Beijing and Asean Need to Discuss 'Second China Shock'

The region's manufacturers could get muscled out of the market by a flood of Chinese products.

- Ravi Velloor

More than two decades ago, when China initiated the Early Harvest Programme with Asean to give South-east Asian countries more confidence to endorse the Asean-China Free Trade Area, then Chinese Premier Zhu Rongji told leaders from this region that a decade hence, if they found the free trade deal was not working for them, they could come back and discuss their concerns with the Chinese leadership.

Given the flood of Chinese exports that's threatening to deindustrialise South-east Asia's auto, textiles, leather—and a host of other sectors vital to employment and social stability—the moment to redeem Mr Zhu's promise has come.

Before this column advances, let me make a few things clear. China's latest manufacturing surge, which some have begun to call the "Second China Shock" (as compared with the first shock which led to American deindustrialisation), may sound ominous as a label but is actually a tip of the hat to the mainland.

Decades of focusing on infrastructure, upgrading technology, innovating, and elevating domestic skill sets have produced a formidable manufacturing economy so efficient that, at the Caixin conference in Singapore in 2024, I heard an awed Western investor describing China as the "manufacturing fitness centre" for the world.

Although certain sectors do get state subsidies from Beijing, there is no evidence that mercantilism—at least by way of an artificially depressed renminbi—is behind Chinese competitiveness. The currency depreciations of 2015 are now a decade behind us. While some had then accused China of pushing down the exchange rate to make its exports more competitive, Beijing's explanation that the move was meant to align with International Monetary Fund policies is generally accepted.