The 10 nations of the Association of Southeast Asian Nations (ASEAN) face critical decisions in managing their economic ties with China — a vital economic partner yet a source of growing dependence and vulnerability. Over the past decade, ASEAN's trade in goods with China more than doubled, reaching $722 billion in 2022 and accounting for nearly one-fifth of ASEAN's global trade. Since 2020, ASEAN and China have been each other’s largest trading partner. Additionally, China's investments in ASEAN surged in 2022 to $15.4 billion, up markedly from the $9 billion invested in 2019 prior to the pandemic.
Landmark agreements like the ASEAN-China Free Trade Agreement (ACFTA) and the Regional Comprehensive Economic Partnership (RCEP) have accelerated trade growth through tariff cuts and closer supply chain links. ASEAN increasingly depends on China for manufactured inputs while exporting natural resources, some electronic goods, and agricultural products. This raises risks of supply chain disruptions, economic coercion, and impacts from China's economic fluctuations. As ASEAN weighs maximizing economic ties against managing strategic vulnerabilities, a nuanced balancing act is required.
ASEAN imports far more from China than it exports, creating a trade imbalance that has deepened to nearly 4% of ASEAN's overall GDP in recent years. China is ASEAN's largest and fastest-growing source of imports. From 2017 to 2022, ASEAN's imports from China rose by 70% to reach $432 billion, with more than 80% of these imports comprising electronics, machinery, chemicals, plastics, aluminum, and other industrial goods. As ASEAN's largest supplier, China feeds the region's demand for inputs across the manufacturing, construction, and tech sectors.
Over this same time period, ASEAN’s exports to China rose by more than 55%, with more than half the increase from exports of electronic equipment and metals such as ferronickel and stainless steel. Electronics exports alone, driven by pandemic demand, have surged 60% since 2019 to nearly $90 billion. Coal, plastics, and rubber were also significant contributors to this growth along with certain agricultural products such as palm oil and fruits. However, more modest growth in the export of plastics, chemicals, machinery, and manufactured goods highlights risks from China's strategic shift toward domestic production to supply components and raw materials.
China’s recent economic slowdown has highlighted the risks, with the ASEAN-China goods trade shrinking by nearly 10% in the second quarter of 2023 relative to the previous year. Given China's critical role as ASEAN's largest trade partner, this deceleration is having tangible economic impacts across ASEAN economies deeply connected with China.
As ASEAN navigates this complex economic landscape, pursuing a multipronged approach can build resilience. This involves diversifying trading partners to reduce reliance on any single economy, notably China, while strengthening intra-ASEAN trade and supply chain integration. Expanding trade partnerships through targeted diversification efforts and the pursuit of new and enhanced free trade agreements (FTAs) can help ensure a broader, more balanced trade network that insulates the region from external shocks and promotes sustainable growth.
Renewed U.S. regional economic leadership is critical to support ASEAN’s diversification efforts and provide an alternative to greater alignment with China. ASEAN must prioritize resilience, integration, and balance in trading ties to push back against excessive reliance on China. With strengthened cohesion and pragmatic policies, ASEAN can not only leverage the opportunities presented by Chinese trade but also mitigate risks of over-dependence. By pursuing this approach, ASEAN can increase its strategic flexibility and set the stage for a more resilient and sustainable economic future, even amid shifting dynamics involving major partners.
regulusryan on July 9th, 2024 at 13:55 UTC »
As a Southeast Asian, I realise that people in Western countries do not understand how important China is to ASEAN economically even though we have conflicts with China in the South China Sea while also dealing with a more assertive China.
China has been the hegemon in the region since a long time ago, way before the thirteen colonies were founded by the UK.
Southeast Asian kingdoms have nominally paid tribute to Chinese emperors while retaining full control of their own territories and continued the lucrative trade with the Chinese.
We know how to deal with China since then and I hope we will continue to do so.
It is said in Vietnam (which the Chinese have invaded them a few times in the past) that to be the leader of Vietnam, you need to know how to stand up to China and how to work with them.
By and large why Asean or rather the entirety of Southeast Asia has generally kept the peace since the Vietnam War (and some other border skirmishes eg between Thailand and Cambodia) is that we recognise that each country has their own interests.
Cambodia and Laos are known to be more pro-China while others such as Singapore and Indonesia generally try to hedge between the US and China, more so for Singapore.
This of course has led to diverse attitudes towards China in the bloc. Asean could not issue a joint communique in 2012 for the first time in history because Cambodia blocked it.
Why? Because Asean could not agree on how to deal with the South China Sea problem.
Heck even Singapore won’t go out of the way to pressurise China economically although it retains close military and economic ties with the US.
China is a major recipient of Singapore’s FDI. And China received the most FDI from Singapore in 2022.
Think major projects such as Suzhou Industrial Park and Tianjin Eco City, they are all joint Chinese-Singaporean investments.
Singapore and China continues to hold high level summits as well while they recently upgraded their bilateral relations to “All Round High Quality Future Oriented Partnership” last year.
And Singapore’s military vehicles that were on the way back to Singapore from Taiwan have been impounded in Hong Kong before. Why? Because Singapore still trains its troops in Taiwan.
We can’t just pressure them whenever we like (or cut them off). It’s the same for the Mexicans right? The US is their neighbour, like it or not.
And if we indeed pressure them (or cut them off) the economic consequences can be catastrophic for Southeast Asian countries in general.
Who will replace China as a major economic partner? The Americans? I highly doubt so.
familybusdriver on July 9th, 2024 at 12:25 UTC »
Because contrary to popular beliefs The ASEAN nations have competing south china sea claims not with China alone but with each other too e.g. Couple days ago you have Philippines laying claims to Sabah(a state of malaysia) so do they reduce import from each other too? The situation gets even worse when you considers Taiwan's claim. In short it's a massive clusterfck.
Imho all these dramas over the past few months is nothing more than both sides applying pressure to get more compromise for the 'Code of Conduct in South China Sea' which is in negotiations since 2018.
Magicalsandwichpress on July 9th, 2024 at 11:12 UTC »
I think the question you are really asking is does China need Philippines more than Phillipines needs China.