How China Plus One Is Transforming ASEAN Trade
Supply-chain diversification fuels a growing Southeast Asian financial ecosystem.
This article appears in the October issue of Global Finance Magazine.
China Plus One (C+1) is a supply-chain-focused strategy in which companies retain substantial manufacturing and sourcing in China while adding at least one other country. The C+1 strategy is rapidly shifting manufacturing to countries in the Association of Southeast Asian Nations (ASEAN), boosting foreign direct investment (FDI), expanding trade surpluses, and driving GDP growth.
At the same time, the Regional Comprehensive Economic Partnership (RCEP)—a free trade agreement among 10 ASEAN member countries plus Australia, China, Japan, New Zealand, and the Republic of Korea—is boosting intraregional trade and the cross-border use of local currencies, thereby germinating a potentially formidable Southeast Asian financial ecosystem.
China’s unmatched supplier density, scale, and infrastructure are retained, but concentration risk is mitigated by building capacity in ASEAN (or elsewhere). If a manufacturing site or supplier faces a tariff hike, lockdown, or political shock, production can shift rather than halt. Even without these factors, costs are substantially reduced.
A clear example of C+1 in action is Taiwan’s Foxconn, which operates factories in Bac Ninh Province in northern Vietnam, where its plant assembles Apple’s AirPods and MacBooks using high-value parts manufactured in China.
The industrial base remains in China, with ASEAN serving as a tariff and resilience hedge. Vietnam has benefited from a cumulative $5 billion in Foxconn’s FDI in the country from 2007-2026—according to Taiwan Stock Exchange and Bac Ninh local government data—to create manufacturing capacity and more than 100,000 jobs in Vietnam.
The FDI story exemplified by Foxconn has been echoed across ASEAN. “Since 2021, FDI in the region has been exceptionally strong, with annual inflows exceeding $200 billion, compared with an annual average during the last decade of less than $130 billion,” according to the ASEAN Investment Report 2025, published last October by the ASEAN Secretariat and the UN Conference for Trade and Development (UNCTAD).
That report tallies 2024 inflows at $226 billion. Underlining the ASEAN dynamic in relative global terms, FDI was up by 8.5% that year while global FDI fell 11%.
“The strategic importance of ASEAN in global supply chains has strengthened significantly over the past decade, catalyzed by the China Plus One strategy, which aims to mitigate risks arising from geopolitical tensions and search for more-resilient production networks,” said Han Teng Chua and Radhika Rao, senior economists at DBS.
“The region’s open and foreign-investor-friendly policies, coupled with companies’ efforts to expand markets, diversify risks, and optimize costs, could drive ASEAN-6’s FDI inflows to grow at a robust CAGR of 7% over the next decade.” ASEAN-6 is a bloc comprising Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
Funding the Trade Finance Gap
Alongside the FDI narrative sit two burning issues: the pressing need to finance ASEAN trade, which is characterized by an “unmet gap” between demand and trade finance; and the underpinning of the region’s economies by micro, small, and midsize enterprises (MSMEs) and SMEs.
A joint assessment by the U.K. Growth Gateway and Boston Consulting Group, dated February 2024, puts the ASEAN-specific unmet gap at roughly $350 billion to $400 billion and estimates that closing even 10%-20% of that gap could unlock $85 billion to $105 billion in “trade value uplift” and about 6 million jobs in the region’s trade-related industries.
But a big reason for the region’s unmet gap is the preponderance of SMEs and MSMEs. According to the ASEAN Secretariat, these account for 97.2% to 99.9% of all business establishments. Collectively, SMEs and MSMEs generate about 85% of employment, contribute 44.8% of GDP, and supply 18% of national exports, making them central to job creation, inclusive growth, and value-added activity across both urban and rural areas.
The sobering fact is that about 40% of these companies’ trade-finance applications are rejected, according to the Asian Development Bank (ADB), often because applicants lack sufficient collateral, complete documentation, or an established credit history.
This is compounded by ASEAN’s fragmented nature and the urgent need to fully digitize trade and trade finance in a region that still relies on paper documentation. The Model Law on Electronic Transferable Records (MLETR) is the solution: a legal template that ASEAN countries can incorporate into law so that a digital original of trade documents has the same legal status as a paper original.
Singapore implemented MLETR in 2021, and the hope is that ASEAN’s Digital Economy Framework Agreement will push the rest of the region to align with it.
“Carbon copies still choke ASEAN trade—slow ships, costly credit, shut-out SMEs. MLETR is the legal unlock. Singapore is live. Mass uptake isn’t guaranteed, but the shift would be seismic,” said Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, in Hong Kong.
Singapore’s move came in preparation for the RCEP, which came into force in 2022 for the first 10 ratifying countries. The 15 RCEP member countries represent the world’s largest trade bloc by population and economic size—about 30% of global population and GDP.
The RCEP aims to cut tariffs on more than 90% of goods traded among its members by 2042 and also covers services, investment, e-commerce, and intellectual property. Intra-RCEP trade rose sharply in 2022 to around $1 trillion and stood at around $6 trillion last year. The agreement has positively impacted trade for Cambodia, Laos, Myanmar, and Vietnam with other RCEP partners—exports from Cambodia to RCEP countries account for more than 60% of the country’s total trade.
Rebuilding ASEAN’s Trade Plumbing
Digitalized supply-chain finance—anchored in distributed-ledger technology—and local-currency settlement can rebuild ASEAN’s trade plumbing around firms, not just banks. Anchor buyers channel liquidity to SME and MSME suppliers, bypassing the need for collateral and thereby helping to fill the unmet gap.
The ADB’s Trade and Supply Chain Finance Program (TSCFP) helps close the unmet gap in SME trade finance by issuing AAA-rated guarantees and loans through more than 250 partner banks, enabling smaller firms in developing Asia to import, export, and access supply-chain working capital that private lenders would otherwise typically withhold.
In August, Steven Beck, TSCFP director, relocated to Singapore, in a move that reflects the city-state’s preeminence as an ASEAN supply-chain and trade-finance hub. “Being here means we can work much more closely in this energized ecosystem, feeding off the energy and exchanging ideas in a way you just can’t do remotely,” he said.
“It’s been a remarkable year,” Beck added. “Our business is up over 60% compared to the same period last year, which is a huge jump for a program that already supports about 20,000 transactions worth over $5 billion annually. Part of that is just persistent, unmet demand for trade finance in markets that have historically been underserved.”
Settling invoices through ASEAN’s Local Currency Transaction Framework alleviates dollar scarcity that bedevils the trade arena in smaller ASEAN economies and reduces foreign exchange spreads and correspondent-bank delays that hinder SME and MSME exporters. Linked digital platforms—e-invoicing, QR-code payment networks, and regional payment connectivity—convert those flows into reusable credit data. The result is a tighter, cheaper intra-ASEAN financial ecosystem in which trade transactions themselves become the collateral.
Jonathan Rogers is a contributing writer based in Vietnam.
