For a number of a long time a lot of south-east Asia has sought to slipstream China’s financial miracle — and with appreciable success. However such is the dimensions of Chinese language manufacturing, the area is now questioning whether or not its hopes of creating its personal globally aggressive industries are being dashed.
South-east Asia faces not a lot a “China shock” as a “China squeeze”, says Arvind Subramanian, a former chief financial adviser to Indian prime minister Narendra Modi. Beijing, he warns, dangers suffocating the area’s long-term aspirations with its extra exports of low and high-tech items.
“It’s squeezing out area for all of the creating international locations poorer than itself in these low-skilled sectors,” he informed an IMF convention in Bangkok in March. “So the ‘Asia mannequin’ that China, Korea, and Taiwan benefited from is now being squeezed out increasingly more.”
The priority for regional officers is that this pattern may finish the so-called “flying geese” paradigm. That is the concept first formulated in Japan within the Nineteen Thirties that Asia’s much less superior however lower-cost economies can observe a extra developed nation quickly up the economic worth chain, because the chief shifts in direction of ever extra refined manufacturing and providers.
China’s market dominance in electrical autos, photo voltaic panels and pc applied sciences is de facto blocking south-east Asian economies from shifting up the manufacturing worth chain. On the similar time, its rising exports of low-cost merchandise from sneakers to plastics dangers gutting their industrial base.
“Due to its scale, you might say that China encompasses an entire flock of geese,” mentioned Mark Williams, chief Asia economist at consultancy Capital Economics.
“The query is whether or not the 50-year sample that noticed international locations like Taiwan and Japan get wealthy was only a window in time — a window that’s now closing.”
On the decrease finish of the manufacturing worth chain, in an industrial property on the outskirts of Kuala Lumpur, a forlorn-looking manufacturing unit testifies to the impression that offloading Chinese language surplus items on to its neighbours has.
For 3 a long time MPI Polyester Industries was a serious Malaysian producer of polyethylene terephthalate (PET). At its peak it produced 38,000 tonnes a yr of the light-weight plastic used to make drinks bottles and meals containers.
However in January the producer referred to as time on its plastics enterprise, blaming fierce competitors from international rivals. “The margins are simply not there any extra as a result of we’re being undercut by Chinese language imports,” mentioned Mok Chee Kong, advertising and marketing supervisor at MPI.
The story of MPI’s demise — which got here regardless of the Malaysian authorities’s imposition of anti-dumping duties on Chinese language plastic final yr — is changing into a well-recognized story.
China’s commerce surplus with the 11-nation Asean bloc hit a report $276bn in 2025 — up 45 per cent from the yr earlier than — with robust progress in intermediate items, together with electronics and capital items corresponding to equipment utilized by producers.
Labour-intensive manufacturing sectors corresponding to sneakers and clothes have been significantly affected. In Indonesia, round 60 factories closed between 2022 and 2025, in keeping with the Indonesian Textile Affiliation.
The most important casualty was Sri Rejeki Isman (Sritex), an organization that when provided clothes to Uniqlo and Walmart, however which shut its factories final yr and axed greater than 10,000 employees. The textile affiliation estimates that 250,000 jobs have been misplaced within the sector over the previous 4 years.
“The amount of textiles and clothes from China flooding the Indonesian market is at a really huge scale, estimated to achieve 1000’s of tonnes per yr,” ITA’s govt director Danang Girindrawardana informed the FT.
Indonesian finance minister Purbaya Yudhi Sadewa mentioned in March that Jakarta was contemplating measures to curb the rising dominance of Chinese language merchandise on the nation’s ecommerce platforms.
“If this continues with out intervention, it could be as if we’re handing over our home market on to China,” Purbaya mentioned.
On the different finish of the worth chain, Chinese language exports of EVs, batteries and photo voltaic panels to members of the Affiliation of Southeast Asian Nations elevated greater than 50 per cent final yr to almost $22bn.
Vietnam imported $84bn in electrical equipment and electronics from China final yr, up 43 per cent, in keeping with the Asia Society Coverage Institute (ASPI) think-tank.
The China shock 2.0
That is the ultimate article in a series in regards to the financial penalties of China’s report commerce surplus for the remainder of the world
Half 1: The high-end Chinese products flooding the world
Half 2: Europe’s ‘embrace or repel’ China dilemma
Half 3: South-east Asia’s ‘China squeeze’
Asean international locations are concurrently changing into depending on China for each industrial inputs for manufacturing and likewise completed items like EVs and photo voltaic panels, in keeping with Shay Wester, director of Asian financial affairs at ASPI.
Vietnam, which has change into the bottom for a lot of producers relocating from China, imports at the very least half its uncooked supplies from its northern neighbour. Cambodia can also be closely depending on Beijing, importing round 60 per cent of the uncooked supplies for its essential garment trade from China.
“These inputs assist make Asean exports aggressive in markets like the USA and Europe. On the opposite finish, Chinese language completed items are flooding home markets throughout a spread of sectors, undercutting native producers,” Wester mentioned.
The risk posed by China’s increasing market share at each ends of the worth chain was a key focus of an IMF convention on “Asia in 2050” in Bangkok in March.
South-east Asia faces a tough balancing act attempting to take care of each the risk and alternative offered by China. “It isn’t black and white,” mentioned Trissia Wijaya, a McKenzie analysis fellow on the College of Melbourne, since China’s capital and know-how base remained a serious driver of business improvement. “There’s at all times an enter to the south-east Asian economic system from China, though it’s not with out flaws.”
A number of Asean members have tried to guard their markets in opposition to what they are saying is the dumping of Chinese language items, however the area has typically struggled to reply successfully due to the worry of angering Beijing.
Liew Chin Tong, Malaysia’s deputy finance minister, has warned that Asian international locations that lengthy relied on the US as their export vacation spot of “first and final resort” now danger crashing one another’s markets, “leading to cut-throat worth wars, involution and deindustrialisation of fellow Asian economies”.
“To stop this from occurring, China and all different Asian economies should open up for candid conversations about managing and even curbing manufacturing capability at residence and providing voluntary export restraints,” Liew wrote in December.
China dismisses accusations of widespread dumping of merchandise. In an article within the official China Day by day final yr, researchers at a commerce ministry think-tank mentioned the nation’s exporters had been creating “wealthy cross-border manufacturing and provide techniques that assist Southeast Asia speed up transformation and upgrading”.
The bind for Asean governments is that whereas Chinese language funding brings short-term advantages to the area, it additionally reduces incentives for long term funding in home-grown know-how, workforce training and structural reforms to drive them up the worth chain.
The challenges that led to the closure of MPI Polyester’s plastic manufacturing unit are starkly revealed in Zhangmutou, one among China’s largest plastics buying and selling hubs located within the southern manufacturing metropolis of Dongguan.
Regardless of the huge wants of Dongguan’s producers, native provide comfortably exceeds demand because of a mixture of US President Donald Trump’s tariffs hitting commerce with the US and a softening of China’s personal economic system following a property market disaster.
“Regardless of how nice [China’s] home demand is, it’s by no means sufficient,” mentioned Xia Yongfu, who runs Dongguan Aohua Plastic Buying and selling.
Xia added that whereas some demand got here from south-east Asian corporations, the vast majority of his purchasers within the area had been Chinese language enterprise individuals who had opened factories there.
Huang Yongxin, who runs Yuanxin Lianhe Plastics Manufacturing, one other Dongguan firm, conceded the system did nothing to incentivise Vietnamese industrial improvement, both in creating new manufacturing processes or cultivating employees’ abilities.
“Vietnam can by no means match China’s manufacturing provide chain. Lots of Vietnam’s senior engineers are recruited from China, travelling forwards and backwards by airplane each week,” he mentioned, including that new plastics formulations had been rather more simply made in China.
Wester of ASPI mentioned there have been already indicators China’s dominance was prone to deepen in the long run as know-how turned more and more vital to manufacturing of each items and providers.
“Digital infrastructure is an space to look at, as Chinese language corporations make investments closely in information centres throughout south-east Asia,” Wester mentioned. “[These] corporations are exporting not simply merchandise, however total know-how and industrial ecosystems.”
Knowledge visualisation by Haohsiang Ko in Hong Kong
