Opening doors in the ASEAN-China corridor

The global push for diversified, resilient supply chains has made the ASEAN-China corridor more important than ever, creating international growth opportunities for ambitious businesses.

For ASEAN businesses, China is an important and accessible consumer market, as well as a key source of materials and investment. With a GDP growth target of around 5% for 2024, China’s economic prospects remain robust compared with those of many other countries, especially in advanced manufacturing.

Chinese companies, meanwhile, have been investing heavily in ASEAN production to serve consumers in Southeast Asia and the West. Much of the manufacturing that takes place in ASEAN depends on components or materials that are made in China.

Here’s three things to know about this all-important corridor:

1. Businesses are actively investing

A HSBC survey in November 2023 found that Southeast Asian businesses are especially interested in expanding their supplier networks in China: 92% of Indonesian businesses, 87% of companies from the Philippines, and 89% of those from Vietnam are expecting supply chain growth in China over the next three years.¹ That compares with 73% across all the 16 markets in the survey.

Chinese firms’ appetite to invest in ASEAN is similarly robust. In a separate 2023 survey of sentiment towards ASEAN, we found that firms from mainland China and Hong Kong were more likely than other respondents to be planning mergers and acquisitions in the region. Some 65% of China-based firms had plans for inorganic growth in ASEAN in 2023 or 2024. Malaysia is the number one target for expansion: more than a quarter of Chinese firms without a Malaysian presence plan to expand there over the next two years.²

“Chinese companies have a long and rewarding relationship with ASEAN, and we are seeing strong interest in expanding across the region,” says Joseph Ma, Head of Commercial Banking, HSBC China. “Each market is very different, and companies need to be able to cope with new complexities as they enter unfamiliar territory.”

2. Tariff-free trade is here to stay

The ASEAN-China relationship stands out in a complex environment for global trade, underpinned by a strong commitment to the free movement of goods among policymakers at both ends of the corridor.

ASEAN is China’s top trading partner, with total trade between the two reaching USD911.7 billion in 2023.³

In the opposite direction, the flow of goods from ASEAN to China has more than doubled over the past 10 years, according to ITC Trade Map data.⁴

Market access has also improved under free trade agreements including the Regional Comprehensive Economic Partnership (RCEP), which took effect in January 2022. RCEP covers 15 countries and aims to eliminate up to 90% of import tariffs between its signatories over the next several years.

The impact of these agreements is clear in exports of electric vehicles (EVs) from China. In the first two months of 2024, China’s EV exports to RCEP economies increased by 36% year-on-year.

Efforts are under way to seal an expanded trade pact⁵ this year, referred to as the China-ASEAN Free Trade Area 3.0.⁶ The bilateral China-Singapore Free Trade Agreement is also set for an upgrade.⁷

3. The new economy is driving growth

Technology and clean energy stand out as areas of opportunity as the trade relationship between ASEAN and China grows stronger.

China leads the world in EV manufacturing, sales and supply chains, while ASEAN is rich in the critical minerals needed for batteries: Indonesia has the world’s largest nickel reserves, the Philippines is also a major nickel producer and Thailand has recently discovered significant lithium deposits.^{8 9 10} With 65% of the region’s population expected to be in the middle class by 2030, ASEAN is also one of the world’s largest and fastest-growing consumer markets.¹¹ As a result, Chinese and global EV makers are investing heavily in ASEAN.

China’s BYD and SAIC are among those manufacturing EVs in Thailand, while Geely has a tie-up with Malaysia’s Proton and CATL is building a battery plant in Indonesia as part of Jakarta’s push to be a global player in the EV power supply chain by 2027.¹²

In the technology sector, the diversity of ASEAN’s national economies offers a wide range of choices for Chinese partners that are looking to diversify their supply chains, from electronics manufacturing in Vietnam to semiconductors in Malaysia. ¹³

And the growth of the digital economy opens up new channels for companies looking to sell across the ASEAN-China corridor. Cross-border e-commerce imports and exports in China reached CNY2.38 trillion (USD330 billion) in 2023, up 15.6% from a year earlier.¹⁴

“China and ASEAN have distinct strengths in advanced technology and are world leaders in digital connectivity,” says Joseph Ma. “With a combined population of over 2 billion people, the scale of this growth opportunity is unique for businesses with international growth ambitions.”

How HSBC can help

Businesses entering new markets in the China-ASEAN corridor – in either direction – are likely to face challenges ranging from the evolving and varied regulatory requirements to differences in language and the culture of commerce, even within individual countries.

With our long history in both ASEAN and China, HSBC is ideally positioned to help international businesses unlock opportunities along this increasingly important corridor. We have been on the ground in the six major ASEAN markets for over 135 years, and in China since 1865, building the local knowledge, regulatory understanding and commercial partnerships that can help our clients achieve their ambitions.

Our ASEAN desk network ensures that clients in China and Southeast Asia have access to the advice and support they need to operate across borders. This network includes experts on the region based in China, as well as Mandarin-speaking specialists in each of our ASEAN markets, supporting trade, finance and investment in both directions.

Through dedicated market, sector and product teams, we provide a consistent service across different markets and a broad spectrum of tools to help businesses manage their resources, maximise returns and navigate the complexities of regional and international expansion.