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Southeast Asia's China policies are shifting
Key Insights:
- What is happening: At the SCMP China Conference in Malaysia, Southeast Asian policymakers and analysts discussed China’s future role in the region. Many Southeast Asian policymakers view China as a long-term exporter of capital and services, but expressed concern over unsustainable inflows of low-value Chinese goods.
- Why it matters: Companies that have relocated to Southeast Asia and other friendshoring destinations will have to grapple with rising trade barriers from these countries on China. This tariff risk is especially high for firms relying heavily on upstream Chinese suppliers to export parts and inputs for their manufacturing processes elsewhere.
- What happens next: Southeast Asian countries’ trade and investment policies on China will be increasingly bifurcated, as policymakers try to woo Chinese greenfield FDI in hopes of industrial upgrading while protecting their domestic markets from inexpensive Chinese exports.
ANALYSIS
At the 2025 SCMP China Conference, Southeast Asian policymakers highlighted China as a major foreign investor, particularly in the “New Three” industries: electric vehicles, batteries, and solar energy . They argued that Chinese investment could provide much needed tech transfer through joint ventures with local firms, workforce upskilling, and infrastructure development if coupled with appropriate policies like local content or workforce requirements.
On the flip side, this inflow has generated concerns in multinationals over trade diversion and increasingly complex rules of origin determinations. End markets like the US and EU have scrutinized the amount of Chinese content in other countries’ exports, especially as Chinese manufacturing operations grow in these markets. Rapidly expanding investment in third markets is driving Western policymakers to crack down on “Chinese” goods, rather than simply goods made geographically in China – a vague definition that adds to trade compliance uncertainty. Multinationals that produce in these third markets will need to map their lower tier suppliers and accurately identify what share of their goods can be traced to China-origin inputs or firms.
At the same time, policymakers are increasingly concerned about over-relying on China as a trade and investment partner as the US ramps up its second trade war on Beijing. China is the top trade and investment partner for most of ASEAN, which increases the region’s exposure to a US-China trade war. There fore, they view the key policy imperative for the region to be the diversification of its trading partners by pursuing free trade agreements with the Gulf Cooperation Council, BRICS, and the Global South. Trump’s protectionist tendencies will further accelerate this policy imperative.
“As the resurgence of a protectionist Trump administration pushes the region to reconsider its trade and investment policy towards China, multinationals that have relocated to Southeast Asia should pay close attention to the dual rise of trade barriers against Chinese goods and the active courting of Chinese investment.”
Positions are not uniform through Southeast Asia, however. Representatives from the Philippines emphasized their atypical position on Chinese investment as US-Philippines ties appear ready to improve. US Secretary of State Marco Rubio is calling for a critical minerals agreement and closer economic ties between the two countries. Mounting tensions between the Philippines and China over the South China Sea in the past year have also bled into bilateral trade and investment relations, adding to Manila’s policy divergence from the rest of Southeast Asia on China.
As the resurgence of a protectionist Trump administration pushes the region to reconsider its trade and investment policy towards China, multinationals that have relocated to Southeast Asia should pay close attention to the dual rise of trade barriers against Chinese goods and the active courting of Chinese investment. As long as the domestic consumer market in China remains lethargic, Beijing will continue pushing for Chinese firms to seek revenue elsewhere, bolstering risks of trade diversion, rules of origin compliance and market competition for Western multinationals.
Topics: Southeast Asia, China, North America, Trade
Written by Onyx Strategic Insights
