalleled resilience in the face of mass disruption, blank sailings, and port closures. Plans to finish the construction of the Tuas Port, which began operations in 2021, are also currently underway. With an expected completion date in the 2040s, the world-first fully automated port will have the capacity to handle 65 million Twenty-foot Equivalent Units (TEUs) per year, doubling 2021 figures. The project will significantly outpace nearby competitors such as the Tanjung Pelepas and Tanjung Priok ports of Malaysia and Indonesia. Smooth operations rely heavily on stability across the region. Singapore has shown proactive leadership by facilitating dialogue with regional partners to diminish increasing maritime security threats, including piracy, smuggling, and acts of terrorism. This is evident through its involvement in networks like the Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia (ReCAAP), an inter-governmental organisation that promotes enhanced communication, response coordination, and conflict resolution between states within and beyond the region, including China and the United States.
Singapore’s government invests in top-notch infrastructure to host international events, enhancing its reputation as a neutral diplomatic hub. In 2015, Singapore hosted the first summit in history between a Taiwanese president and Chinese leader, and in 2018, the inaugural meeting between North Korea and the United States. It has also facilitated summits like the East Asia-Latin America Cooperation and Asia-Middle East Dialogue, showcasing its role as a bridge-builder between regions. As a non-claimant state focused on regional stability, Singapore mediates the South China Sea disputes, promoting a rules-based international order and the UN Convention on the Law of the Sea (UNCLOS). Despite pressures from the US and China, Singapore strives to maintain its non-aligned stance.
Regional Mirroring
Singapore was the only state in Southeast Asia to name Russia when condemning its invasion of Ukraine, imposing new economic sanctions and a ban on military goods exports to the country. Sitting at the other end of the spectrum, Myanmar has shown unwavering support for Russia. This is unsurprising given the disintegration of the Tatmadaw (Myanmar Armed Forces), with its reliance on Russia for military security, including new anti-drone equipment and kilo-class submarines. Additionally, the State Administration Council intends to warm relations with the Kremlin as part of a post-coup strategy to broaden ties with other Indo-Pacific states, notably India, to reduce dependence on Beijing. Reactions among the nine other states have varied significantly. The diverse responses to the conflict illustrate the region’s polarised diplomatic landscape, shaped by each state’s unique politico-economic conditions and geopolitical interests. The Russo-Ukrainian War is high among the region’s geopolitical concerns, but still trails the South China Sea disputes and Israel-Gaza Crisis, which are viewed as the most pressing. Other threats closer to home, including the civil war in Myanmar, friction in the Taiwan Strait, and military tensions in the Korean peninsula, appear less of a concern, despite posing a more direct threat to regional security.
As one of Cambodia’s top trading partners and its second-largest foreign investor behind China, Singapore holds considerable influence on the government in Phnom Penh, Cambodia’s capital. Cambodia appears to be emulating the Singaporean model when it comes to matters of contention, particularly as a fellow non-claimant state in the South China Sea disputes. While sovereignty is important to all states in the region, for Cambodia, it is an absolute principle that no friendship or alliance can compromise. Often overlooked, Cambodia is regarded as one of China’s closest allies in Southeast Asia. Through its ASEAN Chairmanship, it has demonstrated its importance in diplomacy and commitment to influencing key issues in the international order, despite potential repercussions from China. As the only ethnic Chinese majority state in the region, sharing deep cultural and economic ties with China, Singapore faces a unique, yet analogous pull from Beijing. Its measured stance, characterised by even-handed engagement with major powers while safeguarding regional security, is evidently gaining traction. Its example has set a precedent for other Southeast Asian states to flip the script on exogenous powers and chart new diplomatic trajectories. Indonesia and Thailand are also moving in this direction.
Bangkok demonstrates a variation to the approach, increasingly prioritising strategic autonomy in its foreign affairs. It has shifted from its strong Cold War alignment with Washington to a foreign policy that embraces closer relations with Beijing and middle powers like India, Australia, and Japan. This has allowed it to mitigate the risks associated with unbalanced bilateral relations. Buddhism’s principles of non-violence, balance, and interconnectedness play a significant role in Thai society. While Thailand doesn’t maintain strict neutrality, it emphasises making decisions case by case. This approach allows it to align with different powers based on its interests and seek support from others to reduce the impacts of major-power competition. Nonetheless, non-alignment remains the core underlying principle. It has maintained consistent neutrality during the South China Sea disputes and has refrained from taking sides following a rise in tensions on the Korean peninsula, calling for denuclearisation and peace-centred resolutions.
Similarly embedded in Indonesian foreign policy is the Islamic faith, which has long been a guiding force in Indonesian diplomacy. Home to the largest Muslim population worldwide, Indonesia often seeks to uphold Islamic interests on the international stage. On 23rd February 2024, alongside Malaysia, Indonesia delivered oral statements to the International Court of Justice on Israel's occupation of Palestine, separate to the case initiated by South Africa. Indonesia holds the largest economy in Southeast Asia, amassing a GDP of over USD 1 trillion, making it a significant force for intra-regional trade. As an interfaith state, Singapore has adopted a model of diplomacy that can accommodate the religious sensitivities of its Muslim-majority neighbours: Indonesia, Malaysia, and Brunei Darussalam, whose intimate relations are underpinned by a shared Islamic heritage. This has allowed it to bridge differences, avoid entanglements in religious conflicts, and maintain its image as a stable, neutral presence in the region, namely as the ‘Switzerland of Asia.’
Outlook
Looking forward, the polarised diplomatic landscape in Southeast Asia offers both opportunities and challenges for businesses. As states adjust to the ongoing trade competition between China and the US, businesses can expect various market dynamics to evolve. Potential shifts in US trade policies could impact sectors such as electronics, manufacturing, and renewable energy. Countries like Vietnam and Malaysia have shown growth in demand for semiconductors and telecommunications. Meanwhile, Indonesia and Singapore are likely to remain stable and predictable environments for business, bolstered by their strategic locations and robust economies. Conversely, political unrest and geopolitical disputes in regions like the South China Sea could affect economic stability in countries such as Vietnam and the Philippines. Despite these challenges, Southeast Asia holds potential for regional unity and diversified market access, with India emerging as a strategic partner. Businesses equipped with innovative supply chain strategies and robust scenario planning stand to navigate these uncertainties and capture growth opportunities effectively.
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