China Is Squeezing Southeast Asia

Why It Matters

The widening trade imbalance threatens Southeast Asia’s economic stability and hampers its climb up the global value chain, making policy reform and trade diversification urgent.

Key Takeaways

• Chinese trade deficit in ASEAN grew to $140 bn by 2024.
• Local manufacturers lose market share to cheap Chinese imports.
• Chinese investments rarely transfer high‑value tech to Southeast Asia.
• Weak governance hampers regulation of Chinese projects and illicit activities.
• Diversifying trade partners could reduce dependence on China.

Pulse Analysis

China’s economic gravity over the past decade has reshaped Southeast Asia’s trade landscape. While the region attracted roughly $126 bn in Chinese capital and became Beijing’s top trading partner, the surge in imports has driven the ASEAN‑China trade deficit from just over $10 bn in 2010 to about $140 bn in 2024. The influx of low‑cost components fuels consumer prices but offers limited upside for local manufacturers, who struggle to compete against China’s scale and efficiency. This “second China shock” mirrors the earlier global disruption caused by China’s entry into the WTO, but now the pressure is internal to the region, squeezing jobs and eroding industrial value‑added.

Beyond the balance sheet, weak institutions amplify the fallout. Many ASEAN states lack robust rule‑of‑law, allowing Chinese firms to operate self‑contained supply chains that bypass local suppliers and limit technology spillovers. The result is a cascade of social costs: Indonesian textile workers lost tens of thousands of jobs, Thai auto‑parts makers saw sales plunge 20 percent, and environmental degradation from mining and infrastructure projects has sparked protests across Indonesia, Myanmar and Cambodia. Even illicit networks have found footholds, linking Chinese‑backed zones to money‑laundering and human‑trafficking operations, further destabilizing communities.

To counter these dynamics, Southeast Asian leaders must broaden their trade and investment base while tightening governance. Expanding agreements with the EU, Japan’s CPTPP and the United States can diversify markets and attract higher‑value manufacturing, especially in semiconductors, AI and biopharma. Strengthening ASEAN’s own integration—through the Digital Economy Framework and harmonized standards—will boost intra‑regional supply chains and bargaining power with Beijing. Simultaneously, investing in human capital, enforcing labor and environmental regulations, and curbing patronage will create a more resilient ecosystem capable of capturing the benefits of global growth without being suffocated by China’s economic weight.