Market Entry & Expansion

Thailand is aggressively positioning itself as Southeast Asia's EV manufacturing hub, and the numbers look compelling: excise tax reduced to as low as 2%, import duties slashed, cash subsidies of up to THB 100,000 per vehicle. For an automaker scouting expansion, this reads as a green light.

But read the fine print, and a different picture may emerge. These incentives are not grants. Under the EV 3.0 scheme, manufacturer only needs to produce one vehicle for every one imported. For the EV 3.5 Package, effective from 2026, importers of fully-built vehicles are required to domestically produce two units for every one imported, rising to three units for every one imported by 2027. Miss that ratio and the subsidy does not simply stop. The discount the manufacturer booked becomes a retroactive excise liability it owes.

It gets more granular still. From January 2026, the maximum share of imported battery cells that may count towards Thailand's 40% local content requirement drops from 15% to 10%. After June 2026, imported battery cells will no longer qualify at all. For any manufacturer still relying on Chinese cell supply chains, this is not a scheduling risk — it is a structural rethink of the entire cost model.

China Zhejiang Hozon New Energy Automobile - Neta entered Thailand in 2022 on exactly this basis — strong early sales of over 12,000 units in 2023, followed by failure to meet its local production milestones. This resulted in spare-part shortages, service centre closures, over 220 official complaints, and a regulator signalling the withdrawal of subsidies. What looked like a market entry strategy was, without that knowledge, a deferred excise bill.

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Indonesia's new capital offered building and land rights of up to 160 and 190 years respectively. In November 2025, that headline was invalidated in a single constitutional ruling.

Indonesia's new capital, Nusantara, was marketed to investors with a headline that is genuinely unusual in global real estate: building use rights (HGB) extendable to 160 years and land use rights (HGU) of up to 190 years. For companies with long investment horizons, that kind of tenure makes project financing bankable. You build, you operate, you do not worry about renewal risk for generations.

In November 2025, that headline was invalidated in a single ruling. Indonesia's Constitutional Court struck down the decree that had granted those unusually long tenures, ordering instead that Nusantara adhere to national land law of a maximum of 95 years, structured as a 35-year grant, a 25-year extension, and a 35-year renewal — each gate requiring a fresh government evaluation.

From a business perspective, the duration did not simply shorten. The nature of the security changed entirely. A 160-year tenure is a single, bankable commitment. A 95-year tenure structured across three phases is a recurring negotiation. The bankability of your asset now hinges not on a document, but on a relationship with a future government you have not yet met.

Any investment model built on the original terms needed to be rebuilt from scratch. This is not a story about Indonesia being a difficult market. It is a story about what happens when you build your investment thesis on a policy — rather than on an understanding of the constitutional constraints that sit above it.

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When US–China trade tensions escalated after 2018, the logic for shifting production to Vietnam was clear: lower tariffs, lower labour costs, a credible "Made in Vietnam" label. Vietnam's exports to the US surged from USD 49 billion in 2018 to approximately USD 136 billion by 2024. The thesis appeared to be working.

Then, in July 2025, the other shoe dropped. The US announced a bilateral trade deal with Vietnam: a 20% tariff on locally produced goods, and a 40% tariff on goods transhipped from other countries, a measure specifically targeting Chinese-origin goods with minimal local value-add. For companies that had relocated precisely to escape 25% tariffs on Chinese goods, the arbitrage had evaporated.

But the deeper exposure is origin compliance, not tariff arithmetic. Vietnam issued Decree No. 190/2025/ND-CP in 2025, with stricter rules of origin now requiring firms to prove minimum local value-added content, backed by digital tracing systems. Companies that set up light assembly operations assuming Vietnamese origin status would hold are now discovering their entire export model is under forensic review, in many cases at costs that far exceed the tariffs they were originally trying to avoid.

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When Singapore paused new data centre approvals between 2019 and 2022 to manage power and water constraints, investors looked across the Causeway. Johor offered lower land costs, proximity to Singapore's subsea cables, and a state government that moved with speed. Industry capacity surged from single-digit megawatts in 2021 to hundreds of megawatts operational by 2024, with a pipeline approaching 2.6 gigawatts. By mid-2025, Johor had approved RM 164 billion in related investments, with Amazon, Oracle, ByteDance, and YTL among those committing capital.

The opportunity looked unambiguous.

Approvals to build had captured the attention, but not the water and electricity requirement needed to operate. A single hyperscale data centre consumes more than 15 million litres of water daily — equivalent to or equivalent to the volume of six to seven Olympic-size swimming pools, or the daily supply of a town of 10,000 people. By late 2024, the government had received 101 applications for data centre development collectively requiring over 808 million litres of water per day. Johor's existing treated water production capacity stood at approximately 2,352 million litres per day and the system was already under strain from residential demand, drought, and recurring pollution incidents. In November 2024, the state halted approvals for inefficient, water-intensive Tier 1 and Tier 2 data centres entirely. For these operators who had already broken ground, the moratorium left them in a state of limbo; unable to secure the regulatory clearances required to finish and run their data centers.

The electricity situation was no less problematic. Government data from November 2025 showed Malaysian data centres consuming only about 47% of their declared maximum electricity demand. However, this figure reflects the gap between current usage and future contracted capacity, much of which will only come online over the next several years, as power infrastructure and demand are phased in over multi-year development timelines. With significant additional load expected to materialise as projects are completed through 2026–2027, current utilisation may understate the eventual strain on the grid, particularly as Malaysia’s data centre capacity continues to expand rapidly towards multi-gigawatt levels in the coming years. Policymakers have already flagged risks of misalignment between declared demand and actual usage — including concerns over speculative applications and inefficient capacity allocation, highlighting the challenge of planning for a system where capacity commitments precede real consumption

Then came the community dimension. In February 2026, Malaysia witnessed its first AI data centre protest: over 50 residents gathered outside a construction site in Gelang Patah, Johor, demanding an end to dust pollution and raising fears about the impact on local water supply. This was not an isolated flashpoint. In a related case nearby, authorities issued a stop-work order on a data centre project following similar complaints, halting construction and giving developers two weeks to rectify environmental and site management breaches. Together, these incidents marked the visible edge of a deeper systemic tension between industrial-scale digital investment and the communities absorbing its externalities.

Johor responded by overhauling its approval framework entirely. The new guidelines require developers to demonstrate credible water conservation plans, use sustainable cooling technologies, and meet strict environmental criteria covering water and electricity usage, green technology initiatives, and carbon reduction. A new water tariff of RM5.33 per cubic metre, roughly a 30–35% increase from the previous non-domestic rate, was introduced specifically for data centre operators from August 2025, restructuring the operating cost model that investors had underwritten at entry.

The lesson is not that Johor is the wrong market. It is that an approval is not an infrastructure guarantee. The companies that entered in 2022 and 2023 on the strength of a government green light discovered, mid-commitment, that the green light had been issued ahead of the grid, ahead of the water system, and ahead of a regulatory framework that was still being written. In fast-moving frontier markets, the gap between what is approved and what is operationally ready is precisely where the financial model breaks.

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For an ASEAN company entering China, the standard due diligence checklist covers the predictable: entity structure, licensing, distribution channels, regulatory approvals. Most of it gets resolved in the first twelve months. What the checklist does not cover is a competitive dynamic that operates on a longer fuse.

Regulatory

ASEAN brands should not assume their existing safety standards in their home country is testimonial in China. Under China's National Medical Products Administration (NMPA) framework, cosmetic regulation involves formal registration or filing, technical evaluation of ingredients, and end-to-end risk supervision. This contrasts with the ASEAN Cosmetic Directive, which is designed to facilitate trade through a notification-based system with lighter pre-market requirements. As a result, China’s regime is generally more stringent and interventionist than the ASEAN approach. A misstep in this assumption mid-commitment means product reformulation and retesting can add 12–18 months and millions in unplanned costs.

Social Commerce Ecosystem

Winning in China means winning on Douyin, Xiaohongshu, and WeChat. Livestream e-commerce alone reached 4.9 trillion yuan in 2023, making it by far the largest and most advanced live commerce market globally.

ASEAN companies are also active on these platforms back in their home countries but there are differences when they enter the Chinese market. China favors satire, exaggeration, and absurdity. ASEAN markets favor edutainment — tutorials, demos, and unboxings. The influencer structure also differs. China uses a three-tier system: Key Opinion Consumers (KOCs) seed trust; Key Opinion Leaders (KOLs) amplify; Key Opinion Sellers (KOSs) drive conversion via livestreams, while ASEAN brands are accustomed to flat-fee sponsorships.

Distribution Model

The traditional multibrand retail model that worked across ASEAN has collapsed in China. The consumer journey is now "online discovery, offline trial, online purchase" — physical stores are validators, not discoverers.

Sephora China, once the undisputed gatekeeper of premium beauty, now fills its shelves with brands born and scaled on Douyin. Sa Sa International, a Hong Kong-based retailer with deep ASEAN roots, entered China in 2005 and, with an offline-only strategy, exited entirely in 2025. Mannings shuttered its entire mainland China network. Both built their ASEAN businesses on multibrand retail as a primary gateway. In China, that gateway no longer exists.

For ASEAN beauty brands, this inverts the traditional expansion logic. The instinct to open flagship stores in prime locations — the standard ASEAN playbook — now carries structural risk. Foot traffic no longer guarantees discovery. The brands that succeed in China today build digital presence first, then use physical retail as a tool for validation, not customer acquisition. Entering with a store-first strategy means building infrastructure before you have an audience.

Domestic Competitor Strength

ASEAN brands entering China must understand they are competing against scaled, resource-rich players, not the "copycats" of a decade ago. Chinese domestic brands now command over 70% of the passenger vehicle market and hold about 69% share in home appliances, having overtaken international giants in sectors that define middle-class spending. This is not a niche trend but a structural shift across the consumer economy.

The prospect of the Chinese market is well understood, and the decision to enter is often made. The market development journey follows a familiar arc. What matters more are the strategic questions: business structure, locations, scale, and whether from day one the business is structured to integrate into the local ecosystem — not merely set up a local outpost. This is the mindset required to withstand intense competition in year five and beyond.

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For many Chinese companies expanding into ASEAN, Singapore is a footnote — a convenient place to incorporate a holding company, perhaps, or a transshipment point. Apart from the headline advantages cited incessantly over news or social media, not many has fully understood its strategic financial aspect.

A Chinese company invested RMB 20 million (approximately USD 3.08 million at USD/CNY 6.50) into an Indonesian operating entity in January 2021. The business achieved an average annual net profit margin of 15%, and profits accumulated and were retained in Indonesia.

By end-2025, the Rupiah had weakened to approximately 16,200 to the dollar, a depreciation of about 15.2% against the USD or about 9.7% against CNY on cross rate basis over the 2021–2025 period. The retained profit lost purchasing power in both USD and RMB terms. Dividends that could be repatriated were similarly reduced in value.

The company at that time was contemplating to set up another operating entity in Vietnam through redeploying the retained profits in Indonesia. Under Indonesian domestic law, dividends paid to China, a non-resident foreign parent, are subject to a 20% withholding tax, or 10% if under the Indonesia–China DTA subject to proper certification. Moreover, these earnings repatriated back are taxable as foreign income under Chinese law. The amount eventually left to invest in the Vietnam subsidiary would be approximately 30.5% less than the retained profit, after accounting for rupiah depreciation, Indonesia withholding tax, and China income tax.

The scenario would have been different had the Chinese company set up a Singapore holding company to hold its Indonesia subsidiary and retained earnings. In Jan 2021, SGD/IDR cross rate was approximately 1/10755. By end 2025, that rate was approximately 1/12933 — the SGD had appreciated roughly 20% against IDR.

Under Article 10 of the Indonesia–Singapore DTA, dividends paid to a Singapore holding company that owns at least 25% of the Indonesian entity are also capped at 10%. However, the major difference lies in onward distribution — Singapore imposes zero withholding tax on dividends paid outward regardless of treaty status. Earnings received by a Singapore holding company can generally be retained and redeployed efficiently across any other ASEAN operating entity — Thailand, Vietnam, Malaysia — without triggering a second withholding event. The direct China structure has no such flexibility. Every repatriation is a taxable moment.

Combining all these factors, on a RMB 20 million investment base with 15% annual profit growth, the differential in tax leakage, FX preservation, and regional redeployment optionality between a direct China–Indonesia structure and a properly constructed Singapore holding company is conservatively RMB 3.4 million over four years — roughly 24% more than the direct China–Indonesia structure, generated entirely by a structural decision made at incorporation. Earnings parked in a Singapore holding company, measured in SGD, grew in RMB terms passively. No investment decision required.

This differential would widen further if the Singapore holding company deployed investments to Vietnam structured as shareholder loans rather than equity. Interest payments from the Vietnam subsidiary to Singapore are typically tax-deductible in Vietnam and subject to reduced withholding tax under Article 11 of the Vietnam–Singapore DTA, subject to Vietnam’s interest limitation rules, capping net interest expense at 30% of EBITDA. The Singapore holding company receives interest income that can be managed with minimal tax leakage, leveraging Singapore's position as a regional financial centre with a robust treaty network and no withholding tax on outward payments. The direct China structure cannot easily access this flexibility. Cross-border lending from China requires regulatory approval from SAFE, is subject to quota limits, and is administratively complex for most companies. Under Chinese tax law, interest income received by a Chinese entity is taxed at the standard 25% corporate rate, with no treaty concessions that meaningfully reduce the effective tax burden.

Most boards discuss the DTA headline rate and stop there. What is usually not modelled is the compounding effect of currency differential, eliminated second-tier withholding, and cross-border treasury flexibility — all of which sit inside the holding structure question. The Singapore story is not about tax. It is about where your money lives between the moment you earn it and the moment you need it.

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Behind the Numbers

Exchange Rates

Currency Pair	01 Jan 2021	31 Dec 2025	Change
USD/CNY	6.47	7.03	CNY weakened 8.6%
CNY/IDR	2,176	2,386	CNY strengthened 9.7%
SGD/IDR	10,755	12,933	SGD strengthened 20.2%

Sources: IMF representative rates (2021), China Foreign Exchange Trade System (2025)

Tax Assumptions

Item	Rate	Basis
Indonesia WHT (China DTA)	10%	Dividends to China under DTA
Indonesia WHT (Singapore DTA)	10%	Dividends to Singapore under DTA
China CIT on foreign income	25%	Standard corporate rate
Foreign tax credit	Available	For Indonesia WHT paid
Singapore tax on inbound/outbound dividends	0%	No withholding tax

Direct China–Indonesia Structure

Impact	Amount (RMB)
Retained profit (2025 value)	20.23 million
Less: FX loss (CNY strengthened 9.7%)	(1.11 million)
Less: Indonesia WHT (10%)	(2.02 million)
Less: Net China CIT (15% after credit)	(3.03 million)
Final deployable to Vietnam	14.06 million

Singapore Holding Company Structure

Impact	Amount (RMB)
Retained profit (2025 value)	20.23 million
Less: Indonesia WHT (10%)	(2.02 million)
Convert to SGD (SGD strengthened 20.2%)	+20.2% gain
Convert to USD (USD/CNY 7.03)	—
Final deployable to Vietnam	17.48 million

Disclaimer
The above case and the numbers and taxes used are prevailing rates as of the time of writing and may change over time. This material is provided for informational and educational purposes only and should not be treated as tax, legal, or investment advice, nor as a promotion of any particular country or structure. Readers should consult their own professional advisors before making any decisions based on this content. AXSEA accepts no liability for any actions taken or not taken based on the information contained herein.