United States, China, and Southeast Asia: Prospects for "Coopetition"?
By: Cielito F. Habito, PhD
Introduction
The competition between China and the United States is undeniable in their multifaceted relations with the countries of Southeast Asia. The World Economic Forum describes ASEAN—the ten-member Association of Southeast Asian Nations—as the world’s “economic dark horse.”1 As a trading bloc with a combined population of 685 million, it is the third-largest market in the world, next to India and China. The region thus wields demographic power and is now acknowledged as an important driver of the global economy.
Even though ASEAN countries share a common geography and similar ethnicities, the economic disparities among them are vast. The average income of the richest member Singapore ($70,590 in 2023) is nearly 60 times that of the poorest member Myanmar ($1,).2 Price stability ranges from very stable, with Brunei’s and Thailand’s annual inflation rates at 0.4% and 1.2%, respectively, to hyperinflationary, with Laos at 31.2%.3 The jobs situation ranges from virtually full employment in Thailand, with an unemployment rate of 0.7%, compared to Indonesia’s 3.3% in 2023.4 Exports-to-GDP ratio ranges from dynamic Singapore’s 108.9% to inward-looking Philippines’s 12.7%, with a regional average of 55.9% in 2023(Figure 1).5 Education outcomes range from globally top-ranked Singapore to bottom-ranked Philippines and Cambodia (77th and 81st, respectively) in the 2022 Program for International Student Assessment.6
Figure 1. Exports to GDP Ratio (Percentage), ASEAN Countries, 2022
With such wide disparities, China and the United States could ideally help the region bring about a “rising tide that lifts all boats” approach so that the inequalities both across and within the countries of ASEAN could be narrowed. The two superpowers’ economic contributions to the region come in the form of trade, investment, economic assistance, tourism, labor migration, and more. This paper focuses on the first three, which are the most prominent elements in the great powers’ relationships with ASEAN countries.
China and ASEAN Economic Development
China is ASEAN’s largest trading partner, which is not surprising given its geographic proximity. Following the establishment of the ASEAN–China Free Trade Agreement (ACFTA) in 2010, trade more than doubled from $235.5 billion to $507.9 billion by 2019, comprising 18% of ASEAN’s total trade.7 In the same period, ASEAN’s trade deficit with China grew tenfold from $10.4 billion to $102.9 billion.8 China’s trade with the region has been boosted by trade agreements; apart from ACFTA, China also has bilateral free trade agreements (FTAs) with Singapore and Cambodia. Furthermore, Vietnam is China’s largest trading partner in ASEAN, followed by Malaysia and Indonesia. In 2022, the Regional Comprehensive Economic Partnership (RCEP) that includes the ten ASEAN economies and five large economies around it—China, Japan, South Korea, Australia, and New Zealand—came into force, making the group the largest trading bloc in the world.
China is ASEAN’S fourth-largest source of foreign direct investment (FDI) behind the United States, Japan, and ASEAN itself—via intra-ASEAN cross-border investments—bringing in $15 billion of inflows in 2022 (Figure 2), but it is unevenly distributed in the region.9 Singapore was the largest recipient, taking in $8.3 billion, with Indonesia, Vietnam, and Malaysia receiving increasing shares.10 China was also the largest FDI source in Cambodia, Laos, and Myanmar. Half of Chinese FDI into ASEAN went into manufacturing and wholesale and retail trade, with significant amounts also going to infrastructure, electric vehicles and allied manufacturing activities, and the digital economy. On the other hand, ASEAN FDI into China in 2022 amounted to $11.9 billion, with the bulk coming from Singapore at $10.6 billion.
Figure 2. ASEAN FDI Inflows, 2021–2022
China’s economic assistance to ASEAN has largely been through the Belt and Road Initiative (BRI) that includes large infrastructure projects such as railways, ports, energy, and telecommunications. Funding for BRI projects has been provided by the Asian Infrastructure Investment Bank (AIIB), New Development Bank, China Development Bank, and Export-Import Bank of China.11 Prominent BRI infrastructure projects include the Jakarta-Bandung high-speed railway and Malaysia’s East Coast Rail Link. Beyond infrastructure, China also prominently assisted its ASEAN neighbors with providing vaccines during the COVID-19 pandemic.
In 2021, China’s aid program shifted emphasis to its Global Development Initiative (GDI), announced in September of that year by President Xi Jinping at the United Nations General Assembly, to address “unbalanced and inadequate development among and within countries” and to promote development that is “people-centred, high-quality, green, and innovation-driven.”12 The GDI lists eight priority areas: (1) poverty alleviation, (2) food security, (3) COVID-19 and vaccines, (4) financing for development, (5) climate change and green development, (6) industrialization, (7) digital economy, and (8) connectivity. Specific projects from the initiative have yet to begin.
The United States and ASEAN Economic Development
In early 2024, the United States took over the lead from China as ASEAN’s top export destination. In 2021, U.S.-ASEAN trade was $442 billion, with ASEAN having a surplus of more than $250 billion.13 Topping the region’s exports to the United States were electrical machinery and equipment ($73 billion or 28% of all ASEAN exports to the United States in 2021); nuclear reactors, boilers, and parts ($38 billion, 14%); apparel and clothing accessories ($15.9 billion, 6%); and furniture, bedding, mattresses ($15.8. billion, 6%).14 In the other direction, U.S. exports to ASEAN included electrical machinery and equipment ($22.4 billion or 20% of total); nuclear reactors, boilers, and parts ($20 billion, 17.8%); mineral fuels ($8.6 billion, 7.7%); and medical equipment ($6 billion, 5.4%).15
The United States is ASEAN’s largest source of FDI, bringing in $37 billion of inflows in 2022, comprising 22.5% of total ASEAN FDI inflows.16 Manufacturing and finance industries assumed the majority of U.S. FDI into the region, both amounting to about $20 billion.17 The United States was also the largest investor in both industries ASEAN-wide, and U.S. investments in the region are also rising in the banking and finance, semiconductors, and pharmaceutical and biomedical industries. These investments come at a time when global supply chain disruptions have pushed U.S. companies to expand into ASEAN, especially in electronics and semiconductors. Investments in data centers, e-commerce, and electric vehicle supply chains are also rising.18
The United States has traditionally provided economic assistance to the region through the U.S. Agency for International Development (USAID), with programs aimed at supporting economic growth, poverty reduction, and sustainable development. Such assistance includes capacity building and technical assistance toward improved governance, trade regulations, public and private sector capacity, intellectual property rights protection, and adoption of international trade facilitation standards. In particular, the adoption of trade standards is exemplified by the ASEAN Single Window initiative, which allows the electronic exchange of customs data among the ASEAN member countries to lower barriers to trade and facilitate cross-border economic engagement.19 Other USAID initiatives cover environment and climate change adaptation, biodiversity protection, and green energy transition.20 A U.S.-ASEAN Smart Cities Partnership provides technical assistance focused on urban planning and environmentally friendly infrastructure, among other concerns.21 During COVID-19, the United States also provided vaccines and support for pandemic-affected small and medium enterprises (SMEs).22
Comparative Assessment
On Trade
As demonstrated earlier, ASEAN has a large and growing trade deficit with China but enjoys a substantial trade surplus with the United States. Still, ASEAN’s largest trading partner is China, which has gained its advantage in trade with ASEAN due to geographic proximity and an aggressive liberalization posture, including active pursuit of bilateral and multilateral FTAs. On the other hand, the U.S. withdrawal from the Trans-Pacific Partnership (TPP), which subsequently became the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), may have defaulted the advantage to China, although only four ASEAN members belong to the CPTPP. The general U.S. “reticence on global trade contrasts with China’s own trade liberalization agenda.”23 China is now even applying to join the CPTPP, although its admission is unlikely given current geopolitical realities with tensions between China and some of the CPTPP members. Meanwhile, the United States reinvigorated its trade and investment thrust in Southeast Asia under the Biden administration by pursuing the Indo-Pacific Economic Framework (IPEF), with seven ASEAN members included in its coverage. Through the IPEF, the United States articulated the importance of ASEAN centrality in the Indo-Pacific region and has supported initiatives such as the Lower Mekong Initiative aimed to strengthen ties with ASEAN countries in sustainable development, education, and health. However, IPEF is not an FTA; the latter remains high in the preferences of ASEAN economies when pursuing deeper economic relations with the United States.24
On Investments
The United States is the largest source of FDI in ASEAN, with its investments in the region exceeding its investments in China, India, Japan, and South Korea combined.25 China only ranks fourth, with much of those investments coming through China-funded government infrastructure projects under the BRI, along with private business investments.26 BRI investments have raised concerns regarding sovereignty and the potential threat of overdependence that could later become a source of political leverage for China. There are also issues on transparency, corruption, and the lack of local benefits associated with these investments, as they commonly employ materials, equipment, and even labor from China rather than sourcing locally. Digital technology investments and products tend to provoke fears on data security, cyber espionage, and possible loss of digital sovereignty.
Questions have also been raised regarding weak labor and environmental standards, as well as accusations that China is exporting “dirty” industries into the region. For example, polluting induction furnaces for steel manufacturing, which have been banned in China, are reported to have found their way into Indonesia and the Philippines to produce steel products there.27 Chinese mining companies are also reported to be behind environmentally destructive mining operations in the Philippines, registering as “small-scale” mining operations beyond the strict regulatory jurisdiction of the Philippine Department of Environment and Natural Resources and subject only to lax local government supervision.28
On the other hand, issues of sovereignty are not usually associated with U.S. investments, which are seen more as furthering U.S. foreign policy. U.S. investments are also known to adhere to the strict labor and environmental standards of the U.S., often stressing transparency and good governance. However, these standards can be seen in a negative light as being “too rigid,” hence, restrictive. Furthermore, digital technology investments from the United States tend to be highly regulated and protective of privacy, in direct contrast to similar investments from China, which have a wider digital technology presence in the region but are often suspected of being associated with security and privacy risks. ASEAN has had to face a tradeoff between security and accessibility in facing the two contrasting models of digital technology ecosystems offered by the two.
On Economic Assistance
In contrast with perceived rigid conditionalities of U.S. economic assistance on governance, transparency, human rights, labor, and environmental standards, Chinese aid is said to have no strings attached. However, accepting Chinese aid is feared to result in political and economic dependency on China, especially given the large financial investments involved in China’s BRI infrastructure projects. Additional concerns include debt sustainability, debt traps, and the prospect of giving up state assets (hence, sovereignty) in the event of loan default. China’s infrastructure assistance was perceived to lack solid economic analysis, leading to low economic returns and emerging “white elephants.”29 And while China is seen to be generous in supporting connectivity infrastructure, it comes with perceived risks involving data security, cyber espionage, and potential over-reliance. In contrast, the United States pushes for open and secure digital ecosystems and offers capacity building for cybersecurity.
On the other hand, the U.S., through USAID, has delivered a smaller but much more comprehensive package of grant assistance and soft loans with conditions related to human rights, governance, transparency, and accountability. USAID has also offered an overarching menu of long-term development initiatives that included capacity building, education, health, governance, economic freedom and diversification, and support for SMEs.
The Way Forward
Both China and the United States have their upsides and downsides in their economic relations with the countries of Southeast Asia. Rather than seeing this as a contest for the region, it would be in the best interest of Southeast Asia and, in turn, the world if the two superpowers complement each other’s economic presence in the region or even cooperate on joint initiatives. Some degree of cooperation and collaboration between China and the United States has, in fact, been happening, through projects co-financed by the China-led AIIB and the U.S.-dominated World Bank. Examples include a flood management project in Metro Manila, Philippines; irrigation projects in Indonesia; and national road improvement and maintenance in Laos.
The imperative for the region is to move toward narrowing disparities across and within the ASEAN members. Human welfare initiatives and digital transformation may be deliberately employed as tools for ensuring inclusion of those who would otherwise be left behind. The two superpowers would do well to pursue more bilateral and multilateral dialogues toward better complementarity and even cooperation, including in nongovernmental and nonpolitical platforms such as culture and the arts, academic exchanges, and sports competitions. While competition may be inevitable, it need not be incompatible with cooperation to forge a new path of “coopetition” in the trilateral relationship among China, the United States, and Southeast Asia.
End Notes
[1] Arsjad Rasjid (August 22, 2023), “The ASEAN region is the world's economic dark horse. Here's why”, World Economic Forum, https://www.weforum.org/stories/2023/08/asean-economic-growth/
[2] Asian Development Bank (2024), Key Indicators for Asia and the Pacific: Data for Climate Action, 179, https://www.adb.org/sites/default/files/publication/984521/ki2024.pdf.
[3] Asian Development Bank (2024), Key Indicators for Asia and the Pacific: Data for Climate Action, 199, https://www.adb.org/sites/default/files/publication/984521/ki2024.pdf
[4] Asian Development Bank (2024), Key Indicators for Asia and the Pacific: Data for Climate Action, 132, https://www.adb.org/sites/default/files/publication/984521/ki2024.pdf
[5] Asian Development Bank (2024), Key Indicators for Asia and the Pacific: Data for Climate Action, 184, https://www.adb.org/sites/default/files/publication/984521/ki2024.pdf.
[6] OECD, PISA 2022 Results (Volume I): The State of Learning and Equity in Education (Paris: OECD Publishing, 2023), https://doi.org/10.1787/53f23881-en.
[7] ASEAN, “ASEAN-China Economic Relation”, https://asean.org/our-communities/economic-community/integration-with-g….
[8] ASEAN Secretariat, ASEAN Investment Report 2023—International Investment Trends: Key Issues and Policy Options (Jakarta: ASEAN Secretariat, December, 2023), https://asean.org/book/asean-investment-report-2023/.
[9] ASEAN Secretariat, ASEAN Investment Report 2023.
[10] Arendse Huld (August 9, 2024), “China-ASEAN Trade and Investment Relations”, China Briefing, Dezan Shira and Associates, https://www.china-briefing.com/news/china-asean-trade-and-investment-re….
[11] China Power Team (October 11, 2024),"How Is the Belt and Road Initiative Advancing China’s Interests?" China Power, https://chinapower.csis.org/china-belt-and-road-initiative/.
[12] Thi Ha Hoang (February 21, 2023), "Why Is China’s Global Development Initiative Well Received in Southeast Asia?" Perspective, Issue 2023 (No. 9), ISEAS-Yusof Ishak Institute, Singapore, https://www.iseas.edu.sg/wp-content/uploads/2023/01/ISEAS_Perspective_2….
[13] Ayman Falak Medina (July 7, 2023), "An Overview of US Trade and Investment in ASEAN," ASEAN Briefing, Dezan Shira and Associates, https://www.aseanbriefing.com/news/an-overview-of-us-trade-and-investme….
[14] Medina, "An Overview of US Trade and Investment in ASEAN."
[15] Medina, "An Overview of US Trade and Investment in ASEAN."
[16] ASEAN Secretariat, ASEAN Investment Report 2023.
[17] ASEAN Secretariat, ASEAN Investment Report 2023.
[18] Medina, "An Overview of US Trade and Investment in ASEAN."
[19] U.S. Mission to ASEAN (September 6, 2023), “Fact Sheet: U.S.-ASEAN Comprehensive Strategic Partnership, One Year On,” U.S. Mission to ASEAN, https://asean.usmission.gov/fact-sheet-u-s-asean-comprehensive-strategi….
[20] U.S. Mission to ASEAN, “Fact Sheet: U.S.-ASEAN Comprehensive Strategic Partnership”.
[21] U.S. Mission to ASEAN, “Fact Sheet: U.S.-ASEAN Comprehensive Strategic Partnership”.
[22] U.S. Mission to ASEAN, “Fact Sheet: U.S.-ASEAN Comprehensive Strategic Partnership”.
[23] Medina, "An Overview of US Trade and Investment in ASEAN."
[24] Medina, "An Overview of US Trade and Investment in ASEAN."
[25] Medina, "An Overview of US Trade and Investment in ASEAN."
[26] ASEAN, “ASEAN-China Economic Relation”
[27] Manalo Serapio Jr. (December 16, 2018), “China’s outcasr steel machines find unwelcome home in Southeast Asia,” Reuters, https://www.reuters.com/article/business/chinas-outcast-steel-machines-….
[28] Melvin Gascon (October 17, 2024), “DENR confirms Chinese presence in illegal mining”, Philippine Daily Inquirer, https://newsinfo.inquirer.net/1993293/denr-confirms-chinese-presence-in….
[29] A prominent example is Sri Lanka’s Mattala Rajapaksa International Airport, which cost nearly $282 million, mostly financed by a Chinese loan. Built to accommodate one million travelers per year, it recorded only 2,739 passengers in 2015 and 4,700 passengers in 2016, and is reported to be losing nearly $18 million per year. See Kemel Toktomushev (February 22, 2019), "The Belt and Road Initiative: The March of White Elephants?" China-US Focus, https://www.chinausfocus.com/finance-economy/the-belt-and-road-initiati….
