De-risking has been the leading theme of China policy in the EU in recent years, from the corridors of Brussels to Berlin and Vilnius. While seeking to reduce dependence on China and promote its domestic industry, the EU has also striven to establish new partnerships around the globe to diversify its global economic footprint and bolster existing ones.
The ASEAN grouping has been touted as a potential answer to calls for de-risking, owing to its dynamic markets and attractive production bases that could offer an alternative to excessive exposure to China. However, can the EU truly derisk from China by deepening its economic engagement with ASEAN? To answer this question, this CEIAS report provides an in-depth analysis of ASEAN’s trade relationships with key global partners and demonstrate changes in the grouping’s direct and indirect trade exposure over time.
The paper examines the frameworks of the EU and Germany’s de-risking policies and the tools employed to achieve their goals, looks at China’s structural role in ASEAN through its investment and infrastructure support policies and analyzes how it compares with the roles of the EU and German actors. Finally, the study presents a deep-dive analysis of the automotive sector in ASEAN and its potential to become an alternative source of both supply and demand for EU companies.
Executive summary
- ASEAN countries stand to be important partners in the EU and Germany’s de-risking strategies from China, provided that the European partners recognize the political and economic limits of engagement and adopt flexible approaches that align with the ASEAN countries’ goals.
- ASEAN countries have increased their trade links with China in recent years, while the US and the EU remain important (and growing) sources of final demand for ASEAN exports. Bilateral trade statistics overstate China’s role as a source of final demand, as many ASEAN-produced raw materials and intermediate products are later re-exported from China. At the same time, Chinese-made intermediate inputs are in strong demand across ASEAN and form more than a quarter of the foreign value added in ASEAN’s exports.
- China-centered supply chains are expanding across ASEAN, tying the EU’s economic involvement in the region ever more closely to China through intermediate goods and Chinese-built infrastructure. As a result, the EU risks trading a reduction in its direct trade exposure to China (and thus lowering direct China-related risks) for an increase in its indirect exposure to China via ASEAN, which brings higher ASEAN-specific country risks.
- Europe, the US, Japan, South Korea and others pursue de-risking strategies which result in increased investment of their companies in ASEAN. Chinese companies also expand their presence by following the China+1 logic, leading to stiff competition in ASEAN. China is increasingly rivaling EU firms in high–value–added sectors such as automotive, a phenomenon known as the “Second China Shock”. Chinese companies are benefiting from deeper supply chain integration, active government support, and synergy with Beijing-supported infrastructure projects.
- The EU’s dominant trade liberalization approach via FTAs is unlikely to solve these challenges and may instead deepen indirect dependence on China. Global Gateway remains resource-constrained and lacks the necessary focus on select industries and locations to achieve the desired impact.
- In the automotive sector, ASEAN presents a promising partner in European carmakers’ de-risking activities. However, it is unlikely to present a full-fledged alternative to China, despite the growing consumer market and potential as a production location. German carmakers are facing direct challenges from Chinese competitors in the premium model segment in the ASEAN market. Lack of regulatory convergence among ASEAN countries and lack of intra-regional integration make it difficult to build the scale needed to lower the carmakers’ costs.
