China is supplying the factories that were meant to replace it

The trade line that matters is no longer Chinese phones shipped to Los Angeles. It is Chinese compressors, injection-moulding machines and printed circuit boards arriving at northern Vietnamese container gateways such as Haiphong, at Laem Chabang in Thailand and at Batam across the strait from Singapore.

Chinese customs data, summarised by China Daily in November 2025, shows exports of electromechanical and transport equipment to seven major ASEAN members, Vietnam, Thailand, Indonesia, Singapore, Myanmar, Malaysia and the Philippines, up 28.3 per cent year-on-year in the first three quarters of 2025. Broader exports to ASEAN rose 13 per cent in the first half of the year, worth an additional 37.1 billion dollars. ASEAN has been China's largest trading partner since 2020, with two-way trade running at 984 billion dollars in 2024 and on track to exceed that in 2025, per HSBC research cited by The Nation Thailand. Nikkei Asia corroborates the trade direction, reporting that Vietnam and Thailand logged higher United States trade surpluses in 2025 despite the tariff regime, with Chinese intermediate inputs still visible behind those flows.

The investment line tells the same story. Research from Rhodium Group shows Chinese manufacturing FDI in ASEAN rose from 12.5 billion dollars in 2017 to 37.3 billion dollars in 2023, with Indonesia and Vietnam together accounting for about 56 per cent, Thailand 18 per cent and Malaysia 14 per cent. US tariffs on China-made goods starting in 2017 were one of the core drivers, and Rhodium argues continued or higher tariffs will push further diversification momentum. BYD is already operating in Thailand, with SAIC and Great Wall Motors on the ground. BYD's 1.3 billion dollar Indonesian plant is slated to come online in 2026. Each plant is a node in a supply chain whose motherboards, battery cathodes and precision tooling are sourced upstream from China.

For Vietnam, the dependency runs through components rather than finished goods. Electronics firms operating in the north source semiconductor substrates, connectors and display drivers from the Yangtze and Pearl River deltas, shipped through Shenzhen and Shanghai into Haiphong. Vietnamese customs filings consistently show China as the largest source of imported intermediate inputs, even as Vietnamese exports to the United States and Europe accelerate. The Asia Society Policy Institute describes the country as, in net trade terms, a re-exporter of transformed Chinese value, particularly in electronics.

Thailand's case is sharper in autos. The rise of Chinese electric vehicle (EV) manufacturers in the Eastern Economic Corridor is not a substitution for Chinese supply chains; it is an extension of them. Battery cells, power electronics and production tooling arrive from Chinese suppliers, many under intra-firm transfers. Thai policy is tightening, with local content requirements for EV incentives rising from 2026 onward, but the operational reality is that the industrial base is Chinese and the workforce is Thai.

The structural tension this creates for ASEAN governments is uncomfortable. Policy narratives have framed diversification as a hedge against Chinese concentration risk. The reality of the build-out is that the hedge is, at the component level, sourced from the same origin. Rhodium's analysis argues that upcoming tariff adjustments in Washington and Brussels, aimed at cracking down on circumvention via ASEAN transshipment, will test the durability of this model. Tariffs above 30 per cent, the firm warns, would deal a major blow to the diversification boom. The Lowy Institute reaches a similar conclusion in its survey of global trade shocks hitting Southeast Asia.

Practitioner evidence from the region is already visible. Thai and Vietnamese contract manufacturers have begun qualifying second-tier suppliers outside China, largely in India and South Korea, for critical components. Progress is slow. The cost, quality and lead-time gap between Chinese suppliers and their nearest alternatives in electronics is wide, and Chinese producers are adjusting prices and delivery terms to defend the relationships. Procurement teams describe the dynamic as a two-front negotiation: resist being locked into Chinese sole-sourcing while not paying the transition cost prematurely.

Two variables will decide the trajectory. First, how tightly Washington and Brussels write rules of origin in the next round of tariffs. Second, whether Chinese suppliers are willing to follow their ASEAN customers by building local capacity under ASEAN corporate names. Both decisions sit above the operational control of the manufacturers running factories in Thailand, Vietnam and Indonesia.

The diversification story was easier to tell when the flows were finished goods. The uncomfortable part of it is that, at the component layer, Southeast Asia’s China hedge and its China dependency are now the same thing.