By Kristina Fong

Southeast Asian countries have exhibited steadfast economic growth and development over the past few decades, displaying resolve and resilience through financial crises and other economic shocks. Though domestic drivers of growth such as human capital enhancement, accumulation of capital stock, and innovations, have undoubtedly been important in this respect, economic engagements with external stakeholders have also played a valuable role in shaping trade and investment relationships as well as economic development policy.

Despite beneficial spillover effects in the form of deeper strategic partnerships, economic upgrading in terms of skills and technology, and greater economic integration, the idea of economic influence and its underpinnings may sometimes also be viewed through negative lens. In this sense, significant levels of economic influence by a foreign actor could suggest undue influence on the economic decisions of a sovereign state, perhaps serving the influencer’s purpose more than that of the host country. Moreover, it could also indicate a disproportionate amount of dependence on this external stakeholder with respect to its economic performance. In this scenario, countries may be prone to experience downturns synchronised to that faced by an influential foreign partner, similar to the Global Financial Crisis (GFC) in 2009. With episodes of greater geopolitical uncertainty in recent times, the idea of overdependence on or sway towards certain economic actors, is largely viewed as more of a bane than a boon.

CHINA IS DOMINANT IN THE ECONOMIC NARRATIVE IN ASEAN

Ever since ISEAS’The State of Southeast Asia Survey[1] began to be conducted in 2019, ASEAN countries have regarded China as the most influential economic power in Southeast Asia (Figure 1).

Figure 1. Trends in Perceptions of Economic Influence in ASEAN

China’s perceived status as the greatest economic influence overall in the ASEAN region has been strong from the start, accounting for 75.2 per cent of responses in 2019 and generally maintaining its standing for several years, before tapering off in 2022 to stand at 59.5 per cent in the recent 2024 survey. Still, even at that lower level, China is considered the dominant economic influence in the region. Although the US and ASEAN, the regional organisation itself, is gaining on China’s lead, their standings are still considerably lower at 14.3 per cent and 16.8 per cent respectively. ASEAN’s gain in momentum as an agent of economic influence may not come as a big surprise, seeing how the organisation has turned inwards to fend off pressures and downside risks from trade tensions in the past few years. That said, the US’ perceived lack of economic influence stacked up against China’s could be seen as a peculiar idiosyncrasy. Compared to China, the US performs strongly as a formidable export destination accounting for 15 per cent of ASEAN’s exports, and especially as a foreign investor in the region responsible for 20 per cent of inward FDI while the comparable figures for China are 16% and 2% respectively.

From the results of the Survey, respondents are generally growing more concerned about China’s economic influence and are more welcoming of US economic influence (Figure 2, left panel). That said, even though China may be more feared in this respect, the region is also showing some signs of rising concerns about US economic influence in the region. (Figure 2, right panel). This illustrates the concern that higher levels of economic influence could be a precursor to significant interference in domestic policies (as highlighted in the responses to the question of reasons for distrust for both China and the US), or alternatively that the growing strength of this influence could inadvertently drive the AMS closer to the scenario of having to choose between the two superpowers in terms of strategic alignment.

Figure 2. Economic influence may be strong, but feared in many countries

Sentiments versus hard data – is there a disconnect?

Using more traditional, and quantifiable measures of economic influence, such as volumes of trade and investments, we are able to make a more balanced comparison between the US and China. ASEAN’s trade with China is almost double the value of that with the US. That said, the strength of China’s influence falls mainly on the side of imports as opposed to exports, which seem to only match the US (Figure 3).

Figure 3. ASEAN trade volumes with major trade partners

The US is a larger market for ASEAN’s key export component of Electrical Machinery and Equipment. (Figure 4, left panel). In terms of imports though, China is a more significant import source for Electrical Machinery, Equipment and Parts by virtue of the characteristics of the global value chain in which China and the various ASEAN countries are important players (Figure 4, right panel).

Figure 4. Composition of trade patterns with major trade partners

Thus, China’s importance as a key source of inputs relative to its status as a market for final demand could be a factor tipping economic influence perceptions in its favour. Without integral production inputs, several ASEAN countries such as Malaysia and Vietnam, would not form such integral nodes in the global value chain for manufacturing.

THE US INVESTS HUGELY IN THE ASEAN REGION

In terms of investment activities, the US leads China by a large margin. In 2022, the US accounted for 20 per cent of FDI share in the ASEAN region versus the marginal share of 2 per cent held by China (Figure 5, left panel), however, it has not been growing as robustly as China-sourced FDI in recent times (Figure 5, right panel).

Figure 5. Broad inward FDI trends in ASEAN

Inward investments into the ASEAN region are mostly concentrated in manufacturing and financial services with respect to the US, and in manufacturing from China. That said, the gap in investment values for manufacturing between these two countries is significant, with the US recording USD 20.2 billion of inward FDI in 2022 and China only recording USD 5.4 billion for the same period (Figure 6, left panel). Within the investment category, greenfield investments, which have seen a resurgence in recent times,[2] are mainly in the Information and Communication sector (55 percent), along with Electronics and Electrical Equipment (14 per cent), Figure 6, right panel. The ASEAN region has overtaken China as a prime destination for manufacturing FDI catalysed by ongoing trade tensions between the major powers, with an amount of USD 124 billion pledged over 2022 and 2023, with Indonesia, Thailand, Singapore, Vietnam and Malaysia accounting for 96.5 percentage share of this value.[3]

Figure 6. Sectoral FDI trends

From another perspective, the breakdown of the Merger and Acquisitions (M&A) deals in the region also shows dominance of the US in this regard as the key party or as part of the deal consortium. In all the prime FDI locations for external stakeholders in the region, a US party is involved either directly or indirectly in more than 40 per cent of these deals in the respective countries (Figure 7). These deals are mostly merger deals, with the US having a minority stake. At any rate, this trend trumps China’s presence in the region whose FDI shares in M&A deals fall mostly below 10 per cent (Figure 8).

Figure 7. Analysis of US-related M&A deals in ASEAN (2023)

Figure 8. Analysis of China-related M&A deals in ASEAN (2023)

IN SIGHT AND IN MIND

Analysis from the investment side suggests that the US can hold its ground against China in terms of traditional measures of economic influence in the region. However, as results from the Surveys show, a large investment presence may not be enough to swing perceptions of the strength of economic influence. What could be tilting the balance for respondents towards China in the investment game could possibly be their high visibility in participating in externally funded developmental projects. Analysing works contracts awards by the key multilateral development banking institutions, China contractors command a significant share of these. These sorts of developments, especially those pertaining to infrastructure such as industrial real estate, are more visible in terms of physical dominance which may carry more weight for a casual observer in the area of economic influence.

Figure 9. Trends in developmental finance and works contracts awards

Along the same theme as visibility, the rapid growth and acceptance of Chinese consumer brands may have also played an important role. In Kantar’s latest review of the most influential Chinese brands internationally,[4] it is evident that the highest-ranked brands are those in dynamic industries such as consumer technology goods and services rising rapidly to become household names in the last decade. This has likely captured the attention of the rising consumer class in the ASEAN region and it is safe to say that most of these homegrown Chinese brands can be found in most regional economies, especially in the ASEAN-6. Amongst the top 25 brands, 7 fall into the technology services bucket (such as ByteDance), 13 are consumer technology companies (eg. Lenovo), 4 are automotive brands (including the likes of BYD) and 1 (Huawei) straddles both the technology services and consumer technology product categories. On the US side, brand recognition is strong, but most of its clout rests on legacy brands such as Microsoft, Apple and Google, with a less consumer-heavy presence.

Besides the more physical attributes of China’s visibility in markets, at a government-to-government (G2G) level, China also edged out the US in terms of the number of bilateral diplomatic dialogue meetings (i.e. 46 compared to 40 respectively) held in a year (referenced in 2021).[5] Thus, the concept of being ‘seen and remembered’ seems to be a sturdy strategic approach for China in the region. To note, most inaugural foreign visits outside the region by newly-elected leaders in Southeast Asia (Malaysia,[6] Thailand[7] and Indonesia[8] included) were to China, cementing the perceived importance of China’s all-round strategic influence.

QUICK FIX IN A MYOPIC WORLD

When Southeast Asian elite respondents are surveyed about what they view as the top 3 challenges for Southeast Asia, there is a consistent theme of economic weakness being of paramount concern (Table 1). Save for the years of COVID-19 pandemic hardships, this has been the most cited response, along with climate change worries. It is evident that striving for sustainable livelihoods and hence, access to economic opportunities is a key driver of policy direction, and perhaps then, the preference for a strategic economic partner.

Table 1. Main Challenges Facing Southeast Asia

Views on Top 3 Challenges for Southeast Asia (% Share of Respondents)	2019	2020	2021	2022	2023	2024
Economic Downturn	54.7	72.9	–	–	–	–
Unemployment and Economic Recession	–	–	65.5	49.8	59.5	57.7
COVID-19’s Threat to Health	–	–	76.7	75.4	–	–
Climate Change and More Extreme Weather Events	52.3	68.6	36.7	37.0	57.1	53.4

Source: The State of Southeast Asia Surveys (2019 to 2024 Releases)

With this in mind, an external actor’s economic influence on a sovereign state may also be approximated by the number of economic opportunities that it can provide. Under RAND’s Project AIR FORCE survey run over 2018-19,[9] the majority of respondents in the ASEAN-6 perceived China as having significantly more influence than the US in terms of providing economic opportunities. In terms of economic dependence, the ASEAN-6 countries viewed China as having moderately more influence compared to the US. Thus, perceived economic prospects may have a stronger bearing on economic influence than actual dependence as measured by hard economic data.

In the Lowy Asia Power Index,[10] China scores significantly higher than the US (98.1 as opposed to 57.1) in the area of economic relationships, especially in terms of economic diplomacy which takes into account free trade agreements (FTAs) and outward foreign assistance flows. Thus, having established strategic partnerships, especially in the area of FTAs that offer the opportunity to gain greater access to markets, seems to rank high in terms of economic influence. With membership in the Regional and Comprehensive Economic Partnership (RCEP), ongoing Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) accession negotiations, as well as an existing ASEAN-China FTA which is currently being upgraded, it is an established fact that China edges out the US in this regard, especially when the Indo-Pacific Economic Framework for Prosperity (IPEF) Agreement, the only pact on the table, does not offer increased market access to the US.

CAN THE US BRIDGE THE PERCEPTION GAP?

The economic influence of the US in the regional economy is undeniable, and one could even describe it as being quite profound, considering its level of investments and as a key source of external demand. That said, the status of economic influence is more nuanced than what the hard data would suggest. China’s visibility through its dominance in large works projects to the more relatable consumer goods especially in technology space, as well as its offer of greater economic opportunities, present themselves as more important factors of economic influence, especially with ASEAN economies remaining wary of downside risks.

Can perceptions of US economic influence be improved? Considering all the factors that have made China dominant in this respect, one area that could give the US some quick wins would be for them to step-up engagements with the ASEAN region, to forge more meaningful partnerships with clear economic benefits and make the IPEF more economically viable, perhaps extending the rules-based partnership to one that extends more market access to member countries much like how the CPTPP was intended to do.

It will not be easy for the US to up their game. China has already gained solid footing in this respect, with their influence being driven by long-standing dominance in works projects, as well as visibility in the consumer product space. Moreover, China is geographically closer to Southeast Asia, which provides an edge against the US in building closer relations. Besides these challenges, uncertainties prevail over whether a Harris-Walz or a Trump-Vance win in the US presidential elections in November would necessarily be better for the region, or for China. Gaining a foothold in economic influence in the region is both a challenging and delicate endeavour and treading too lightly may be a missed opportunity for the US.

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For endnotes, please refer to the original pdf document

• About the author: Kristina Fong is Lead Researcher (Economic Affairs) of the ASEAN Studies Centre at ISEAS – Yusof Ishak Institute. The author wishes to thank colleagues Sharon Seah, Senior Fellow and Coordinator of the ASEAN Studies Centre and Climate Change in Southeast Asia Programme, Siwage Dharma Negara, Co-coordinator of the Indonesia Studies Programme and Senior Fellow at the Regional Economic Studies Programme and Lee Sue-Ann, Coordinator of the Regional Strategic and Political Studies Programme and Media, Technology and Society Programme for their valuable comments and suggestions.
• Source: This article was published by ISEAS – Yusof Ishak Institute.