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The Diplomat
30-06-2025
- Business
- The Diplomat
Not Just Shock Absorbers: How ASEAN Is Shaping the China Trade Balance
Even as China turns to the region to manage overcapacity and geopolitical headwinds, Southeast Asia will continue to shape trade on its own terms. Leaders from China and Southeast Asian nations pose for a photo during the 27th ASEAN-China Summit in Vientiane, Laos, October 10, 2024. China's recent manufacturing resurgence – dubbed the 'Second China Shock' — has prompted fears of deindustrialization across Southeast Asia. Writing in The Straits Times last month, Ravi Velloor argued that China's dominance in sectors from textiles to EVs threatens ASEAN industries, reviving calls to revisit the assurances made by former Chinese Premier Zhu Rongji upon the signing of the China-ASEAN Free Trade Agreement (CAFTA). Yet framing Southeast Asia as a victim , as the term 'shock' implies , reflects both a misunderstanding of the region's historical autonomy and strategic agency and a misreading of China's intent. Complementarity, Not Exploitation China's trade with the region has historically been asymmetrical but stable, built on complementary strengths rather than competitive overlap. In 'The Nanhai Trade: The Early History of Chinese Trade in the South China Sea,' the historian Wang Gungwu's traces this dynamic from the Han dynasty (211 BCE) to the founding of the Song dynasty in 960 CE, highlighting both the imperial attitudes towards the region and the economic foundations of maritime commerce. Then and after, Southeast Asian kingdoms such as Srivijaya and Ayutthaya exported spices, rice, metals, and timber to China in exchange for ceramics, textiles, and manufactured goods. The modern iteration of this relationship is governed by a more institutional framework. In 2009, China overtook Japan as ASEAN's largest trading partner. Today, annual China-ASEAN trade is projected to reach $1 trillion, surpassing the combined trade volumes of the United States and the European Union with China, and making ASEAN China's largest trading partner too. These new dynamics shed light on the nature of China's trade surplus with Southeast Asia, which extends beyond conventional narratives of high-tech dominance or state-induced overcapacity. Pop Mart's soft toy, Labubu, for instance, illustrates China's expanding strength in IP-driven consumer goods, where value is derived from design, branding, and emotional appeal. Southeast Asia has emerged as the company's largest and fastest-growing international market, with revenue in the region rising 619 percent year-on-year to $336 million, nearly half of Pop Mart's overseas earnings. ASEAN Shaping Engagement Clearly, in recent years the nature of China-ASEAN trade has evolved, driven by the rising value of China's intermediate and finished goods relative to Southeast Asia's commodity exports. This shift, combined with the region's growing middle class and purchasing power, has contributed to a widening trade imbalance. Yet governments across Southeast Asia have increasingly learned to use access to their fast-growing markets as strategic leverage, positioning themselves not simply as recipients of investment and exports but as active participants capable of demanding reciprocity and shaping the terms of engagement. The clearest example of this strategic posture can be seen in the defense sector, one of the most politically sensitive domains. In 2024, Thailand opted for Sweden's SAAB Gripen fighter jet over a U.S. bid, securing not just a fighter platform but full operational control of its Link-T datalink and a 144 percent return on investment via industrial offsets. Indonesia followed suit in 2025 with its commitment to purchase 48 KAAN fifth-generation fighter jets from Turkey, securing terms for local assembly and capability transfer. ASEAN states are replicating similar leverage in civilian sectors by using market access to drive industrial upgrading through local content mandates, technology transfer, and IP enforcement. Thailand now requires electric vehicle (EV) manufacturers benefiting from government tax incentives to produce core components – such as electric motors, reducers, and inverters – locally by 2026. This local content policy has prompted major Chinese automakers, including BYD and Changan, to commit to sourcing more of their EV components from Thai suppliers. The policy is expected to boost Thailand's national EV output by 40 percent in 2025. In parallel, Vietnam has revised its 2025 feed-in tariff system for solar power to favor projects that use locally produced battery storage and polysilicon. The new tariffs provide higher rates to solar projects that meet minimum local content requirements for batteries and polysilicon, aiming to reduce Vietnam's dependence on (mostly Chinese) imports and to advance the country's position in the solar value chain. Furthermore, Malaysia, Indonesia, and other ASEAN governments have imposed a series of tariffs and trade barriers targeting Chinese goods to protect local industries from being overwhelmed by subsidized, low-priced imports. Malaysia has levied anti-dumping duties ranging from 4.48 to 20.42 percent on certain Chinese steel products and is considering broader measures to shield domestic manufacturers. Indonesia, facing a surge of cheap Chinese imports that threaten its small and medium-sized enterprises, has announced plans to impose tariffs of up to 200 percent on a range of Chinese products, including textiles, footwear, ceramics, and cosmetics. Both Vietnam and Indonesia have also launched anti-dumping investigations and duties on various Chinese goods to counteract unfair trade practices. Beyond tariffs, governments are also taking action against Chinese e-commerce platforms. Indonesia, for example, has blocked the Chinese online marketplace Temu, citing concerns over the impact on local micro, small, and medium enterprises and regulatory non-compliance. These moves reflect a broader trend across ASEAN to tighten enforcement, strengthen trade defense mechanisms, and safeguard domestic industries in the face of mounting Chinese overcapacity and aggressive export strategies. As global scrutiny of Chinese exports intensifies, ASEAN is increasingly strengthening its own trade defenses, demonstrating it is far from a passive absorber of the 'Second China Shock'; they are actively shaping the terms of engagement, an approach that in fact aligns with China's own strategic interests. China's Interest in ASEAN's Success Global trends are making reliance on single-source manufacturing untenable. According to McKinsey's 2025 survey of 400 Chinese export firms, 58 percent now use a 'China+1' strategy, with ASEAN as the leading secondary production base. Overcapacity is another driver: Factory utilization rates for China's EVs have fallen below 50 percent (a significant gap from the 80 percent breakeven point), and its solar panel industry faces declining margins due to global oversaturation. Exporting this surplus into politically neutral, fast-growing ASEAN markets is a growing strategic necessity. Finally, amid rising geopolitical pressure, China sees stable ties with ASEAN as a hedge against regional isolation. The 2024 CAFTA upgrade and the Regional Comprehensive Economic Partnership underscore Beijing's commitment to trade frameworks that bolster ASEAN's role in global supply chains – and its value to China. What most threatens ASEAN-China interdependence today is not economic logic, but growing domestic political pressure. In both regions, public opinion is increasingly shaping the boundaries of foreign policy. As such, managing ASEAN-China ties requires mutual recognition of domestic political realities and the cultivation of political capital to sustain the relationship over the longer term. This is why narratives like the 'Second China Shock,' which suggest ASEAN passivity or acquiescence, should be reconsidered. The shock, if it exists, may be real – but so is ASEAN's capacity to respond on its own terms.


AllAfrica
25-06-2025
- Business
- AllAfrica
No mere shock absorber: ASEAN setting terms on China trade
China's manufacturing surge – dubbed by some as the 'Second China Shock' – has raised fears that a deluge of cheap Chinese imports could deindustrialize large swathes of Southeast Asia. Yet framing Southeast Asia as a victim , as the term 'shock' implies, reflects not only a misunderstanding of the region's historical autonomy and strategic agency but is also a misreading of China's intent. Historically, China's trade with the region has been asymmetrical but stable, often built on complementary strengths rather than competitive overlap. Historian Wang Gungwu's 'The Nanhai Trade: The Early History of Chinese Trade in the South China Sea', traces this dynamic from the Han dynasty (211 BCE) to the founding of the Song dynasty in 960 CE, highlighting both the economic foundations and imperial attitudes toward maritime commerce. During this period, kingdoms in the region such as Srivijaya and Ayutthaya exported spices, rice, metals and timber to China in exchange for ceramics, textiles and manufactured goods. The modern iteration of this relationship is governed by a more institutional framework. The 2002 CAFTA marked a structural shift from tributary privileges to rules-based trade, facilitating a surge in trade between China and Southeast Asia. In 2009, China overtook Japan as ASEAN's largest trading partner. Today, China–ASEAN trade is projected to reach US$1 trillion, surpassing the combined trade volumes of the United States and the European Union with China and making ASEAN China's largest trading partner. This new and multifaceted trade sheds light on the nature of China's trade surplus with Southeast Asia, which extends beyond conventional narratives of high-tech dominance or state-driven funneling of overcapacity into the region. Clearly, the nature of China-ASEAN trade has evolved, driven by the rising value of China's intermediate and finished goods relative to Southeast Asia's commodity exports. This shift, combined with the region's growing middle class and purchasing power, has contributed to the widening trade imbalance. Yet governments across Southeast Asia have increasingly learned to use access to their fast-growing markets as strategic leverage, positioning themselves not simply as recipients of investment and exports but as active participants capable of demanding reciprocity and shaping the terms of engagement. The clearest example of this strategic posture can be seen in the politically sensitive defense sector. In 2024, Thailand opted for Sweden's SAAB Gripen over a competing US bid, securing not just a fighter platform but also full operational control of its Link-T datalink and a 144% return on investment via industrial offsets. Indonesia followed suit in 2025 with its commitment to purchase 48 KAAN fifth-generation fighter jets from Turkey, securing terms for local assembly and capability transfer as part of the deal. ASEAN states are exercising similar leverage in civilian sectors by using market access to drive industrial upgrading through local content mandates, technology transfer and intellectual property (IP) enforcement. Thailand now requires EV makers that receive tax incentives to produce core components locally by 2026, prompting China's BYD and Changan to commit to 40%-90% local sourcing. It's part of a Thai policy that attracted over $3.5 billion in Chinese investment and is set to boost national EV output by 40% in 2025. Vietnam's revised 2025 feed-in tariffs favor projects with battery storage and locally processed polysilicon, aiming to cut $1 billion in import dependency and move up the solar value chain. Malaysia mandates regional design hubs for licensing China's Pop Mart's Labubu soft toy, encouraging local creative collaboration while strengthening IP enforcement. Southeast Asia has emerged as the Chinese company's largest and fastest-growing international market, with revenue in the region rising 619% year-on-year to $336 million, nearly half of Pop Mart's overseas earnings. These country cases all show that ASEAN states are not simply absorbing nor necessarily suffering a so-called 'Second China Shock'. Rather, in many instances, they are actively shaping the terms of their Chinese engagement – an approach that, in fact, aligns with China's own strategic interests. Global trends are making reliance on single-source manufacturing untenable. According to McKinsey's 2025 survey of 400 Chinese export firms, 58% now use a 'China+1' strategy, with ASEAN as their leading secondary production base. Overcapacity is another driver: Factory utilization rates for China's EVs fell below 50% (a significant gap from factories' 80% breakeven point) while its solar panel industry faces declining margins due to global supply saturation. Exporting this surplus into politically neutral, fast-growing ASEAN markets is thus a growing strategic necessity for China. Finally, amid rising geopolitical pressure and uncertainty, China sees stable ties with ASEAN as an important hedge. The 2024 China-ASEAN Free Trade Agreement (CAFTA) upgrade and Regional Comprehensive Economic Partnership (RCEP) underscore Beijing's commitment to trade frameworks that bolster ASEAN's role in global supply chains and their value to China. What threatens China-ASEAN interdependence today is not economic logic but growing domestic political pressures. In both, public opinion increasingly shapes the boundaries and directions of foreign policy. Thailand and Cambodia enjoy robust bilateral trade. But a bubbling border dispute has triggered political backlash in both countries, leading to the closure of lucrative border trades. In Indonesia, President Prabowo Subianto has made clear that economic ties with Israel hinge on Palestinian statehood, a position rooted in domestic sentiments. In the Philippines, nationalist outrage over maritime tensions with China has hardened Manila's stance on broad relations. Even China faces internal constraints, with domestic nationalism shaping its foreign policy on Taiwan as well as the South and East China Seas. These dynamics, while not all China-related, underscore that managing China-ASEAN ties requires mutual recognition of domestic political realities and the cultivation of political capital to sustain pragmatic diplomacy and commercial ties. This is why narratives like the 'Second China Shock,' which suggest ASEAN passivity or acquiescence, should be reconsidered. The shock, if it exists, may be real, but so is ASEAN's capacity to respond to it on its own sovereign and mutually beneficial terms. Marcus Loh is chairman of the Public Affairs Group at the Public Relations and Communications Association (PRCA) Asia Pacific, which aims to strengthen engagement between industry, government, and civil society across the region. He also serves on the executive committee of SGTech's Digital Transformation Chapter, contributing to national conversations on AI, data infrastructure and digital policy.

Straits Times
20-06-2025
- Business
- Straits Times
Beijing and Asean need to discuss ‘Second China Shock'
China's latest manufacturing surge, which some have begun to call the Second China Shock, may sound ominous as a label but is actually a tip of the hat to the mainland. PHOTO: AFP More than two decades ago, when China initiated the Early Harvest Programme with Asean to give South-east Asian countries more confidence to endorse the Asean-China Free Trade Area, then Chinese Premier Zhu Rongji told leaders from this region that a decade hence, if they found the free trade deal was not working for them, they could come back and discuss their concerns with the Chinese leadership. Given the flood of Chinese exports that's threatening to deindustrialise South-east Asia's auto, textiles, leather – and a host of other sectors vital to employment and social stability – the moment to redeem Mr Zhu's promise has come. Join ST's Telegram channel and get the latest breaking news delivered to you.

Straits Times
13-06-2025
- Business
- Straits Times
Asian Insider Podcast: 'Second China Shock? You ain't seen nothing yet' says top economist
A conversation with the eminent private sector economist and strategic affairs expert Manu Bhaskaran. Second China shock: Top economist on South-east Asia and the Chinese goods crisis South-east Asia is reeling from a flood of Chinese-manufactured goods that threaten the region's industry, from cars to even batik shirts. Some call this phenomenon the 'Second China Shock.' Synopsis: The Straits Times' senior columnist Ravi Velloor distils 40 years of experience covering the Asian continent, with expert guests. In this episode, Ravi speaks with Manu Bhaskaran, the eminent Singapore economist and expert on regional politics and geopolitics. Mr Bhaskaran is a partner and board member of Centennial Group, a Washington DC-based policy advisory, and Adjunct Fellow at the Institute of Policy Studies. Economist Manu Bhaskaran (left) chats with Asian Insider host Ravi Velloor (right) about South-east Asia's woes amid a flood of cheap China exports. ST PHOTO: KUA CHEE SIONG Highlights (click/tap above): 1:00 What the 'Second China Shock' is about 5:30 'Fitness centre' of global manufacturing 7:05 Countries, industries most affected 10:00 How can Asean respond? 12:30 A protectionist wave ahead 15:00 Why Asean has a lot going for it Host: Ravi Velloor (velloor@ Read Ravi's columns: Follow Ravi on X: Register for Asian Insider newsletter: Produced and edited by: Fa'izah Sani Executive producer: Ernest Luis Follow Asian Insider Podcast on Fridays here: Channel: Apple Podcasts: Spotify: Feedback to: podcast@ --- Follow more ST podcast channels: All-in-one ST Podcasts channel: ST Podcasts website: ST Podcasts YouTube: --- Get The Straits Times app, which has a dedicated podcast player section: The App Store: Google Play: Join ST's Telegram channel and get the latest breaking news delivered to you.