In Bangkok, Thailand’s capital, a shopkeeper hawking trendy clothes made in Vietnam and Bangladesh complains that business has slowed to a crawl. In Indonesia plans are being hatched to steer more ships to its eastern ports. And in Malaysia, one politician decries a “burdensome” new tax that will hurt the poor. Behind all three seemingly unrelated instances is a deluge of Chinese goods bearing down on the world. China’s neighbours in South-East Asia are on the front line.
The phenomenon begins in China. Because of a property slump, dispirited consumers and the state’s resistance to large fiscal stimulus, demand is weak. In search of new drivers of growth, China has doubled down on manufacturing. Much of this is bound for export markets: in 2024 China’s net exports made up almost a third of GDP growth, the highest share since 1997.
This dynamic, in which China’s sluggish demand and strong production spills abroad, is not happening evenly. As the West throws up barriers to Chinese goods, they are flowing to emerging markets instead. In the past three years, the value of Chinese exports to the Association of South-East Asian Nations (ASEAN) has risen by 24%. Imports flowing the other way have not grown. As a result, China’s trade surplus with ASEAN has doubled.
To some extent, rising Chinese exports to ASEAN reflect how firms have adjusted to trade tensions between America and China. Many have added production nodes outside China, particularly in South-East Asia. But this is not the whole story. Several lower-value-added sectors in the region have seen a rush of Chinese import competition. To illustrate this, The Economist has examined changes to the Chinese share of total imports for five ASEAN countries between the first nine months of 2024 and the same period in 2022.
In aggregate, the changes look manageable: ASEAN saw a two-percentage-point rise in the Chinese share of imports. However, a closer look at individual products reveals rapid shifts. In two years the Chinese share of plastics imports across Indonesia, Malaysia, the Philippines, Thailand and Vietnam has risen by six percentage points; for iron and steel, the increase was 12 percentage points. Meanwhile the Chinese import surge is happening while ASEAN’s exports to the world stagnate.
Producers in the region are squirming. In Thailand manufacturing production has fallen by 11% since December 2021. In Indonesia fears of mass layoffs in labour-intensive textiles abound. The industry lost 80,000 jobs in 2024, according to the country’s manpower ministry. The government thinks 280,000 textile jobs are at risk this year. Smaller firms are bearing the brunt, but larger ones are teetering, too. Sritex, a listed Indonesian giant which sews clothes for fast-fashion groups such as H&M, has gone bankrupt; its finance director blamed “an oversupply of textiles in China”.
Stagnation has set in more broadly. On average, industrial production in South-East Asia’s five biggest economies (excluding rich Singapore) is stuck at the levels of 2022. The fear is that this is only the beginning. Unrelenting pressure from China’s manufacturing juggernaut could slowly deindustrialise South-East Asia. “Our industrial base just isn’t as competitive as China’s,” says Burin Adulwattana at Kasikorn Bank, a Thai commercial lender. “We lack both the financial and human capital to stop its current deterioration.” That view is shared by some policymakers: the threat to smaller firms is nothing short of “collapse”, Indonesia’s then-trade minister said last year.
South-East Asian governments have begun to push back. Prime targets are popular Chinese e-commerce apps such as Lazada and TikTok Shop, which deliver goods straight from factories to consumers. Several countries have raised taxes or tightened limits on cheap imported goods sold online. A few Chinese-dominated product categories have been hit with anti-dumping duties. Customs enforcers are being put on high alert for imported goods.
Indonesia, with its long history of protectionism, has gone the furthest. It has put restrictions on e-commerce, including banning most transactions on social-media sites such as TikTok and stopping overseas merchants from selling on Indonesia’s online platforms. In October Indonesia moved to take one Chinese platform, Temu, off the country’s app stores. In recent months it has also thrown up levies on imports of iron and textiles, among other products. On February 5th Budi Santoso, the trade minister, appeared at a press conference flanked by armed guards showing off piles of allegedly Chinese-made illegal clothes seized from smugglers.
The showmanship deceives. Even in the toughest trade-restricting countries, Chinese imports continue to grow. In Indonesia and Thailand the most recent six months of data show a 25% and 20% rise, respectively, from the previous year. And ASEAN remains remarkably open to Chinese goods, not least thanks to a free-trade deal struck in 2002 with China.
Since the start of 2021, ASEAN has introduced 104 new trade restrictions on Chinese goods, including both tariffs and subsidies to offset import competition, according to Simon Evenett of Global Trade Alert, a trade-policy monitor. That is a moderate uptick in anti-Chinese protectionism compared with the decade before. But ASEAN’s response looks puny when compared with the rest of the world. During the same period, Asian nations other than those in ASEAN enacted 670 new import curbs on China; in the rest of the world beyond Asia, it was 2,716. As a result, ASEAN’s share of new trade restrictions has fallen for a decade (see chart).
Governments taking a more protectionist response would result in higher costs for price-sensitive South-East Asian consumers. At Bangkok’s Chatuchak night market, vendors and shoppers cheer the affordability of Chinese-made clothes. It is not only about price. Momo, an older lady selling her own branded clothes produced in China, praises Chinese factories’ handiwork. In Malaysia politicians slammed last year’s 10% tax on low-value imported goods for harming “B40”, the bottom 40% of earners.
The region’s economies are also deeply integrated with China’s. It is the largest trading partner for nine of ten ASEAN countries, and the third-largest source of foreign-direct-investment inflows to the bloc. Informal business ties through the “bamboo network” of the Chinese diaspora in South-East Asia give China additional leverage, says Priyanka Kishore of Asia Decoded, a consultancy in Singapore.
As a result, South-East Asian governments are struggling to decide what to do. In June Indonesia’s then-trade minister announced plans to slap 100-200% across-the-board tariffs on Chinese goods, but a week later it was walked back. “We are not targeting any particular country, especially China,” claimed another. Ministers in Malaysia and Thailand are similarly cautious.
More disruptions loom. Should Donald Trump ramp up tariffs on exporter economies like ASEAN’s, the bloc could find itself caught between an America which refuses its goods and a China which is displacing many of its own producers—leaving it bereft of a clear economic niche. The region’s businesses should focus more on higher-value-added services, or pivot to becoming suppliers to Chinese manufacturers, says John Lee of East-West Futures, a consultancy in Berlin. But that seems unlikely to happen soon. ■