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 size 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 nations poorer than itself in these low-skilled sectors,” he advised 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 might 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 companies.
China’s market dominance in electrical autos, photo voltaic panels and laptop applied sciences is de facto blocking south-east Asian economies from shifting up the manufacturing worth chain. On the similar time, its growing exports of low-cost merchandise from sneakers to plastics dangers gutting their industrial base.
“Due to its scale, you may say that China encompasses an entire flock of geese,” stated Mark Williams, chief Asia economist at consultancy Capital Economics.
“The query is whether or not the 50-year sample that noticed nations 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 facility 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 top 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 known 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,” stated Mok Chee Kong, advertising 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 turning 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 sturdy development in intermediate items, together with electronics and capital items akin to equipment utilized by producers.
Labour-intensive manufacturing sectors akin to sneakers and clothes have been notably affected. In Indonesia, round 60 factories closed between 2022 and 2025, in line with the Indonesian Textile Affiliation.
The largest casualty was Sri Rejeki Isman (Sritex), an organization that after equipped clothes to Uniqlo and Walmart, however which shut its factories final yr and axed greater than 10,000 staff. The textile affiliation estimates that 250,000 jobs have been misplaced within the sector over the previous 4 years.
“The quantity of textiles and clothes from China flooding the Indonesian market is at a really huge scale, estimated to succeed in 1000’s of tonnes per yr,” ITA’s govt director Danang Girindrawardana advised the FT.
Indonesian finance minister Purbaya Yudhi Sadewa stated 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 might be as if we’re handing over our home market on to China,” Purbaya stated.
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 just about $22bn.
Vietnam imported $84bn in electrical equipment and electronics from China final yr, up 43 per cent, in line with the Asia Society Coverage Institute (ASPI) think-tank.
The China shock 2.0
That is the ultimate article in a series concerning 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 nations are concurrently turning into depending on China for each industrial inputs for manufacturing and in addition completed items like EVs and photo voltaic panels, in line with Shay Wester, director of Asian financial affairs at ASPI.
Vietnam, which has turn out to be the bottom for a lot of producers relocating from China, imports a minimum of 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 business from China.
“These inputs assist make Asean exports aggressive in markets like the US and Europe. On the opposite finish, Chinese language completed items are flooding home markets throughout a variety of sectors, undercutting native producers,” Wester stated.
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 supplied by China. “It isn’t black and white,” stated Trissia Wijaya, a McKenzie analysis fellow on the College of Melbourne, since China’s capital and know-how base remained a serious driver of commercial growth. “There’s at all times an enter to the south-east Asian economic system from China, though it’s not with out flaws.”
A couple of Asean members have tried to guard their markets towards what they are saying is the dumping of Chinese language items, however the area has usually struggled to reply successfully due to the worry of angering Beijing.
Liew Chin Tong, Malaysia’s deputy finance minister, has warned that Asian nations 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 value wars, involution and deindustrialisation of fellow Asian economies”.
“To forestall this from occurring, China and all different Asian economies must open up for candid conversations about managing and even curbing manufacturing capability at dwelling and providing voluntary export restraints,” Liew wrote in December.
China dismisses accusations of widespread dumping of merchandise. In an article within the official China Every day final yr, researchers at a commerce ministry think-tank stated the nation’s exporters had been creating “wealthy cross-border manufacturing and provide methods 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 facility are starkly revealed in Zhangmutou, one in all 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 due to a mix 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,” stated 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 growth, both in creating new manufacturing processes or cultivating staff’ abilities.
“Vietnam can by no means match China’s manufacturing provide chain. Lots of Vietnam’s senior engineers are recruited from China, travelling backwards and forwards by airplane each week,” he stated, including that new plastics formulations had been rather more simply made in China.
Wester of ASPI stated there have been already indicators China’s dominance was more likely to deepen in the long run as know-how turned more and more essential to manufacturing of each items and companies.
“Digital infrastructure is an space to observe, as Chinese language companies make investments closely in knowledge centres throughout south-east Asia,” Wester stated. “[These] companies are exporting not simply merchandise, however total know-how and industrial ecosystems.”
Information visualisation by Haohsiang Ko in Hong Kong
