Lisa Li, China Lead Partner at KPMG Global China Practice
Chinese enterprises are increasingly setting their sights on Southeast Asia, and the reasons go well beyond the familiar “supply chain diversification” narrative. e27 speaks to Lisa Li, China Lead Partner, KPMG Global China Practice, to unpack what is genuinely driving capital allocation decisions in Chinese boardrooms today.
From market opportunity to boardroom decision
According to Li, Chinese business leaders are turning to Southeast Asia due to a combination of pull factors, push factors, and strategic alignment.
The region’s enormous consumption potential — fuelled by a young demographic, rising disposable incomes, and rapid urbanisation — makes it an attractive frontier for Chinese companies in consumer goods, e-commerce, and digital services looking to expand their customer base.
Cost also plays a role. Land, labour, and utilities remain comparatively cheaper across most Southeast Asian countries than in China’s coastal manufacturing hubs, allowing companies to protect margins while diversifying production.
Also Read: Securing Singapore’s leadership in AI Innovation
Meanwhile, domestic competition in China has intensified, compressing profit margins and pushing decision-makers to look abroad. Southeast Asia’s geographical proximity and cultural affinity make it a natural first choice.
Policy dividends are another driver. The Regional Comprehensive Economic Partnership (RCEP) has lowered tariffs, streamlined customs procedures, and strengthened supply-chain connectivity across the region. Chinese firms are also aligning with national growth strategies; for instance, Singapore’s push to host regional headquarters even as companies manufacture in neighbouring countries, or the digitalisation and green transformation agendas being rolled out across ASEAN.
Finally, leading Chinese companies are confident they can replicate domestic success abroad. Having served hundreds of millions of consumers at home, they bring valuable experience in business models, branding, and supply-chain management to Southeast Asia’s emerging but fragmented markets.
A changing cast of investors
Li has observed a notable shift in who is expanding. Two decades ago, the landscape was dominated by large state-owned enterprises and centrally linked conglomerates, concentrated in energy, natural resources, and large-scale infrastructure — capital-intensive projects tied to national strategic objectives.
Today, private companies with more flexible decision-making and faster execution are emerging as the new driving force. A growing number of mid-sized and smaller private firms — many technology-driven, innovation-focused, or consumer-manufacturing oriented — are becoming frontline players. They are building brands, localising products, and tapping into Southeast Asia’s rising middle class across sectors ranging from smart home appliances and intelligent furniture to higher-value-added consumer goods.
That said, manufacturing remains one of the largest pillars of Chinese overseas investment. New energy vehicle (NEV) manufacturers, battery and spare parts producers, and the broader green energy supply chain continue to account for a substantial share of activity, even as tech-enabled and consumer goods companies increasingly drive deal volume and diversification.
Offence, defence, or both?
Asked whether this expansion is driven by genuine growth ambitions or by companies routing around tariffs and geopolitical risk, Li says both motivations have coexisted in recent years, though the balance has shifted.
When tariffs on most Southeast Asian countries rose in 2025, alongside tightened enforcement on origin verification, Southeast Asia stopped being viewed merely as an intermediate transit point for channelling exports to global markets. Chinese companies are no longer just seeking cost reduction; they are strategically expanding production, building ties with local consumers, and integrating into local business ecosystems for sustainable, long-term growth.
Localisation over geopolitics
On concerns about being perceived as “too close” to Beijing, or caught in US-China dynamics, Li is clear: current expansion is driven by growth considerations rather than geopolitical ones. Southeast Asia is increasingly seen not as a low-cost assembly hub for exports, but as a core strategic pillar where Chinese companies can build locally rooted, resilient, consumer-focused businesses capable of thriving independently.
Also Read: Singapore outsmarts the world in AI–ranked No.1 global hub
This is reshaping how companies structure their regional entities. Decisions on investment vehicles, ownership arrangements, and brand development are increasingly guided by localisation strategies. Many companies favour joint ventures with local partners for better market access, while branding leans towards local consumer tastes, often while retaining certain distinctive Chinese characteristics.
From tax structuring to strategic advisory
KPMG China’s role has evolved alongside these shifts. For years, the firm has supported cross-border M&A for Chinese outbound investors, working with the KPMG global network to provide integrated advisory services spanning financial advisory, due diligence, valuation, tax structuring, post-investment integration, and ongoing accounting and tax support.
But as greenfield investment gradually overtakes M&A as the dominant mode of Chinese expansion, particularly in Southeast Asia, KPMG is seeing a surge in mandates to help clients build new operations from the ground up. This includes site selection, joint venture partner vetting, and facilitating communication with local authorities to secure approvals and incentives.
Spotting trouble early
When expansion goes wrong, the fallout typically emerges within a year or two, says Li. Common failure patterns include financial strain from over-investment and underperformance, compliance gaps stemming from regulatory missteps and legal disputes, and talent loss driven by cultural integration challenges.
Early warning signs include eroding trust and communication between shareholders and management, cost overruns, weaker-than-expected market response, notable employee turnover, especially among core management and key technical staff, and rising disagreements with local partners.
Taken together, Li notes, these signals underscore the importance of decision-makers consistently reviewing business assumptions and promptly adjusting strategy as they navigate their overseas expansion.
The post It’s not just tariffs: The real reason Chinese capital is flowing into ASEAN appeared first on e27.