Why the ‘China plus one’ provide chain shift is paying off lower than Southeast Asia hoped

Yet regardless of successful billions of {dollars} of asset placement in new factories, the area is reaping fewer advantages than its leaders could have hoped. 

“China plus one has been a internet acquire for Southeast Asia, however a conditional and uneven one,” says Meng-Chun Liu, the director of the Chung-Hua Institution for Economic Research (CIER), a Taiwan-based assume tank. “It introduced factories, exports and jobs to the area, however not the design, core parts and course of know-how that captures a lot of the worth.”

Vietnam, the star economic landscape of Southeast Asia, focuses totally on closing meeting earlier than export to developed trading floors, moderately than manufacturing intermediate parts. To make issues worse, corporations like Target—annoyed by an underdeveloped Southeast Asian manufacturing facility ecosystem—are transferring supply chains back to China.

And now Southeast Asia faces a much bigger problem: as Chinese corporations more and more view Southeast Asia as a area of shoppers, not staff, a flood of low-cost exports might find yourself undercutting the area’s manufacturing positive aspects. 

Flying geese returning dwelling

The “flying geese” mannequin, formulated by Japanese economist Kaname Akamatsu within the Nineteen Thirties, means that manufacturing routinely flows from economically superior nations to less-advanced ones. Over time, these follower nations additionally turn into too costly for manufacturing, and so factories shift to nations even additional alongside the frontier.

Yet, in line with Liu, this mannequin not holds. “The outdated ‘flying geese’ sample, wherein China handed lower-end manufacturing on to its neighbors, is breaking down: China now goals to maintain the total provide chain at dwelling and to promote into Asia, moderately than hand manufacturing over to it,” he says.

A key issue holding Southeast Asia again is its fragmented manufacturing capabilities. Vietnam focuses on electronics meeting, Thailand in automotives, and Malaysia in chip packaging. 

Yet with out absolutely mature native ecosystems, Southeast Asian factories supply inputs from China to maintain manufacturing working. Apple, even because it shifts closing meeting to Vietnam and India, nonetheless leans on Chinese suppliers for batteries, optics and enclosures. 

“While jobs are created in Southeast Asia, they’re largely low-skill meeting roles,” Christopher Tang, a provide chain administration skilled from UCLA’s Anderson School of Management, explains. “This caps the fast creation of high-value industries.” 

China, in contrast, has spent many years constructing a hyper-efficient manufacturing ecosystem that gives uncooked materials processing, part manufacturing, superior logistics and engineering help. 

“Alternative manufacturing hubs battle to copy the huge, vertically built-in ‘manufacturing facility ecosystem’ of Shenzhen,” Tang says. 

Who’s successful from China plus one

A handful of nations have captured a lot of the positive aspects from the “China plus one” shift.

Vietnam is clearly the biggest beneficiary. Its GDP grew 8.0% in 2025, accelerating from 7.1% in 2024. Exports to the U.S. jumped 28.1% to $153.2 billion final 12 months, from $119.6 billion in 2024. Yet imports from China climbed practically 30% to roughly $183 billion.

Malaysia, too, is carving its personal area of interest within the semiconductor area. Data heart asset placement presently quantities to nearly 18% of the country’s GDP—the very best share globally, in line with HSBC analysts. Homegrown chip design agency SkyeChip additionally loved a blockbuster IPO on the Bursa Malaysia inventory alternate in May, surging 300% on its main market debut.

Regional politicians, nonetheless, notice the boundaries of Southeast Asia’s place within the world AI provide chain. “The Global South can not merely turn into a vacation spot for information facilities, whereas choices about AI are made elsewhere,” Malaysian Foreign Minister Datuk Seri Mohamad Hasan stated throughout his Sept. 27 statement at the UN General Assembly.

Some Southeast Asian nations try to leverage their strengths to seize extra of the worth chain. Indonesia imposed a ban on nickel ore exports to encourage smelters to maneuver refining operations to the nation; the nation is now pushing to draw extra of the EV worth chain, together with automobile and battery manufacturing. 

Singapore can be benefitting from its position “as a regional hub for orchestrating the availability chain and investments within the area”, says Goh Puay Guan, an affiliate professor on the National University of Singapore (NUS).

Undercut by the U.S.

Southeast Asia can be on the mercy of U.S. business law, a giant driver of the “China plus one” shift. As Washington positioned extra tariffs on Chinese items, provide chains shifted to Southeast Asia to make the most of decrease import duties. 

Yet Washington is more and more scrutinizing that observe. Earlier this 12 months, the White House launched a report accusing 40 nations, together with a number of in Southeast Asia, of participating in a “transshipment scam,” or diverting Chinese-made items by means of different places to evade U.S. tariffs. 

Experts say it’s nonetheless attainable for Southeast Asia to outlive in an more and more multipolar international stage, so long as its nations be certain that commerce flows are as clear as attainable.

“Southeast Asian nations could must explicitly divide their industrial parks: establishing one vertically built-in provide chain compliant with Western requirements, and a separate one aligned with Chinese networks serving the Global South,” Tang says. 

The tariff differential between China and Southeast Asia has additionally shrunk. After the Trump administration expanded Section 301 tariffs in July, items from Singapore, Thailand, Vietnam and the Philippines at the moment are topic to a better tax fee of 12.5%, whereas Cambodia, Indonesia and Malaysia face a ten% responsibility. 

China, by comparability, faces a mean tariff fee of 21%—and after Xi’s current go to to the U.S., each nations at the moment are pursuing $30 billion value of tariff reductions throughout an array of non-sensitive items, together with furnishings and toys.

“When the U.S. tariff hole between China and Vietnam narrowed for pocket book computer systems, a number of main PC manufacturers moved manufacturing from Vietnam and Thailand again to China,” Liu factors out.

Exporters turned shoppers

But the long-term risk to Southeast Asia could also be that it turns from being the ultimate stage in a Chinese provide chain to being a marketplace for Chinese items. 

Exports have been a vivid spot for China’s economic landscape, which is in any other case scuffling with slumping consumption and a years-long property market stoop. In August, exports grew by 25% year-over-year, whereas retail gross sales rose by simply 0.4%.

Trade between China and ASEAN surpassed $1 trillion for the primary time in 2025, in line with official statistics. Yet for some Southeast Asian producers, the inflow of products from China has taken a toll.

“In the long run, this may occasionally result in an acceleration of untimely deindustrialisation in Southeast Asia, which brings severe implications for financial progress and social stability,” Lee Jones, a professor of transnational politics at Queen Mary University of London (QMUL), warns.

Thailand, as an illustration, has seen national GDP growth slow to 2%, partially as a result of strain from Chinese EVs and client items. “The U.S. tariffs and China’s retaliatory tariffs trigger an inflow of Chinese items into the Thai market, intensifying competitors for Thai producers within the home market, particularly in industries delicate to cost competitors,” wrote Supasyn Itthiphatwong, an economist at Krungsri Research, in a research report.

Then there’s what China presents to these Southeast Asian nations which are even additional behind: Cambodia, Laos, and ASEAN’s latest member, Timor-Leste.

In these instances, the danger isn’t that native producers get outcompeted, however moderately that they by no means get an opportunity to take flight.