The past decade witnessed a surge in trade and foreign direct investment (FDI) between China and the Association of Southeast Asian Nations (ASEAN), driven by supply-chain reconfiguration, enhanced transportation infrastructure and the implementation of the Regional Comprehensive Economic Partnership (RCEP) in 2022. ASEAN surpassed the US in 2019 and the EU in 2020 as China's (data source: General Administration of Customs of China, hereinafter referred to as China) largest trading partner (Figure 1). Despite concerns about the growing trade deficit with China, we believe that ASEAN countries benefit from expanding trade and FDI. To enhance the economic benefits for ASEAN, China should promote imports from the region and make its FDI in the region more effective at creating jobs and value-added.

ASEAN's trade balance with China has shifted from small surpluses to deficits since 2012 (Figure 2). By 2024, this deficit had expanded to US$190 billion (5.7% of ASEAN GDP), while ASEAN's trade surplus with the rest of the world increased to US$239 billion (7.1% of GDP). The combination of a widening trade deficit with China and a surplus with the rest of the world suggests that many imports from China are utilized for downstream processing and assembly.