China tech goes island hopping

With US-China geopolitical tensions, Covid-19 travel restrictions, etc., many “North Asia” commentators assume that big pharma, advanced manufacturing and all plethora of other businesses are, or will soon be, pulling out of mainland China: packing up their production lines and pivoting supply chains down to South East Asia. Indeed, a speculative chamber of commerce email that I recently received for a webinar on “Doing Business in Malaysia” might suggest – to a less skeptical recipient – that this approach to SCM is in fact all the rage.

However, when I speak to managers in foreign-invested businesses in Shanghai and elsewhere in China, this is not the reality on-the-ground. For most MNCs which are already in-country, the Middle Kingdom is one of their only global markets where business is showing real signs of sustainable recovery post-Covid lockdowns. They are chasing more funding from HQ rather than sending it back!

It is therefore interesting to see the article below, because there IS seemingly still a flow of capital from China to the SEA – or at least the “Indian Islands” in it – re-routed from their populous namesake to the north-west. As India has imposed significant regulatory barriers to Chinese investment since mid-Spring this year, it has actually been China’s tech investors that have moved cash to Indonesia; rather than foreign enterprises leaving mainland China in a southerly exodus.

If you are in the China tech space, it makes a whole lot of sense. Tried and tested models of investment in one market of millions of young customers, who are hungry for digital services, have a good chance of working in another youthful, rapidly digitalising territory: China; to India; and now to Indonesia. The article gives the example of KhataBook and BukuWarung as bookkeeping platforms that are like Indian and Indonesian tech twins in this respect.    

As the digital economy of Indonesia continues to grow across its 14,752 officially recognised islands, unless there is adverse regulatory intervention (à la India), I cannot see why outbound investment from China to Indonesia will not pick up momentum over 2021.

Indeed, now China, Indonesia and 13 other countries have penned the world’s largest trade deal – the Regional Comprehensive Economic Partnership – East Asia is seen as open for business and China isn’t all about looking inward through President Xi’s “dual circulation” plans. And with the Indonesian data localisation rules that had previously been seen as inhibitors to tech investors from China and elsewhere being further relaxed this year, following the easing of the infamous “GR 71” data localisation requirement in late 2019, it is not just excited Asia data privacy lawyers that see the potential!