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Roland Rajah

Southeast Asia imported more than half a trillion dollars in goods from China last year, leaving the region with a collective trade deficit of around US$290 billion. It has only grown further since. Should the region’s policymakers be concerned? Should they, perhaps, even join the United States and Europe in pushing back against China’s imbalances?
Globally, China’s swelling exports and trade surplus since roughly 2020 have been dubbed the second “China shock”. Its customs trade surplus hit US$1.2 trillion last year, on exports of US$3.8 trillion.
Some fear a repeat of the first “China shock” that followed the country’s entry into the World Trade Organization in 2001. In the US, surging Chinese imports were blamed for gutting manufacturing towns. Across the developing world, China’s export dominance was associated with “premature deindustrialisation”.
Yet today’s “shock” is very different to the first.
Back then, China functioned as an assembly hub, reliant on foreign inputs and technology, exporting finished goods to wealthy markets and crowding out exports from other developing economies. Meanwhile, it mostly recycled its resultant large current account surplus into US Treasuries.

Today’s China is different. It primarily exports parts, components and the machinery that other countries need to produce and export. China has become “factory to the factories” as management consultancy McKinsey put it. It is also channelling more of its surplus into capital flows to developing economies, including through manufacturing investment. And through all this, it is exporting its own technologies, from clean energy products to industrial robots.
Southeast Asia sits at the forefront of these changing dynamics.
To be sure, a surge in low-cost Chinese imports may have contributed to concentrated pain in some sectors. Indonesia’s textile industry shed 80,000 jobs in 2024 alone as competing imports poured in, while Japanese carmakers in Thailand are scaling back or shutting down entirely. Acute import surges can justify targeted responses, such as anti-dumping tariffs and curbs on online sales, which several governments in the region have introduced. Social protection is also vital for supporting affected workers and helping them adapt to a changing labour market.
However, one should not overlook the simultaneous positive impact of the China shock on other parts of the economy via intermediate inputs, capital goods and investment that bring in new technologies, networks and productivity gains – all of which can, in turn, drive industrialisation and job creation.

Roughly 90 per cent of Southeast Asia’s imports from China are intermediate inputs or capital goods, rather than finished consumer products. Meanwhile, Chinese investment is flooding in. Direct investment into Southeast Asian manufacturing from China hit US$15.4 billion in 2024, up from US$5.7 billion in 2019. Total direct and portfolio investment has tripled to roughly US$75 billion – nearly 2 per cent of the region’s gross domestic product. Greenfield investment data shows the average Chinese manufacturing project creates almost twice as many local jobs as investment from elsewhere, reflecting its labour-intensive focus, particularly in electronics assembly.
Perhaps Southeast Asia would be faring even better were China not running such a large trade surplus, soaking up global demand while its own imports have flatlined. Yet the signs suggest the region overall has been rising alongside China, not being crowded out by it.
China’s merchandise exports grew 5 per cent in 2025 and are up 51 per cent since 2019; Southeast Asia’s rose 13 per cent and 54 per cent, respectively. China’s trade surplus climbed 20 per cent last year and 178 per cent since 2019; Southeast Asia’s collective surplus rose 39 per cent and 142 per cent – despite its widening deficit with China specifically. China’s share of world exports in key value-chain sectors (textiles, electronics, machinery, autos) rose from 22.8 per cent in 2019 to 24.6 per cent in 2024; Southeast Asia’s climbed from 9.2 to 11.3 per cent.

It’s also important to look at value-added exports. These reflect the contribution of domestic production to the value of exports, accounting for China’s role as a supplier of intermediate inputs and highlighting Southeast Asia’s position, mostly further down the value chain. They also help account for Chinese transshipment via the region aimed at circumventing US tariffs. China has done much better by this metric, but Southeast Asia has also done well: China’s value-added exports in key sectors rose by almost 40 per cent between 2019 and 2022 (the latest available data). Southeast Asia’s rose by 24 per cent.
These patterns broadly hold across the region’s major economies, though not uniformly. The more open, competitive economies, such as Vietnam and Malaysia, have done best. Others that are less so, such as Indonesia and Thailand, lag behind.
There are still risks. Southeast Asia is fast becoming heavily reliant on Chinese supply chains, capital and technology – a dependency that could heighten trade tensions with Washington, which remains fixated on cutting its own indirect exposure to China.
What’s clear is that reforms and public investment to increase competitiveness and domestic capability will be vital to determine whether today’s gains from the second China shock can translate into lasting industrial upgrading, while maintaining diversified trade and investment linkages and avoiding dependency.
Roland Rajah is lead economist and director of the Indo-Pacific Development Centre at the Lowy Institute. This article was first published by the ISEAS – Yusof Ishak Institute’s commentary website fulcrum.sg


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This Week in Asia

Opinion

Asia Opinion

Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing


Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing.


Trade

China trade

United States

Indonesia

China

Malaysia

Vietnam

Thailand

Lowy Institute

McKinsey & Company

ISEAS – Yusof Ishak Institute

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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Asian Angle

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing

Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing