Source: Fortune.com
Summary
Taiwan is on track for its first double-digit GDP growth since 2010, driven by AI hardware exports. Japan, Malaysia, Singapore, and mainland China all reported over 20% export growth in July. South Korea’s exports surged more than 60%. Equity markets in Asia have also seen strong gains, with shares of chipmakers and robot manufacturers rising sharply. Economists warn that AI-driven growth may not be evenly distributed, with Southeast Asian countries at risk of being stuck at the lower end of the value chain.
Our Reading
The numbers tell one story.
Taiwan, Japan, Malaysia, Singapore, and China all report massive export growth.
South Korea’s chipmakers see over 60% export surge.
Equity markets in Asia are booming with AI-related stocks.
But economists warn the boom may not last for all Asian economies.
Author: Evan Null
Southeast Asia’s AI opportunity
For now, at least, Southeast Asian nations are benefiting from the AI boom. On August 11, Singapore sharply lifted its annual economic growth forecast from 2-4% to 4.5-5.5%, citing a boost from AI-related sectors and exports. The city-state’s deep bench of semiconductor talent has made it a regional base for global developers and cloud providers.
Malaysia is also tapping its established position in chip assembly, testing and packaging, while Thailand and Vietnam have also attracted investments in data centers, cloud computing and electronics. Kuala Lumpur, specifically, is rolling out a National AI plan that hopes to push local firms to move into higher-value segments of the AI supply chain.
Yet experts warn that Southeast Asia’s competitive edge—its abundance of cheap, low-skilled labor—could trap it at the bottom rungs of the AI tech ladder. This edge could also erode further as the region’s populations age, or if it loses workers to brain drain.
Malaysia, for instance, has long seen an outflow of skilled talent to Singapore and the West, and is projected to become an “aged nation” by 2048, when 14% of its citizens will be aged 65 and above.
“Malaysia has largely consolidated its pre-existing niches in the back-end phase of semiconductor manufacturing,” explains Guanie Lim, an associate professor at Japan’s National Graduate Institute for Policy Studies (GRIPS). “The country’s perennial inability to escape the middle-income trap is partly a function of its hosting of industries where competitive advantage lies primarily through low-cost labor.”
Geopolitical faultlines deepen
Economic capacity is one fault line in Asia’s AI boom. Geopolitics is another. Last week, a Reuters report revealed that the U.S. was preparing to tell dozens of countries to pick a side in the AI race with China, as the two superpowers launched competing multilateral collaboration frameworks: the U.S.-led Pax Silica, and China’s WAICO, or the World Artificial Intelligence Cooperation Organization.
“To be part of everything is to be part of nothing. The signature of the Pax Silica Declaration is not merely a membership subscription, but a commitment,” the draft of the letter prepared by the U.S. State Department and reviewed by Reuters, read. “It cannot be held alongside membership in duplicative initiatives whose expectations conflict with our own.”
The letter was penned after the Central Asian nation of Kazakhstan had reportedly joined both initiatives, a move which set off alarm bells in Washington. China is also building its own full-stack AI ecosystem, while reducing reliance on U.S. tech.
According to testimony to the U.S. Congress by Kyle Chan, a fellow at Washington-based think tank Brookings Institution, “the goal of Chinese policymakers is not to achieve artificial general intelligence, but to leverage it as a powerful, general-purpose technology that will turbocharge a wide range of sectors and services.”
Yet this escalating rivalry spells trouble for Southeast Asia, whose economic model has long been built on openness, cross-border networks and investments from multiple sources.
A fragile hedge
To some experts, the ASEAN Digital Economy Framework Agreement, or DEFA, presents a possible solution. It’s the world’s first region-wide digital economy treaty, which unifies rules for digital trade and e-commerce across Southeast Asia, and is set to be signed in November.
“Geopolitical fragmentation makes DEFA considerably more important because ASEAN needs a mechanism for maintaining economic interoperability, even when its members adopt different technological alignments,” explains Tan Kong Yam, an emeritus professor of economics at Singapore’s Nanyang Technological University.
Ultimately, Asia’s middle powers will have to continue walking the tightrope between the two global superpowers. “They need to seek selective alignment, cooperating with Washington on sensitive technology while preserving commercial links with China as a major market and infrastructure partner,” Rajan concludes. “But demands for exclusivity from either side will narrow their room for maneuver.”
