Opinion | How China and Asean can ensure their upgraded pact is truly win-win
News Summary
China and ASEAN upgraded their free trade pact last month, focusing on environmental protection, product quality, and support for small businesses. Chinese Premier Li Qiang contextualized the agreement against “greater development challenges” facing ASEAN nations, indirectly criticizing the Trump administration's “unfair tariffs” on the region. Another significant development at the summit was the formal accession of East Timor, a key economic and trade partner of China, Indonesia, and Singapore. Ostensibly, Sino-ASEAN relations appear promising; ASEAN has been China's primary trading partner since 2020, with bilateral trade soaring from US$160 billion in 2006 to nearly US$1 trillion in 2024. Chinese investments in infrastructure, including railways, ports, gas pipelines, and energy grids, have been instrumental across both continental (Myanmar, Cambodia, Laos) and maritime (Indonesia, Malaysia) ASEAN states. However, despite deep supply chain integration evidenced by Chinese EV manufacturers like BYD establishing factories in Thailand and SAIC Motor-CP partnerships, the article notes that policymakers, business elites, and students in ASEAN countries perceive China's rise as a “double-edged sword.”
Background
The Free Trade Agreement (FTA) between China and ASEAN has been upgraded, aiming to deepen cooperation in environmental protection, product quality, and support for small and medium-sized enterprises. This development occurs as ASEAN nations face external trade pressures, particularly from US President Donald Trump's administration, including “unfair tariffs” imposed on regional economies. ASEAN has been China's largest trading partner since 2020, with bilateral trade experiencing significant growth, approaching US$1 trillion by 2024. China's infrastructure investments in the ASEAN region are extensive and deep, covering critical sectors like energy and transportation, fostering regional connectivity. The upgraded pact and the accession of new member East Timor reflect ongoing economic integration and strategic realignments within the region.
In-Depth AI Insights
What are the true strategic motivations behind this upgraded pact, beyond surface-level economic cooperation? - While the pact ostensibly focuses on environmental and product standards, its core purpose is to cement China's growing economic influence in Southeast Asia and act as a strategic hedge against protectionist trade policies pursued by the US under President Trump. - By deepening economic ties with ASEAN, China aims to create a more cohesive regional economic bloc, enhancing its resilience in global supply chains and securing broader markets for Chinese enterprises, especially as the US and its allies seek to “de-risk” supply chains. - The reference to “unfair tariffs” on ASEAN nations is a direct critique of the Trump administration's trade policies, aiming to position China as a more reliable and equitable regional economic partner, thereby undermining US influence in the region. What does the “double-edged sword” perception imply for China's long-term investment returns in the region? - The “double-edged sword” perception indicates that while Chinese investment brings economic growth and infrastructure development, it also generates concerns about sovereignty, debt sustainability, and potential economic over-reliance. This could lead to increased scrutiny and potentially future restrictions on Chinese investments, thereby raising political and regulatory risks for Chinese capital in the region. - This complex sentiment may push ASEAN nations to adopt a “hedging” strategy, maintaining economic ties with China while simultaneously strengthening relationships with other major economies like the US, Japan, and the EU to avoid over-dependence. This could dilute the exclusive benefits and long-term returns for Chinese investments. - For investors, this implies that long-term projects in ASEAN backed by Chinese capital must account for potential populist backlashes, stricter local content requirements, and regulatory uncertainties stemming from intensified geopolitical competition. How might the US strategy towards Southeast Asia evolve post-Trump's re-election, and how does this impact Sino-ASEAN dynamics? - Post-Trump's re-election, the US is expected to continue its “America First” trade policies, potentially imposing tariffs or trade restrictions on more countries, including those in ASEAN. This could paradoxically further push ASEAN towards deeper economic integration with China. - However, the US may also intensify its strategic presence in Southeast Asia through security agreements and selective investments (e.g., through initiatives like the “Blue Dot Network”) to counterbalance China's economic influence. This dual-track strategy will force ASEAN countries into a more complex balancing act between economic interests and geopolitical alignments. - Investors should anticipate heightened US-China competition for influence in Southeast Asia, potentially leading to increased pressure for “choosing sides” in the region and impacting the restructuring of supply chains and investment flows in specific sectors, such as technology and critical infrastructure.