The China vs. US battle for influence in Southeast Asia

And what it means

When visiting Southeast Asia recently, many were asking what the United States is doing not only with trade, but also with its long-term strategic goals. It was frustrating and shocking to many how the US is treating its allies and partners. Questions included “Does America know the damage it is doing?” or my favorite, “China is making better offers now.” When I was in Singapore, I was told several times, “America is no longer reliable.” For the Singaporeans to make such statements (who are generally neutral in most things) is indicative of the general mood of the region and America’s waning influence.

Most are watching how the Japanese approach negotiations and what they ultimately give up and do.

In these discussions, it became clear that the Chinese government, whose senior leadership has visited numerous Southeast Asian countries in the last few months (Vietnam, Cambodia, Malaysia, Indonesia), is not only showing the flag but offering incentives that the United States no longer can or will.

As the United States demands countries come “to it” with offers and concessions, Chinese leaders are traveling the world with a different message, especially on trade. The overall mindset is that the world has changed, and each country will have to seek partners to rely on and push back against perceived unfairness or punishing tariffs and sanctions.

For Southeast Asia, these are six major points the Chinese are discussing:

1: Foreign Direct Investment (FDI)

While the Trump Administration is attacking companies that have overseas operations and production (think Apple or Walmart), the Chinese are signaling that FDI from Chinese firms will continue, and in many cases, accelerate. As American firms retrench back to North America or shift investment away from Southeast Asia, Chinese firms will continue to invest and build out supply chains.

2: Legions of young, educated workers

Each year, China graduates roughly 10 million college graduates, many in the fields needed to grow economies (finance, economics, engineering, architecture, etc.), and while jobs are not as appealing or plentiful in China as they used to be, there is interest among graduates in going to other places. This would provide an outlet for some to build overseas experience, accelerate careers, and give the government some breathing room.

For Southeast Asian countries, having educated, hungry, and geographically flexible workers could fuel economic growth and further integrate the region. This would follow a trend that started over a decade ago as foreign firms set up factories and supply chains in textiles, shoes, and other products around the region.

3: Infrastructure build-out continues

The region still needs extensive infrastructure of all kinds. If 10% of the container shipments from China shifted to Southeast Asia, the region would need to double its current logistics capabilities. China seems to be the only willing partner to do this (but it will be more targeted than previous initiatives such as the Belt and Road).

4: Technology sharing

China has been seen as hesitant to allow Chinese companies to share technology, as they do not want it to come back to haunt them, but this view is overblown. In recent discussions, there has been a willingness to be flexible on sharing, especially if Chinese firms get further involved in supply chains (as they have the technology, know-how, and machinery).

Some view this as a threat on both sides, but there are numerous types of technologies and the processes tied to them, which could drastically increase companies’ efficiencies and profitability. Think of mobility, whether it's internal combustion engines (ICEs), EVs, electric/motorized scooters, etc. There are a myriad of technologies, materials, processes, and machinery that contribute to all of these industries. They would benefit from even second-generation technology. For example, Vinfast in Vietnam and Proton in Malaysia with access to higher-end materials, Chinese suppliers, software, and longer-term financing flexibility.

5: More access to the Chinese market

The China-led Regional Cooperation Economic Partnership agreement (RCEP) lowered non-tariff barriers and allowed easier trade within Asia. China and ASEAN are discussing further market access (RCEP on steroids), a free-trade agreement, and additional collaborations on technology. This would mirror similar commitments China made to African countries.

6: An acknowledgement about overcapacity

There has been an implicit acknowledgement that overcapacity could be a problem in certain cases. Signals from the Chinese side indicate that there are certain domestic industries in each country, and these should be respected. The ask is that Chinese firms should be part of those supply chains, and those industries should be further built out (vs. being swamped with Chinese goods).

Conclusion

There is significant hesitation about dealing with China in these areas; there will likely be several that are more interesting than others, depending on the need. But if a Southeast Asian country takes even one of these mentioned areas, it will accelerate China’s economic clout, influence, and the region’s reliance on it. With the United States retrenching and demanding countries “pay” for the privilege of its presence, China is out there doing meet and greets and offering goodies to cajole countries to move further in its direction. Since the launch of the Trade War a decade ago, China’s influence around the world, but especially in Southeast Asia, has grown considerably, and with recent US trade and tariff actions, this will continue to grow at a rapid pace. Which side will eventually win the “hearts and minds?” The one that offers BOTH economic security and national security. How that plays out remains to be seen, but the tide is shifting.