Asian AngleWhy a second ‘China shock’ is good for Southeast Asia

Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing

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Shipping containers are seen at the port in Nanjing, Chinas eastern Jiangsu province, last month. Photo: AFP

Published: 2:30pm, 12 Jul 2026

Southeast Asia imported more than half a trillion dollars in goods from China last year, leaving the region with a collective trade deficit of around US$290 billion. It has only grown further since. Should the region’s policymakers be concerned? Should they, perhaps, even join the United States and Europe in pushing back against China’s imbalances?

Globally, China’s swelling exports and trade surplus since roughly 2020 have been dubbed the second “China shock”. Its customs trade surplus hit US$1.2 trillion last year, on exports of US$3.8 trillion.

Some fear a repeat of the first “China shock” that followed the country’s entry into the World Trade Organization in 2001. In the US, surging Chinese imports were blamed for gutting manufacturing towns. Across the developing world, China’s export dominance was associated with “premature deindustrialisation”.

Yet today’s “shock” is very different to the first.

Back then, China functioned as an assembly hub, reliant on foreign inputs and technology, exporting finished goods to wealthy markets and crowding out exports from other developing economies. Meanwhile, it mostly recycled its resultant large current account surplus into US Treasuries.

Workers are seen on an industrial robot assembly line at a factory in Foshan, China’s southern Guangdong province. Photo: AFP

Today’s China is different. It primarily exports parts, components and the machinery that other countries need to produce and export. China has become “factory to the factories” as management consultancy McKinsey put it. It is also channelling more of its surplus into capital flows to developing economies, including through manufacturing investment. And through all this, it is exporting its own technologies, from clean energy products to industrial robots.

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing

Fear of Chinese imports is misplaced. Roughly 90 per cent of what the region buys is inputs and machinery driving local manufacturing