Regional Private Equity Faces New Scrutiny in Southeast Asia Amid China Diversification

The Southeast Asian region is experiencing an unprecedented economic and industrial boom, fueled by rising consumer demand, government decarbonization mandates, and diversification priorities under the so-called “China Plus One” shift. The rapid expansion of electric vehicle (EV) adoption, battery manufacturing, logistics, and consumer services is attracting a growing number of investors to growth opportunities across ASEAN member states. Investment from private equity (PE) firms originating in South Korea, Japan, Greater China, and Singapore has seen an uptick in sectors such as Thailand’s automotive and two-wheeler EV sector, Indonesia’s battery cathode precursor manufacturing, Vietnam’s lithium-ion cell assembly, and the regionally booming third-party logistics (3PL) and digital consumer services. Many of these firms gained extensive experience in China’s domestic market before expanding to the wider region, accumulating an average of 10-20 years of investment experience. This trajectory presents both challenges and advantages. An overreliance on China can represent a significant business risk, as demonstrated by recent geopolitical developments, including pandemic-related lockdowns, trade wars, and the weaponization of supply chains. This is a key driver behind companies diversifying their manufacturing and supply chains through the “China Plus One” strategy, exploring alternative hubs in Vietnam, India, Malaysia, and beyond. Conversely, their prolonged operations in China have allowed these firms to mature in a large domestic market, navigate multiple business cycles including contractions and expansions, and adapt to regulatory changes within China’s unique state capitalist system. South Korea’s MBK Partners offers an example of why this investment trajectory warrants closer scrutiny. Its China portfolio includes transactions involving state-linked automotive groups. For instance, the firm completed its acquisition of CAR Inc. after negotiations with Beijing Automotive Group, a Beijing municipal state-owned enterprise. This illustrates the extent to which some regional private equity activity in China has intersected with state-controlled industrial networks. Similar tensions were also apparent in the United States, where at a reception held in Nashville in July, MBK Partners and Young Poong Group reportedly presented themselves to Tennessee stakeholders as the largest shareholder group supporting Project Crucible, a joint venture in Tennessee between KoreaZinc and the U.S. Department of War. KoreaZinc is a South Korean non-ferrous metal smelter and a strategic supplier of critical minerals to both the United States. The event hosted by the MBK-Young Poong coalition raises eyebrows because they previously opposed the US-backed initiative, highlighting in company communiqués that the project would place core national technology in the hands of the U.S. government. The event’s invitation indicated that Tennessee Governor Bill Lee was expected to attend, although he ultimately did not. This can be, in part, attributed to the fact that MBK and Young Poong have been engaged in a control battle against the current controlling shareholders of KoreaZinc and its current management since 2024. The episode has raised questions regarding MBK’s efforts to position itself publicly as a leading supporter of the JV developed by KoreaZinc, despite noted previous opposition to the initiative. Such cases underscore the need to examine how China-based relationships may shape private sector expansion elsewhere across the West. This mirrors the business strategies of several other Asian investors. Hong Kong-based BPEA EQT has spent billions in Greater China over the past three decades in sectors including healthcare, technology, and logistics. The firm invested over $100 million in China’s MediTech Limited and raised over $1.2 billion to develop logistics properties in gateway cities across the country. Japan’s Advantage Partners expanded into China in several sectors simultaneously, including manufacturing, consumer, and business services. Its investment in Qin Jia Yuan, a multimedia and advertising development company, represented a significant strategic growth opportunity. Experience in these sectors becomes increasingly relevant as Southeast Asia’s current stage of development often resembles earlier stages of China’s growth. Foreign direct investment is reaching record highs in Southeast Asia, making it one of the fastest-growing outsourced logistics markets globally, projected to reach over $216 billion in value. Malaysia and Singapore play significant roles in this. The region is also becoming a leader in the EV sector, and, importantly, this applies to both the adoption and the manufacturing of electric vehicles. Market penetration in new vehicle sales has recently surpassed 40 percent in countries like Vietnam and Singapore, while Indonesia secured deals surpassing a billion dollars in value from both BYD and Hyundai for the building of manufacturing plants. MBK Partners’ experience managing mobility platforms in China includes transactions involving entities connected to major Chinese state-owned automotive groups. As it expands into Southeast Asia, those ties may invite closer examination from investors and regulators concerned with governance, strategic dependency, and exposure to China-linked state interests. Hong Kong’s PAG and BPEA EQT, in addition to China’s own Hillhouse Investment, can adapt and expand their existing portfolio in logistics, manufacturing and consumer businesses. Similarly, Japan’s Advantage Partners can help scale Southeast Asian businesses in areas ranging from consumer packaging to pharmaceuticals. More broadly, for regional investors with extensive operating histories in China, this experience is therefore not merely a commercial exercise. Prior partnerships with Chinese state-owned groups require closer scrutiny as firms enter new Southeast Asian markets, particularly where investments touch strategic infrastructure, mobility or critical supply chains. Strategic corporate investors are already signaling which sectors private equity firms might follow them into in the near future. Industrial giants such as battery and EV firms CATL, BYD, Gotion High-Tech and EVE Energy are transforming Southeast Asia into a fully integrated production area. They are capitalizing on Indonesia’s vast nickel reserves in upstream investments, the push for...