Chinese IT suppliers are rapidly growing in Southeast Asia, challenging Taiwanese enterprises that have long been backed by major tech firms Google and Apple.

Due to rising US-China tensions, Google first outsourced manufacturing to Foxconn, Compal Electronics, Quanta Computer, Pegatron, and Inventec. Goertek and BYD, two Chinese businesses, have joined.

Sources said Goertek would manufacture Pixel watches in Vietnam by 2025, replacing Taiwanese manufacturers. While BYD is competing to make Pixel phones in Southeast Asia, as reported by Nikkei Asia.

Southeast Asia's manufacturing attraction is due to its less expensive labor and proximity to China. According to Apple's current supplier list, 37% of Chinese vendors are located in Vietnam, indicating significant development.

Many Chinese companies are expanding abroad due to economic challenges and the recession. Taiwanese builder and actor general manager Lai Ming-Kuen remarked that Chinese firms offer low prices and have "diplomatic ties" with local governments.

According to Advantech's Vincent Chang, Chinese tech suppliers are "no longer second-tier suppliers" and have defied their past reputation as low-cost, low-quality providers. 

He acknowledged the "fierce" competition between Chinese and Taiwanese firms as the former is quickly increasing their quality to draw more resources and customers.

Printed circuit board manufacturing illustrates this rivalry, with Chinese businesses investing in 33 of 55 suppliers in Thailand. Taiwan Printed Circuit Association Chairman Maurice Lee noted that the usual strategy to win customers is "by cutting prices."

Southeast Asia's Booming Digital Economy

According to ASEAN Briefing, over 50 tech businesses in Southeast Asia have become unicorns. Singapore's Carro, Vietnam's MoMo, and Indonesia's GoTo Group are notable. Increasing use of smartphones, the internet, and an expanding middle class drive tech investment.

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Southeast Asia's digital economy is projected to hit $330 billion GMV by 2025 as e-commerce, food delivery, and ICT solutions in education, healthcare, finance, and banking have grown rapidly since the COVID-19 pandemic. E-commerce in the region also boomed as more people purchased online.

Fintech investments in Southeast Asia exceeded $4 billion in the first nine months of 2022, demonstrating financial inclusion's value creation potential.

China Tech Industry to Overtake Real Estate

Separately, Bloomberg Economics projected that China's high-tech industry may outperform real estate by 2026 in driving economic demand. Economists Chang Shu and Eric Zhu anticipate that high-tech might contribute roughly 19% of GDP by 2026, up from 14.3% last year, nearing the property sector.

Beijing is transitioning from property-driven to "high-quality development," which focuses on high-tech manufacturing and IT, big data, and AI innovation.

Bloomberg anticipated 2023 high-tech demand at 18 trillion yuan ($2.5 trillion), or 14.3% of GDP, across medical, sophisticated equipment, IT, and communications. In contrast, the property industry contributed 20.1%.

The property industry is likely to decrease, making high-tech companies a promising economic engine. Spillovers account for about 25% of high-tech demand. Economic demand rises 1.3 yuan for every 1 yuan growth in high-tech output.

However, global technology decoupling threatens this growth as the US and its allies limit sophisticated technology exports to China. 

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