Why SEA Is Not China

As China’s era of hypergrowth slows, investors constantly spruik Southeast Asia (SEA) as the next China. The region offers favourable demographics, resource endowments, and a strategic position within Indo-Pacific trade routes.

But the idea that SEA will follow China’s economic trajectory is misplaced. None of the region’s leading economies, including Vietnam, Indonesia, the Philippines, Thailand, and Malaysia, have the same structural advantages or political architecture that enabled China’s meteoric rise.

Rather than viewing this as a limitation, investors should see it as a differentiated opportunity. Understanding why SEA won't become “the next China” is the first step in appreciating what makes the region attractive on its own terms.

1. Geography: Fragmented Archipelagos vs. Continental Powerhouse

China’s economic rise was aided by its geography: a vast, contiguous landmass with navigable rivers, dense internal markets, and infrastructure that connected the industrial east with the interior west.

In contrast:

• Indonesia and the Philippines are fragmented archipelagos. Infrastructure development is logistically complex and capital-intensive.
• Malaysia is geographically split by the South China Sea, whilst more contiguous Vietnam and Thailand also face topographic constraints including narrow coastlines and highlands, limiting nationwide industrial sprawl.

2. Demographics: Divergent Population Arcs¹

China’s growth was supercharged by its demographic dividend: hundreds of millions of workers entered the labour force just as reforms opened the economy.

In SEA:

• Indonesia and the Philippines still benefit from growing, youthful populations.
• Vietnam and Malaysia are starting to age and are already experiencing low to below replacement fertility.
• Thailand suffers the most from an ageing imbalanced population contributing to low birth rates.

These trends constrain long-term productivity growth unless offset by rapid upskilling and technology adoption.

3. Politics

China’s rise was engineered by a centralised, long-horizon state that mobilised resources with singular focus.

SEA’s more pluralistic systems produce short-termism, greater volatility and decentralisation:

• Vietnam is the closest, a one-party state, but policy consensus can be slow and bureaucratic.
• Indonesia and the Philippines have electoral democracies with fragmented coalitions and frequent leadership turnover.
• Thailand and Malaysia both face institutional instability and corruption. Thailand has experienced multiple military coups and Malaysia's revolving-door prime ministers add to the volatility.

4. Capital Markets: Depth, Liquidity and Domestic Pools

China developed deep and increasingly sophisticated capital markets alongside its growth story, with coordinated state banks, high domestic savings, and a strong policy hand.

When China’s GDP per capita was ~$4,000 to $5,000 (circa 2008), it had already built deep and active capital markets. Its stock market capitalisation exceeded $2.8 trillion, market cap / GDP ratio of 75%, turnover ratios were above 250%, and it was channelling domestic savings into large-scale investment at speed².

In contrast:

• Philippines and Indonesia suffer from lower market cap / GDP and extremely low liquidity 15–25%³.
• Malaysia, Thailand and Vietnam stand out for market cap / GDP but liquidity is low: turnover ratios hover around 35%. Thailand is the exception at ~65%⁴.
• Savings lag behind China, in particular the Philippines (~16%) and foreign capital remains critical, with institutional depth still developing.

Final Thoughts: It’s Not China—and That’s a Good Thing

Most importantly, all major SEA economies are forecast to cross the USD$10,000 GDP per capita threshold within the next 10 years⁵. When this happens, economies shift from being rural to service-based, income growth drives consumption, savings and investments grow and real economic transformation begins.

Southeast Asia isn’t going to become the next China. Its geography is fragmented, its politics are pluralistic, its capital markets shallower, and its state capacity is more constrained. And it’s unlikely to have the major tailwind of unfettered US consumption post Trump.

But that diversity is exactly what makes SEA compelling. A sound understanding of these macroeconomic differences is what is needed to navigate a fertile hunting ground to find and back local or regional (or global) champions. Our Back to the Future thesis seeks to find opportunities with desirable triangulation of micro, macro and capital markets to deliver what the region is missing greatly, i.e., distribution to paid-in (DPI) capital.

Comparative Table: China vs. Southeast Asia

^{Source: World Bank World Development Indicators (2024) – GDP per capita, population, fertility rate, gross savings rate. IMF World Economic Outlook Database (April 2024) – GDP forecasts, forecast year to reach $10k per capita. UN World Population Prospects (2022 Revision) – Median age. World Federation of Exchanges (2024) – Number of listed companies, turnover ratios, market capitalisation. Bloomberg Terminal & Refinitiv (2008–2009 & 2024) – Historical and current data for China’s capital markets,Local Stock Exchanges: Vietnam: HOSE, HNX, UPCoM, Indonesia: IDX, Philippines: PSE, Thailand: SET, mai, Malaysia: Bursa Malaysia, China: Shanghai and Shenzhen Stock Exchanges.}

Sources: