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Economy

Southeast Asia vies for foreign manufacturers leaving China

Indonesia, Thailand and others tussle over shrinking investment pie

Central Jakarta: Indonesia is trying to attract foreign companies through tax breaks and land deals.   © Reuters

JAKARTA -- When Indonesian President Joko Widodo unveiled the site of a new industrial park in Batang, on the island of Java, his message to the world was clear: the country was open for business.

"We want companies from China, of course, but also Japan, South Korea, Taiwan, the U.S., and anywhere else in the world to move here," the president, commonly known as Jokowi, said Tuesday while touring the location.

The push was part of a large movement across Southeast Asia, where countries have stepped up efforts to attract foreign investment, targeting companies that are rethinking their supply chains after the coronavirus caused major disruptions across China.

The region had already been offering incentives for new companies to move factories from China in light of the U.S.-China trade war. But with the United Nations projecting up to a 45% drop in foreign investment into emerging Asian economies this year, largely because of the pandemic, countries face a cutthroat battle for a piece of the pie.

"If other countries are asking 1 million for land, then we can offer it for 500,000," Widodo said.

Indonesia plans to set up 19 industrial parks by 2024. It is also cutting the corporate tax rate to 22% from 25% this year, then to 20% in 2022, a year earlier than it had previously planned.

Other countries in the region are stepping up efforts as well.

Thailand's Board of Investment approved incentives for the agricultural sector on June 17, targeting foreign companies shifting operations from China.

Malaysia, as part of its economic packaged announced June 5, offered a 15-year tax exemption for manufacturers that newly invest 500 million ringgit ($117 million) into the country.

Myanmar will prioritize screening planned investments by financially strong, international companies, while Vietnam aims to attract more European companies under its economic partnership agreement with the European Union that takes effect on Aug. 1.

Much of the focus is on the health care industry, after the coronavirus outbreak highlighted the region's dependence on China for masks and other protective gear.

Widodo urged U.S. health care-related companies to set up shop in Indonesia in a call with U.S. President Donald Trump in April. Indonesia also launched tax incentives for manufacturers of medical equipment on June 10.

Thailand will consider extending its tax break for companies investing in medical equipment and drug manufacturing, as part of its push to become a hub for health care-related fields.

These efforts come as companies based in the U.S., Europe and Japan consider moving their supply chains out of China. Under a supplementary budget passed in April, Japan approved 23.5 billion yen ($219 million) in subsidies for companies spreading out production to Southeast Asia and elsewhere.

With China using its economic clout as a diplomatic tool, some say Japan and the U.S. should work with members of the 10-member Association of Southeast Asian Nations to create new supply chains for national security reasons as well.

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