The term 'second China shock' describes China's evolving role in the global economy, particularly as its exports of manufactured goods surged by 40% from 2018 to 2023. Currently, China exports nearly half of its manufacturing output, which accounts for around 2% of global GDP [a26cfb5b]. This dramatic increase in exports has significant implications for Southeast Asia, where countries are intricately linked to China's supply chains.
China's industrial capacity utilization rate has dropped from 77% in Q1 2021 to 73% in Q1 2024, raising concerns about the sustainability of its growth model [57619155]. This overcapacity is a central issue in the ongoing US-China trade conflict, with the US accusing China of anti-competitive practices and excessive investment in its industries [57619155]. As a result, US tariffs on solar panels have directly impacted four ASEAN economies, highlighting the interconnectedness of trade policies and regional economic health [a26cfb5b].
Despite these challenges, ASEAN is emerging as a critical player in China's manufacturing landscape, receiving a third of China's foreign direct investment (FDI) in manufacturing in 2023 [a26cfb5b]. Countries like Malaysia are positioning themselves as neutral grounds for transnational production, aiming to attract more investment amidst the competitive pressures from China's manufacturing ecosystem [a26cfb5b]. However, this influx of investment is not without its challenges; intra-ASEAN divergence is expected as five countries dominate the manufacturing FDI landscape, potentially leading to economic disparities within the region [a26cfb5b].
In response to these dynamics, countries like Indonesia have increased tariffs on Chinese goods to protect local industries, reflecting a cautious approach to the growing influence of Chinese manufacturing [57619155]. Initiatives such as the ASEAN-China Free Trade Agreement (FTA) and the Regional Comprehensive Economic Partnership (RCEP) provide avenues for cooperation that could help mitigate some of the adverse effects of China's overcapacity [57619155].
As the semiconductor sector drives export growth in Asia, particularly benefiting countries like South Korea and Taiwan, the risks associated with over-reliance on a single market become more pronounced [7c434455]. Rising demand for premium products in Japan and China presents both opportunities and challenges for exporters, emphasizing the need for robust supply chains in the wake of the pandemic [7c434455]. The evolving landscape of trade and manufacturing in Southeast Asia will depend on adaptability and strategic investments in technology to navigate these complex dynamics [7c434455].