Asean

Generative Artificial Intelligence and Large Language Models: Southeast Asia is becoming a Global Innovation Hub

Article by Luca Menghini

Southeast Asia is undergoing a rapid transformation in the field of generative artificial intelligence (Gen AI) and large language models (LLMs). Historically regarded as a hub for manufacturing and digital services, the region is emerging as a key player in AI-driven innovation. With significant investments in research and development (R&D) and infrastructure, ASEAN nations are positioning themselves at the forefront, competing with global leaders such as the United States and China.

The growing interest in Gen AI is reflected in investment trends. The AI market in ASEAN is expected to reach $2.3 billion by 2025, with an annual growth rate of 41.48% until 2030. Countries like Singapore, Thailand, and Indonesia are leading AI adoption, with governments and businesses collaborating to develop indigenous LLMs tailored to local languages and cultures. Singapore, known for its tech-friendly policies, has established regulatory frameworks that promote responsible innovation. Thailand, through initiatives like ThaiLLM, is investing millions to create local models that address the region’s linguistic and cultural nuances.

The AI ecosystem is further fueled by an exponential growth of startups and investments. ASEAN has witnessed the rise of numerous AI-driven companies, particularly in the fintech, healthcare, and e-commerce sectors. Businesses are leveraging LLMs to optimize customer service, automate processes, and enhance decision-making. Indonesia and Vietnam are experiencing a boom in AI startups, attracting capital from global venture capital funds eager to enter the region’s digital market. Startups based in Singapore have secured major funding rounds, reinforcing the city-state’s status as a launching pad for the AI sector.

Despite these advancements, AI governance remains a crucial issue. ASEAN has proactively addressed regulatory challenges by introducing the Expanded ASEAN Guide on AI Governance and Ethics – Generative AI, which establishes guidelines for the ethical use of AI, focusing on risks such as misinformation, bias, and intellectual property rights. The guide promotes collaborative governance, regional data-sharing initiatives, and independent frameworks for testing generative AI, ensuring its safe usage. Additionally, the ASEAN AI Governance and Ethics – Generative AI framework provides a comprehensive roadmap to help policymakers and businesses navigate the ethical AI landscape. This model emphasizes accountability, transparency, and fairness in AI implementation and promotes technical safety measures such as digital watermarking, incident reporting, and independent certification programs, including Singapore’s Project Moonshot.

Another critical factor driving AI growth in Southeast Asia is its young, digitally native population. A recent study highlights that over 80% of university students and 62% of workers in the region are already experimenting with generative AI tools. This demographic, often referred to as Generation AI, is accelerating AI adoption, making ASEAN one of the fastest-growing markets for these technologies. The widespread use of Gen AI in workplaces is pushing companies to integrate AI-based solutions, although many struggle to keep pace with employees’ independent adoption of AI tools.

Beyond startups, large corporations and multinational companies are also investing in Southeast Asia’s AI infrastructure. Global tech giants such as Google, Microsoft, and NVIDIA are partnering with governments and local enterprises to establish AI research centers and cloud computing hubs. These partnerships aim to enhance AI literacy, provide cloud computing resources, and create opportunities for local talent. Malaysia and the Philippines are emerging as key destinations for AI R&D centers, thanks to their growing tech workforce and government-friendly policies.

The impact of generative AI in ASEAN extends beyond commercial applications. Governments are exploring AI’s potential for national development, using AI-driven analytics for economic forecasting, urban planning, and crisis management. AI-powered solutions are also revolutionizing education, with adaptive learning platforms powered by LLMs providing personalized experiences in multiple languages, addressing the region’s linguistic diversity.

However, challenges remain. The digital divide, limited AI infrastructure in certain areas, and data privacy concerns pose obstacles to widespread adoption. Singapore is at the forefront of AI preparedness, while countries like Cambodia, Laos, and Myanmar face difficulties due to inadequate digital infrastructure and low levels of AI literacy. ASEAN’s strategy to bridge this gap includes regional cooperation, investments in AI training programs, and incentives for AI-driven businesses.

As Southeast Asia cements its role in the global AI landscape, it is evident that the region is no longer merely a consumer of technology but an emerging hub for AI innovation. With a dynamic startup ecosystem, strategic government initiatives, and a tech-savvy workforce, ASEAN is positioning itself as a key AI hub, poised to shape the future of Gen AI in the years to come. Policymakers, investors, and business leaders will continue to monitor and adapt their strategies to ensure that AI’s transformative potential is fully realized in the region.

A Growing Hub for Global Manufacturing

By Luca Menghini

Chinese investments in Southeast Asia have grown significantly in recent years, transforming the region into an important manufacturing hub. This trend is driven by rising production costs in China, increasing geopolitical tensions, and a strategic shift towards diversifying supply chains. ASEAN countries, thanks to their strategic location, competitive labour costs, and investment-friendly policies, are at the forefront of this transformation, attracting substantial Chinese investments across various sectors.

The drive for this shift stems from ongoing trade tensions between China and the United States, which have disrupted traditional supply chain flows. U.S. tariffs and stricter rules of origin have pushed Chinese companies to relocate manufacturing operations abroad to bypass these barriers. Southeast Asia represents an attractive alternative due to its proximity to China, established trade agreements, and cost advantages. Countries like Vietnam, Thailand, Malaysia, and Indonesia have become key destinations for these investments, reinforcing their role as indispensable players in global supply chains.

A clear indicator of this trend is the rapid growth in exports of intermediate goods from China to ASEAN countries. From January to November 2024, exports of these goods to Vietnam alone increased by 32% compared to the previous year, accounting for over 70% of China’s exports of mechanical and electrical products. This reflects a broader pattern of Chinese companies shifting supply chains to ASEAN countries to mitigate risks associated with geopolitical tensions and tariffs. This shift marks a new chapter in the globalization of manufacturing, with Southeast Asia taking on an increasingly central role.

The region's appeal to Chinese investors lies in its competitive labour market. Average wages in the manufacturing sector in ASEAN countries remain significantly lower than in China, with hourly rates ranging from USD 1.50 to USD 3 in Vietnam, Thailand, and Malaysia, compared to USD 8.27 in China. This wage disparity offers a strong incentive for labour-intensive industries to relocate. However, substantial productivity differences persist, and Chinese manufacturers are addressing this challenge by investing in workforce training and adopting advanced automation technologies—a strategy aimed at replicating China's success in building an efficient industrial base.

Southeast Asia's infrastructure, although still developing, is undergoing significant improvements to support this manufacturing boom. Governments in the region are heavily investing in transport systems, ports, and energy systems to enhance their attractiveness to foreign investors. For example, Indonesia is leveraging its rich nickel reserves to create a robust electric vehicle (EV) supply chain, including battery and component production. Meanwhile, Thailand is positioning itself as a hub for EV assembly, supported by subsidies and localization requirements aimed at promoting domestic production capabilities.

Among the main beneficiaries of Chinese investments are the electronics and automotive industries. Vietnam, now one of the leading exporters of electronics, has seen a significant inflow of foreign direct investment (FDI) from Chinese companies looking to leverage its growing manufacturing capabilities. Similarly, Malaysia and Thailand have become central to the automotive sector, with numerous Chinese companies establishing operations to produce components and assemble vehicles. These investments align with global trends favouring sustainable energy solutions, such as the rapid growth in electric vehicle (EV) production.

Chinese companies are also leveraging ASEAN's favourable trade policies to access broader markets. Initiatives such as the Regional Comprehensive Economic Partnership (RCEP) have streamlined trade procedures and reduced tariffs, making the region more attractive to businesses. By enabling products to cross borders multiple times with minimal costs and bureaucracy, RCEP has reinforced Southeast Asia's role in global supply chains. Furthermore, the region's integration with the Belt and Road Initiative (BRI) has further deepened economic ties between China and ASEAN, facilitating greater investment flows.

Despite these advantages, significant challenges remain, such as political instability, regulatory discrepancies, and infrastructure gaps, which in some ASEAN countries pose risks to long-term investments. For instance, inconsistent legal frameworks and fragmented customs procedures can increase compliance costs for companies operating across multiple jurisdictions. Additionally, while ASEAN countries boast lower labour costs, the availability of skilled workers in high-tech sectors remains limited. This has prompted Chinese companies to invest in vocational training programs and educational initiatives, addressing the skills gap and ensuring sustainable operations.

Environmental considerations are another crucial factor influencing investment decisions. Southeast Asia is among the regions most vulnerable to climate change, with rising sea levels and extreme weather events posing significant risks to infrastructure and production facilities. In response, ASEAN governments are increasingly prioritizing sustainability in their development strategies. Renewable energy initiatives, such as Vietnam's rapid expansion of solar power, highlight the region's commitment to green growth. These efforts are essential for attracting environmentally conscious investors and meeting global sustainability standards.

Geopolitics also plays a significant role in shaping the dynamics of Chinese investments in ASEAN. The region's strategic position at the crossroads of major trade routes enhances its importance in global economic networks. ASEAN countries have skilfully maintained a balance between economic partnerships with China and security alliances with the United States. This delicate diplomacy has enabled them to attract investments from both superpowers while minimizing the risk of becoming entangled in their geopolitical rivalry.

Looking ahead, Southeast Asia's role as a manufacturing hub is set to grow, but it is unlikely to completely replace China's dominant position. The region's success will depend on its ability to address existing challenges, such as improving infrastructure, enhancing workforce productivity, and promoting greater regional integration. Initiatives like the ASEAN Highway Network and trans-regional energy projects demonstrate the region's commitment to building a more interconnected and efficient economic bloc.

In conclusion, Chinese investments are transforming Southeast Asia into a critical manufacturing hub, with far-reaching implications for global trade and supply chains. While the region faces significant challenges, its strategic advantages, combined with sustained investments and supportive policies, position it as a key player in the evolving global economic landscape. As ASEAN continues to attract and integrate foreign investments, its influence on global manufacturing will deepen, offering opportunities for economic growth and development in the years to come.

Comparative analysis of two of Southeast Asia's energy giants

By Luca Menghini

Petronas, Malaysia's state-owned oil company, and Pertamina, its Indonesian counterpart, represent two of the most significant players in Southeast Asia's energy sector. These companies have been instrumental in driving economic growth and managing their countries' energy resources. Despite their shared role as national energy champions, their strategies, operational priorities, and approaches to the global energy transition differ significantly, shaped by distinct domestic realities and geopolitical considerations. While Petronas has pursued an export-oriented strategy to establish itself as a global leader in the energy sector, Pertamina has focused on addressing Indonesia’s vast domestic energy needs, often prioritizing affordability over profitability.

Founded in 1974, Petronas emerged as a strategic initiative by Malaysia to take control of its natural resources and reduce reliance on foreign oil companies. The company quickly transitioned from managing domestic oil fields to building a strong international presence, with over 70% of its revenue now derived from exports and overseas operations. Landmark projects like the RAPID complex in Johor exemplify Petronas' ambition to integrate downstream activities with global market demands, leveraging advanced technologies to enhance efficiency and sustainability. By contrast, Pertamina, established in 1957, has operated as a pillar of Indonesia’s energy security. Its primary focus has been the domestic market, which accounts for the majority of its revenue, reflecting its role in ensuring affordable energy access for Indonesia’s large and growing population. Subsidies and price controls have historically limited Pertamina's financial performance but have also cemented its position as a key tool of government policy.

The global energy transition has presented unique challenges and opportunities for both companies. Petronas has embraced the shift towards cleaner energy with a clear strategy to achieve net-zero carbon emissions by 2050. Its initiatives include significant investments in renewable energy, hydrogen, and carbon capture technologies. Notable projects such as the Kasawari carbon capture and storage facility and the biorefinery collaboration with Eni and Euglena demonstrate Petronas’ commitment to innovation and sustainability. Pertamina, while also engaging in renewable energy development, has adopted a more resource-driven approach. Leveraging Indonesia's rich geothermal reserves, the company has prioritized projects like geothermal energy expansion, biofuel production, and green hydrogen exploration. Pertamina’s Sustainable Finance Framework underscores its long-term commitment to environmental and social governance principles, aligning its investment strategy with Indonesia’s net-zero emission target for 2060.

Geopolitical dynamics further distinguish the trajectories of these two energy giants. Petronas operates in a complex environment marked by territorial disputes in the South China Sea. Its exploration activities in contested waters, such as the Kasawari gas field, highlight the intersection of energy security and regional diplomacy. While Malaysia has maintained strong trade relations with China, the tensions surrounding these operations require careful navigation to ensure the stability of Petronas’ revenue streams and the broader energy market. Pertamina, less entangled in such international disputes, has focused on national priorities, such as energy self-sufficiency and infrastructure development. However, Indonesia’s participation in global climate forums and its increasing emphasis on sustainability signal Pertamina’s growing role in international energy diplomacy.

Despite these differences, both companies face shared challenges in adapting to a rapidly evolving energy landscape. Reports suggest that their high-cost oil production structures could pose fiscal risks as the world transitions towards renewable energy and reduced fossil fuel dependence. For Petronas, the shift requires balancing its role as a global energy leader with its responsibility to contribute to Malaysia’s economy through dividends and taxes. Pertamina, on the other hand, must reconcile its role as a domestic energy provider with its ambition to become a regional leader in renewables and low-carbon technologies.

Petronas’ export-driven model has enabled it to reinvest profits into technological innovation and global expansion, positioning the company as a forward-looking player in the energy transition. Its subsidiary, Gentari, exemplifies this approach, focusing on renewables and hydrogen development. Pertamina, while constrained by its domestic mandate, has made significant strides in aligning its operations with global sustainability goals. Initiatives such as biofuel development and geothermal energy projects reflect its commitment to reducing carbon emissions while meeting Indonesia’s growing energy demands. Both companies have also embraced partnerships to enhance their capabilities, with Petronas collaborating on international projects and Pertamina forming alliances with firms like Hitachi Energy and Genvia to advance renewable energy technologies.

The comparison between Petronas and Pertamina reveals the broader economic and political dynamics of Southeast Asia. Malaysia’s smaller domestic market has allowed Petronas to focus on exports and international growth, creating a model that emphasizes profitability and innovation. Indonesia’s larger population and energy needs have positioned Pertamina as a vital instrument of social policy, prioritizing affordability and accessibility. These differing approaches highlight the complexity of managing state-owned enterprises in a region where energy demands, environmental challenges, and geopolitical pressures intersect.

Navigating the Challenges of Climate and Technology in a Key Economic Driver

Article by Luca Menghini

The agrifood sector plays an essential role in the ASEAN economy, both as a pillar of food security and as a crucial source of employment, particularly in rural areas. In a region where staple crops like rice, palm oil, seafood, and fruits are central to daily life, agriculture supports millions of people and remains a key component of GDP in countries such as Myanmar, Cambodia, and Laos. However, as climate change accelerates, environmental pressures are threatening these vital resources, posing significant challenges to both regional stability and economic growth. The ASEAN agrifood landscape, which has long been the backbone of food supply in Southeast Asia, is facing unprecedented pressures from climate change, deforestation, and biodiversity loss.

Southeast Asia has always been susceptible to extreme weather. Today, there are increasingly erratic weather patterns, such as floods, heatwaves, and droughts, which disrupt crops and make food production less predictable. Rice, a staple food for millions, is particularly vulnerable to temperature fluctuations and water shortages, putting both livelihoods and food security at risk. It should be noted that agriculture is a major contributor to greenhouse gas emissions, particularly through rice paddies, livestock farming, and land clearing for plantations. Rice cultivation, for example, produces significant methane emissions, while the expansion of palm oil and other plantations often results in deforestation and biodiversity loss. Balancing the need to feed a growing population with the need to reduce environmental impact is a complex challenge that highlights the necessity for strategic action by ASEAN member states.

ASEAN countries are beginning to recognize these issues, as highlighted by initiatives like the ASEAN Vision and Strategic Plan of Action for Food, Agriculture, and Forestry, which aims to address climate and food security challenges. On an individual level, countries are implementing their national programs, such as Vietnam's 'One Million Hectare Low Emission Rice' project. Through this initiative, Vietnam aims to reduce greenhouse gas emissions from rice production by 30% by 2030, demonstrating how targeted agricultural reforms can contribute to both climate goals and food security. However, the scale and urgency of these efforts underscore the need for greater collaboration among ASEAN countries to effectively mitigate environmental impacts.

To address these challenges, the adoption of new technologies is increasingly recognized as a viable solution for enhancing productivity while simultaneously reducing agriculture’s environmental impact. Innovative tools, such as drones and Internet of Things (IoT) sensors, allow farmers to monitor crop health, soil conditions, and water levels with unprecedented precision. Data analytics and machine learning also provide valuable insights for optimizing fertilizer and water usage, thereby enhancing yields and reducing environmental strain. This transition toward 'smart farming' enables more efficient resource allocation and reduces the ecological footprint of agrifood production. Through precise application of water and nutrients, these tools help to stabilize yields even in volatile climates, thus strengthening food security. The private sector’s role in driving this shift, from developing technology to offering training, is crucial to ensuring that smallholder farmers across the region can access and implement these advancements.

ASEAN has laid a foundation for collaborative responses to these challenges. Programs such as the ASEAN Integrated Food Security Framework and the ASEAN Climate Resilient Network support shared agricultural standards and practices, fostering resilience across national borders. Cross-border cooperation allows for the pooling of resources, dissemination of sustainable farming techniques, and implementation of early warning systems, which are essential for building adaptive capacity across the region. For example, Singapore’s Centre for Climate Research has offered to share climate data with neighboring countries, aiming to enhance agricultural planning and resilience. Such collaborative initiatives demonstrate how regional integration can enhance resilience and optimize resource use.

Moving forward, ASEAN’s agrifood strategies beyond 2025 must prioritize sustainable farming practices and technological adoption. Governments can build on current initiatives by creating policies that support the scaling of technologies, such as IoT-enabled smart farming, which will reduce waste and increase crop efficiency. In addition, expanding initiatives like Vietnam’s low-emission rice project to other member countries would be a strong step toward regional sustainability. A post-2025 framework that includes public-private partnerships will be vital for realizing the agrifood sector’s climate goals. Collaborative projects between governments and the private sector can also provide financial and technical support to smallholder farmers, helping them to adopt resource-efficient practices and participate in environmentally responsible markets. Enhanced regional coordination and information-sharing mechanisms, such as the ASEAN Food Security Information System, would further support these efforts by providing timely data on food supplies and weather conditions.

As ASEAN’s agrifood landscape faces these complex challenges, maintaining a balance between agricultural productivity and climate resilience is essential for sustainable development. Technology adoption and regional cooperation offer pathways to achieve this balance, but success will require concerted efforts from all ASEAN member states. With ongoing investments in sustainable practices and a shared commitment to climate action, ASEAN’s agrifood sector can continue to provide food security, employment, and economic stability for millions across the region. In the face of climate and environmental challenges, ASEAN must strengthen its collective action and foster a resilient, adaptable agrifood system to safeguard the well-being of its populations and ensure sustainable growth in the years ahead.