Ngor Luong and Channing Lee
Chinese tech giants Alibaba, Tencent, and Huawei have built more data centers in Southeast Asia than Google, Amazon, and Microsoft. The rapid expansion of Chinese tech investment has many nuanced implications for China’s presence in the region – especially at a time when the Chinese government exerting more and more control over the country’s tech giants.
China is making headway in Southeast Asia partly because political and industry leaders in emerging economies such as in Singapore, Indonesia, Malaysia, and Vietnam are reluctant to take sides between Washington and Beijing. Consumer economics also plays a role. While a decade ago, Chinese alternatives to U.S.-made technology were subpar and rarely available, today, in areas such as cybersecurity and information and communications technology, Chinese companies like Huawei and ZTE offer a broad range of high-quality products at a lower price point. Even if governments in Indonesia and other countries are concerned about growing Chinese economic and technological influence, market forces are making Chinese technology harder and harder to resist.
In addition to cloud services, cybersecurity, ICT infrastructure and services, China is also looking to Southeast Asia for its potential in artificial intelligence (AI). The region has some of the world’s fastest-growing digital economies, and nearly every country in Southeast Asia has a strategy focused on AI development and adoption in key sectors like e-commerce, health, finance, and smart cities. Following its own AI strategy, China has been pushing its tech companies and investors to “go out” into the global economy, namely to go after major mergers and acquisitions, invest in promising startups, build research centers, and pursue other opportunities to expand its economic and tech influence around the world.
It is too early to judge the extent to which China’s “going out” strategy has been successful in Southeast Asia. Focusing specifically on AI-related investments, a recent report from Georgetown University’s Center for Security and Emerging Technology (CSET) found an uptick in Chinese private equity and venture capital investment in Southeast Asia’s AI companies and startups over the past five years. Nonetheless, China is a relatively new player in the region’s nascent AI ecosystem, with data on such transactions only dating back to 2011. China’s investment activity and capital input into Southeast Asia’s AI markets still very much lags behind that of the United States.
Singapore is by far the top destination for AI-related investment. This is true for both the money flowing from China and the capital coming from investors in the United States, Japan, and Europe. Indeed, Singapore is home to exciting AI startups working in different applications such as sales and business analytics, and its AI ecosystem builds on a growing digital economy.
While AI investment from China remains limited, Chinese tech companies are pursuing a broad range of other AI-related linkages with government and commercial stakeholders in the region. Most often, these include establishing company subsidiaries, opening up regional offices or headquarters, and building research and development labs or data centers. Huawei, for instance, has established three R&D labs in Singapore since 2016, including the Huawei OpenLab Singapore, which has been instrumental in helping Huawei expand its market share in emerging technologies like smart computing. OpenLab Singapore, notably, was added to the U.S. Entity List in 2020.
Some Southeast Asian leaders have also been eager to work with Chinese tech companies, as the governments in the region implement smart city programs to deal with domestic challenges like traffic congestion and public safety. The Chinese facial recognition giant Megvii, for instance, has worked with a Thailand-based AI company SkyEye Tech on public security and traffic regulation in Bangkok. Surveillance technologies that increasingly rely on AI, big data, and biometric collection are often part of the smart city technology stack, but the report also cites examples where Chinese companies sold surveillance equipment as a standalone offering to government and commercial entities in Cambodia, Indonesia, and Myanmar.
Chinese investors and tech giants may have been slow to arrive in Southeast Asia, but their footprint and influence is certainly noticeable now. In fact, this trend might accelerate in the next few years in response to growing consumer demand in the region, the slowing down of the Chinese economy, added pressure from the Chinese government to expand internationally, and the proliferation of U.S. restrictions imposed on Chinese technology and investment.
For its part, the United States is interested in building stronger technological ties with Southeast Asian partners. But beyond maintaining a relationship with Singapore and honoring broader treaty partnership with the Philippines, strengthening ties with the region as a whole seems to be less of an urgency for Washington than forging stronger partnerships with long-term allies in East Asia or India. The United States must be careful to not get complacent about China’s inroads in Southeast Asia’s technology ecosystem, or it might be in for a rude awakening.
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