[NEW YORK] Chinese investments in South-east Asian manufacturing are likely much higher than official data shows, underscoring the difficulty of any US attempt to box in Beijing or exclude Chinese-made goods from its supply chains.
Last year, there was US$10 billion of announced greenfield manufacturing investment by Chinese firms in the 10 members of the Association of South-east Asian Nations bloc, according to a report released on Thursday (Apr 24) by US research company Rhodium Group. That was down from the record US$12 billion of new projects in 2023.
The Rhodium figure for 2023 was about double the official tally from the Asean Secretariat, which recorded just over US$6 billion in inflows from China into manufacturing in the same year, the last for which data is available. There was an additional US$7 billion in investments from Hong Kong and almost US$7 billion from Singapore that year, the data showed.
While it’s not possible to see from the official data the origin of that money, it’s likely that the majority from Hong Kong comes from associated Chinese firms from the mainland. The Rhodium database tracks announced transactions and can help account for investments that take place via Hong Kong, Singapore and other financial hubs, which can obscure the origins of the actual investor.
China’s economic ties with South-east Asia have soared in recent years, with free-trade deals and efforts to avoid US tariffs targeting Beijing driving trade and investment from Chinese companies and other multinationals into Asean. Vietnam was the largest recipient of manufacturing investment from China last year, followed by Indonesia, according to the Rhodium report, with both seeing around US$3 billion in newly announced Chinese manufacturing projects.
“US tariffs on China starting in 2017 were one of the core drivers behind the jump in Chinese firms’ manufacturing FDI in Asean,” wrote Rhodium analysts Armand Meyer and Agatha Kratz. “Much of US import diversification through Asean export hubs has been supported by Chinese firms,” they wrote, adding that Chinese and foreign multinationals often relocate to Asean in tandem.
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“Continued and even higher US tariffs on China-made goods can be expected to drive yet more diversification momentum among Chinese firms,” they wrote, adding that the differences between US tariffs on China and on other countries in the region, as well as how forcefully the US tries to limit China’s regional supply-chain role, would affect the investment outlook.
Growing deficits
Chinese investment has helped contribute to a soaring US trade deficit with the region. America’s bilateral goods trade shortfall with Vietnam was one of Washington’s largest, at almost US$124 billion in 2024, according to US data.
Those kinds of surpluses led US President Donald Trump to impose punitive tariffs on Vietnam, Cambodia, Indonesia, Thailand and other nations this month. The US president then unexpectedly suspended most of the levies for 90 days to allow trade talks to take place.
US officials are preparing to press nations to curb trade with China, Bloomberg reported last week, citing sources familiar with the matter. China has responded by warning nations not to strike deals that undermine Beijing’s interests, making a threat of “reciprocal countermeasures”. This places pressure on Asean members and others who rely heavily on trade with both China and the US to drive their growth.
Vietnam has said it would crackdown on fraudulent rules of origin as part of its fight against goods labelled as Vietnamese products. The move is widely seen as addressing one of the Trump team’s key concerns: Chinese goods being shipped to the US via Vietnam to sidestep tariffs.
But that would not affect products legitimately made in Vietnam by Chinese firms or using Chinese-made parts – as long as a substantial portion of the value-added manufacturing happened in Vietnam.
The rapid increase in Chinese companies manufacturing in South-east Asia will make any demand to cut out China harder to enforce, as can be seen from repeated attempts over the past few years to stop China’s solar panel industry from undercutting US producers.
After the US imposed tariffs on imports of Chinese solar goods 12 years ago, manufacturers responded by setting up operations in nations not affected by the levies. The US found in 2022 that some imports from Cambodia, Thailand, Malaysia and Vietnam used wafers produced in China in violation of US tariffs.
The US imposed final tariffs as high as 3,521 per cent on solar imports from the four South-east Asian nations this month, delivering a win for domestic manufacturers. However in the meantime, Chinese firms had invested heavily in the sector in other places not subject to those tariffs, with Indonesia expected to have more than 20 gigawatts of foreign-owned solar manufacturing capacity by the middle of this year, from just one gigawatt at the end of 2022, according to BloombergNEF.
Indonesia was one of the largest recipients of Chinese investment into renewable energy equipment in 2022-2024, according to the Rhodium data.
“Recent US actions – especially recent tariffs on solar panels from South-east Asia – do reflect a broader push for tighter supply chain oversight, similar to the efforts in the auto sector with Mexico,” Meyer, one of the report’s authors, said. “However, it remains unclear what specific measures the Trump administration would pursue.” BLOOMBERG