Broker Elev8 Report: The Significance of China for Southeast Asian Economies
On 19 January 2026, China’s National Bureau of Statistics reported that the country’s Gross Domestic Product grew by 5% year-on-year and exceeded $25 trillion. This vast scale makes Beijing an undeniable economic anchor for the entire world, and especially for South and Southeast Asia. As the world’s second-largest economy and ASEAN’s principal trading partner since 2009, China’s economic health directly influences the direction of regional growth, investment flows, and currency stability.
For the ASEAN-5 nations—Indonesia, Malaysia, the Philippines, Vietnam, and Thailand—China’s economy is far more than merely an external market; it serves as a fundamental determinant of domestic stability. In 2025, bilateral China-ASEAN trade exceeded $1 trillion, marked by a record surplus for Beijing.
Individual trade volumes underscore this mutual dependence:
• Vietnam: $296 billion
• Malaysia: $192 billion
• Indonesia: $168 billion
• Thailand: $153 billion
• Philippines: $72 billion
China remains the principal trading partner for each of these nations, typically accounting for 15%–25% of their exports and 20–35% of their imports. Although this relationship is asymmetrical, it remains mutually beneficial in each case. Southeast Asia exports raw materials and semi-finished goods to China—Indonesian nickel and palm oil, Malaysian electronic components, Thai agricultural products, Vietnamese clothing, and Philippine resources—whilst importing high-technology machinery, electronics, steel, and consumer goods.
However, this mutual interdependence now faces a significant test, as substantial obstacles to China’s growth have emerged for 2026. Whilst Asia’s GDP growth exceeded performance in 2025 due to technology-led investment surges, momentum is slowing as external demand cools. In 2026, GDP growth for Asia (excluding China) is forecast to decline to 3.4%.
Two principal risks dominate prospects for 2026: China’s continuing property crisis and industrial overcapacity, along with unstable US-China trade relations.
The property market and industrial overcapacity
China’s property sector, once a pillar of growth, is now a significant drag. Following brief stabilisation, price corrections became steeper in mid-2025. High inventory and resurging default concerns, particularly with developers such as Vanke seeking bond extensions, have destroyed consumer confidence, translating into weaker aggregate demand and potentially lower demand for imported goods, including those from ASEAN nations.
Furthermore, China’s industrial overcapacity continues to harm Southeast Asia’s manufacturing and capital spending sectors.
According to ING, China’s overcapacity burdens regional manufacturing. For instance, in Indonesia, industrial and retail retrenchments reached 42,000 by late 2025, a 32% year-on-year increase likely related to competitive pressure from China.
Similarly, Thai vehicle prices and Vietnamese smartphone prices have fallen under deflationary pressure from cheap Chinese exports. Non-technology investment remains sluggish across the region, as global trade volume growth is projected to slow sharply from 2.4% in 2025 to only 0.5% in 2026.
US-China trade relations
A one-year truce between the United States and China has reduced effective tariffs on China (still around 47% compared with pre-2025 levels of approximately 21%) and halted some export controls. However, the agreement remains precarious.
Any disruption could trigger new non-tariff barriers, particularly those related to rare earths (China dominates processing). Southeast Asian sectors in semiconductors, automobiles, and electronics that depend on Chinese intermediate components will face shortages and cost spikes.
Interestingly, the tariff gap between China and ASEAN is narrowing. Whilst many ASEAN nations have secured their own trade agreements with the United States, their tariffs have largely remained unchanged compared with China’s negotiated reductions, potentially reducing incentives for companies to divert trade through third countries such as Vietnam or Malaysia.
Conclusion
The impact of China’s slowdown is already visible in early 2026. Whilst China’s aggregate financing exceeded expectations in January, new loan growth failed to match consensus, reflecting weak demand.
China’s property market, once contributing approximately 25% to GDP, has seen secondary prices fall by more than 20% from their October 2025 peak. Retail sales grew only 3.7% for the year, whilst industrial output outpaced consumption. Beijing’s 2026 growth target is likely approximately 4.5–5% (down from 5% in 2025), though analysts estimate around 4.5–4.6%.
Low consumer confidence, high savings ratios, and deflationary pressures from productive overcapacity will hinder Southeast Asian nations’ growth. In particular, the Southeast Asia region must anticipate declining commodity demand (especially for Indonesia and Malaysia), sluggish capital outflows and foreign direct investment from China, and intensifying price wars in manufacturing products originating from the country.
Indeed, if external demand weakens further, China’s overcapacity could exacerbate deflationary pressures across the region, pushing real policy interest rates higher and complicating monetary loosening. Currencies such as the Indonesian rupiah and Philippine peso, already structurally vulnerable, will face depreciation pressure amid narrowing interest rate differentials.