China's economic slowdown is eliciting concern across Southeast Asia, with the ASEAN bloc grappling with how to navigate these changes effectively.
The economic stability of China, the world's second-largest economy with a GDP of $14.7 trillion, is facing significant internal challenges, including deflation, rising youth unemployment, and faltering consumer confidence. Notably, consumer confidence plummeted to 86 in July 2024, only marginally above the all-time low recorded during the pandemic, indicating deep-seated anxieties within the Chinese market (reported by The Straits Times).
With trade volume between China and ASEAN hitting $722 billion in 2022, the interconnectedness of these economies is evident. Given China’s influence, any downturn inevitably ripples through ASEAN economies. Concerns magnify especially for countries like Indonesia and Cambodia, which have depended heavily on Chinese investments through projects associated with the Belt and Road Initiative (BRI).
China's real estate market, once the backbone of its growth, is now destabilizing. Statistics reveal over 70 percent of household wealth was tied to property, with this sector contributing more than 25 percent to the national GDP. The repercussions of harmful policies, including restrictions from the zero-Covid strategy, have exacerbated local government debt, limiting available resources and stifling consumer spending.
For ASEAN countries, the stakes are high. The Edges Report warns of diminishing demand for exports from member states, with Indonesia witnessing the dual pressures of reduced imports from China and increased competition for trade. This has led Indonesia, the most populous ASEAN nation, to seek alternative markets eagerly.
While the BRI has spurred infrastructure development, critics loathe the potential for 'debt trap diplomacy.' This term describes how recipient countries become financially dependent on China for projects they can't manage sustainably. For example, the ambitious Funan Techo Canal project costing $1.7 billion remains uncertain, stirring fears of Cambodia's economic vulnerability amid shifting Chinese funding priorities.
Conversely, uncertainty influences tourism as well. The number of tourists from China visiting Thailand dropped significantly from 12 million pre-Covid to only 7 to 8 million recently, severely impacting economies reliant on this segment. Tourism accounted for roughly 12 percent of Thailand’s GDP as of 2023; such losses are no small concern for stakeholders.
Given these dynamics, ASEAN countries are rethinking their economic strategies. A shift occurs; member nations like Vietnam proactively diversify their partnerships and trade alliances, as illustrated by their recent elevation of relations with the United States to comprehensive strategic partnerships, exemplifying efforts to break free from China’s overshadowing economic grip.
Despite these initiatives, analysts assert significant decoupling from China remains unlikely. The latest Southeast Asia Survey suggests most member nations still recognize China as their primary economic partner. Largely due to historic ties and mutual dependencies, smaller countries remain tethered to China’s mercantile influence.
For example, Malaysia's economy is under pressure from China’s slowdown as it attempts to navigate these global headwinds. Meanwhile, Laos is fundamentally indebted to Beijing, with nearly half of its $10.5 billion foreign debt owed to China. The construction of infrastructural projects, such as the $6 billion high-speed rail, exemplifies these close ties—yet it also underlines the risks involved with heavy borrowing.
Heightened engagement with global powers like the U.S. is anticipated as Washington continues to seize opportunities presented by China’s economic challenges. With the potential resumption of strong bilateral trade under the returning Trump administration, ASEAN nations could pivot more decisively away from dependence on any single trading partner.
Nevertheless, as ASEAN collectively strategizes to respond to the current climate, the interdependence with China cannot be ignored. Many member states, drawn by expansive trade opportunities, retain close cooperation with the Chinese economy, demonstrating the complex challenge of balancing diversification and current economic realities.
China’s economic outlook is as ambiguous as it is impactful. While opportunities for ASEAN to expand and recalibrate arise, many scholars remind us of the invaluable connection with China, shaping not only economic policies but also regional stability.