- 5 hours ago
This episode focuses on how China’s economic weight is reshaping ASEAN’s choices across trade, supply chains, investment, and technology. The segment will unpack why staying neutral is getting harder, what leverage looks like in today’s economy, and how ASEAN can protect strategic autonomy while keeping growth on track.
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00:00Thanks for joining us. This is The Economy. I'm your host, Ibrahim Sani.
00:11Today we have a guest traveling from afar, Kevin Xiong Chee Lee,
00:15Asia Society Policy Institute Center for China Analysis.
00:19It's a mouthful, but maybe Kevin, you can walk through us with Asia Society,
00:24the think tank objective, as well as its mission here in Southeast Asia.
00:28I'm very happy to be on the show, Ibrahim.
00:32Asia Society has been around since 1956.
00:36It is a U.S.-based nonprofit organization that aims to bring better understanding
00:42and better knowledge of Asia to the American audiences.
00:46The Policy Institute works on a variety of different relevant policy issues
00:52at the intersection of Asia,
00:55and the Center for China Analysis aims to bring a sort of inside-out perspective
01:01to articulating what is happening in China.
01:05It's great to be on the show with you today.
01:07Let's talk a little bit more in terms of the importance of Southeast Asia
01:12when it comes to its interpersonal relationship with the larger powers in the world,
01:17China and U.S., and we've seen how the ASEAN Summit, for instance,
01:22have brought a lot of policy announcements,
01:27particularly in how ASEAN and Southeast Asia postulates with China.
01:32Do you think that this would be an area that will be further explored
01:36even further in the next five to ten years?
01:39I think Southeast Asia has been a region that has not been neglected by great powers in the past.
01:48Now, this year, the host country, Malaysia, has done a tremendous amount of work
01:53in putting together a very successful ASEAN Summit.
01:57It has been able to get enough heads of states and governments to come together
02:03in posturing Southeast Asia as a neutral ground for ideas, for narratives, for deals,
02:13to come together with respect and with relation to China.
02:18China has always been in Southeast Asia.
02:21Chinese history, diasporas, investments and trade, has always been part of that story.
02:29With respect to the U.S., the U.S. have a tremendous amount of interest
02:34in maintaining their presence in Southeast Asia as well.
02:38If you look a bit further at China, I think the first issue to take notice
02:45is the China-ASEAN economic relationship.
02:49That integration, let's just take trade for example.
02:54This year, for the first nine months, China and ASEAN has already achieved
03:00over $780 billion of trade.
03:04And that figure is expected to surpass $1 trillion by the end of this year.
03:09That figure is the combined of U.S.-China and EU-China trade altogether and more.
03:17So that speaks volume to the amount of integration that's occurring across Chinese and ASEAN traders.
03:26This year, we also saw the China-ASEAN free trade area 3.0 being signed into effect
03:33during the KL-ASEAN summit in October.
03:37And so with that, I think you recognize the elephant in the room and happy to dive more into this as we get to it.
03:46Yeah, because one would argue that because of the historical mapping that ASEAN has had with China
03:52over the past few centuries, and over the past few decades, the economic structure of many of ASEAN countries
04:01so integratedly, intrinsically mapped towards the Chinese ecosystem,
04:09one would argue that it is an economic inevitability.
04:12But because of the notion that we've seen how the U.S. and the West in general
04:20are now postulating towards trying to make some overtures and deepening their economic ties here
04:25in Southeast Asia, in Malaysia for instance, through say for instance President Trump's presence here
04:32during the ASEAN summit a few months ago,
04:35one would argue then that the position of ASEAN being a third power dilemma
04:43is now put at the crossroads.
04:47Do you feel that the level of the middle power dilemma that we're looking at for ASEAN
04:52is now going to be tested even further?
04:55And some nations, at least within ASEAN or the constituents within ASEAN,
04:59now has to perhaps depart from that middle power notion
05:03and start to take sides in order for them to get better deals from their trade partners and elsewhere.
05:08I think it's a great inflection point to look at the history of
05:13to what degree has non-alignment worked out for various ASEAN powers,
05:20but to take stock of geopolitical realism today
05:24and realize that on certain issues,
05:27countries have a better aligned incentives with China, for example, to deepen trade,
05:34yet on the other side, perhaps to maintain the optionality of engaging American investors.
05:42What we're also seeing in the region as well
05:45is the rise of interest to engage other relevant stakeholders around the world,
05:52including the opportunities to pursue free trade agreements with countries like India,
05:58with Australia, with Brazil, with the European Union.
06:02And what I think that creates is simply more optionality.
06:07And with optionality, you don't find a country locked into a degree of asymmetrical dependency
06:16or exposure to vulnerabilities by relying too specifically on one or more countries
06:26where you source the majority of your supplies from.
06:30And I think what we're seeing there is across different sectors of the economy,
06:36nations being able to examine whether there are sector-specific partnerships that they can build.
06:42Some would also call it strategic pluralism, for example, working with China,
06:48particularly in the area of clean energy.
06:51So we are seeing an interest of EV cells, of localized EV manufacturing,
06:59of investments into battery ecosystems in Indonesia.
07:03And there it's undoubtedly that China has both the financing,
07:08but also the technological upper hand in driving that push.
07:14But in other aspects such as semiconductors,
07:18which I understand Malaysia has been pushing a lot,
07:20there, of course, you would see a lot of interest in partnering with,
07:25for example, U.S. counterparts.
07:27So on different issues, you're starting to see countries
07:31sort of actively shaping their negotiation strategies.
07:34And instead, that's a departure from sort of the passive ambiguity
07:39that has, you know, one can say maybe categorized their approach
07:43for the past couple of decades.
07:45There is this business strategy where it's commonly known by policy makers as China plus one,
07:51where businesses and companies and even governments diversify manufacturing supply chain
07:56by adding operations outside of China,
08:00by adding China being one of the major ones, if not the major one,
08:03but have another one to diversify risk.
08:07Do you think that this is a myth where there's a China plus one myth,
08:11so to speak, where in practice meaningfully reducing risk for ASEAN or for Malaysia, for instance,
08:18or is it simply just redistributing dependence across just a few familiar nodes, so to speak?
08:23So China plus one started during the first Trump administration.
08:28It has continued during the Biden administration,
08:33and it is practically what's on every European or American multinational company's mind
08:41when it comes to better navigating the operational risk of only having a presence in China.
08:49Now, it is, in my belief, both necessary,
08:53but also a rational decision to be able to manage that risk.
08:57For example, take Apple, for example, what they realized at the end of it is that
09:02for it to become one of the most successful tech companies in the U.S.
09:07with the largest capital capitalization on the equity market,
09:11they've also realized that they have no choice but to work with the Chinese ecosystem
09:16and the Chinese government,
09:17because China has essentially developed the most suitable, mature,
09:22deeply embedded manufacturing ecosystem for Apple.
09:26Now, they have dense supply networks within China.
09:31They have a skilled workforce that's been developed,
09:34a hungry workforce, as well as a world-class logistics and infrastructures to support that.
09:39So countries in Southeast Asia or in South Asia are, I think,
09:45necessary in providing the alternative to multinationals,
09:50but also at the same time, it is not fully economic to be entirely isolated
09:57or to depart from China because China still provide the capital equipment,
10:04it provide the machineries, even as companies come to Malaysia or Indonesia
10:10to have maybe 15 or 20 percent of that supply chain being here.
10:14But at the end of the day, ASEAN does have the opportunity to gain jobs,
10:20FDI, export growth from this China plus one strategy,
10:26but also I think just to be aware that it might also come with environmental,
10:30it might also come with social costs.
10:32So instead of, you know, seeing this as competition against China,
10:39in fact, I would see it as perhaps a broader Asia regional integration, right?
10:45So a manufacturing ecosystem where you have China, you have India,
10:49and you have various parts in Southeast Asia that are all sort of interconnected in a way.
10:55And I think that's perhaps the picture that we're looking at a couple years down the road.
10:58And then, of course, with China industrial policy,
11:02it's been both criticized and admired over the past few decades.
11:07Some of them are currently being emulated or at least transferred in some form or fashion
11:15to some of the economies within ASEAN.
11:18But there are a few that are fundamentally incompatible with the ASEAN economic or political economic structure.
11:27Where do you see that transferable notion of the China industrial policy over the past few decades?
11:35And where do you see that incompatibility of structurally, fundamentally incompatible
11:40to some of the ASEAN's political economy?
11:43I think there are certainly things that other countries can learn
11:47and benefit from China's approach to industrial policy.
11:51I think one is naturally that amount of state playing that constructive and positive role
11:59in coordinating between industry, banks, and government support
12:03in order to drive down the cost of production,
12:06in order to provide the scale or the infrastructure that can lead to scaling of manufacturing.
12:15China's political system allowed it to operate or experiment or even to fail,
12:23but it might not necessarily be in the ASEAN country's nature to be able to pursue these industrial strategies,
12:31given, for example, a more tighter fiscal environment,
12:34perhaps also more political fragmentation amongst both within but also intra-ASEAN countries.
12:43But I think what ASEAN policymakers or industries can consider
12:48is be selective and disciplined with regards to what you're looking to build.
12:55What are the industries where you have that natural advantage?
12:58For example, for Indonesia, because of their endowment in critical minerals,
13:03they have the possibility of building out a clean energy supply chain in Indonesia.
13:07For Malaysia, is that question with regards to data centers?
13:11Is that question with regards to semiconductors?
13:13Is that with electric vehicles?
13:16And to be able to also consider intra-ASEAN trade and to specialize in areas where one could do better.
13:24But given the history of ASEAN's openness towards FDI,
13:28its openness towards ability to integrate into multiple regional value chains,
13:36of that sort of non-aligned principle with regards to great powers or middle powers from other regions.
13:44I personally believe that ASEAN have the capability to tap into industrial policies that work very well.
13:53But I think the key there is that coordination between states as well as the banks and the industries
14:00to formulate a strategy that works for your specific country.
14:04Let's move into industry-specific.
14:08Let's start off with climate transition and clean energy.
14:14We've seen a few markets in ASEAN that are taking very aggressive steps in terms of embracing clean energy.
14:22Say, for instance, in Indonesia, they're looking at nickel management as being produced at their domestic end
14:30and not just export the raw minerals out.
14:33In Malaysia, the carbon capture and utility storage bill has just been passed by the parliament
14:38and further developments are needed there.
14:41In Thailand, for instance, EV manufacturing is now moving into battery as well.
14:45And while I would argue that many of these markets are actually complementing each other,
14:52there is also that element of reliance towards China being the producer of, say, for instance, rare earth,
15:00where 95% of the production comes from there.
15:03Do you feel that there is an opportunity for ASEAN to go deep into clean energy
15:08or do you think that this is just creating yet another level of interdependence with the Chinese economy?
15:15Let's talk about rare earth in a second, but let's just take a look at clean energy.
15:19Now, China has been successful in driving down the cost of clean energy for the world
15:25from a climate perspective that creates a product where the global south can buy into.
15:32Now, clean energy products such as EVs and batteries and solar panels are also constructive or conducive
15:41in addressing some of the issues that Southeast Asia countries or cities are facing,
15:46including air pollution, including urban health, including climate resilience,
15:51as we most recently are aware of the multiple landslides and the flooding
15:57that had occurred across Southeast Asia in a couple of different countries.
16:02Now, you've noted that Southeast Asia policymakers and industries are already attracting Chinese FDI into the region
16:10by localizing some of the manufacturing of electric vehicles, batteries, and whatnot in Malaysia, in Thailand, in Indonesia.
16:20Now, these investments are intended, I think, to allow the creation of jobs.
16:26They're also leveraging, to some degree, local resources.
16:31But the key here is not to get countries in Southeast Asia stuck in a position where they're only doing the final assembly.
16:39You want to be able to think about leveraging that entry point to build out a further couple nodes alongside the value chain.
16:48For example, to move downstream into services or more upstream into components and engineering.
16:54You also want to think about how do you use that FDI as a platform to encourage some degree of knowledge or technology transfer.
17:02Right. So then you're also upskilling your workers.
17:06And how do you tap into that innovation?
17:09If China is the only country that's at the forefront of clean energy innovation,
17:14how do you form a partnership with a country that's driving that forward?
17:18And what does it mean that the U.S. is out of the picture in terms of driving clean energy innovation and businesses forward?
17:31So in clean energy, I believe it's that next frontier, right?
17:35Because it also ultimately enhances one's ability to secure energy security by producing or generating electricity from within your country's jurisdiction.
17:48Instead of relying on imports of oil and gas, I think there's multiple.
17:53There's also that element of laws that needs to be changed within the respective markets,
17:59either in carbon tax or a transfer of or the sale of energy from one country to another, for instance.
18:11But because of the geopolitical situation right now that is currently happening,
18:15and with the general idea of reduction of reliance towards OPEC or reducing reliance to the U.S. energy markets and so on,
18:29do you feel that clean energy is going to be a major political topic at these various ASEAN markets
18:35in order for them to then facilitate these kind of opportunities that they can actually expound on?
18:41I think clean energy is not simply an environmental or a climate discussion point.
18:47The fact that China has been able to draw down the cost of production means that clean energy goods have a material chance
18:55of challenging the traditional fossil-based, hydrocarbon-based economy that we rely upon.
19:01Now, it is, of course, not overnight where you can push away and introduce new interest and power in the room.
19:11But I think for countries like Indonesia that is suffering tremendously from these environmental issues
19:17that have the endowment of natural resources, as well as the demographic dividend of workers
19:24to be training to engineers and participating in these economies, I think it makes sense, right?
19:29And it's looking at Malaysia where it is as, you know, its own automobile brands, right?
19:37For a country that's also capable of exporting cars into the region as a hub,
19:45I think it's important for Southeast Asian countries to be able to think forward
19:49because these technological innovations, the fact that China has driven down the cost,
19:54is going to disrupt markets in a way that within the blink of an eye in a couple years,
20:01you're going to see a lot more EVs running on the streets.
20:04If you travel to Shanghai or Shenzhen today,
20:06over 50% of the new car sales within these cities are clean energy vehicles.
20:13Not just that. Garbage trucks, buses, whatever, transport vehicles, they're all EVs now.
20:19And that is, but, you know, the change took place over the past decade maybe.
20:26But, you know, if you've been to China in 2010 and then you went to China yesterday,
20:30you would not recognize it any longer in terms of ICE vehicles versus EV vehicles on the road.
20:36But we'll pause that topic of clean energy for a bit.
20:43We'll go into that topic of minerals because today, nickel, rare earth, lithium are considered as political assets
20:51and geopolitical assets.
20:53But ASEAN has made the mistake of being resource rich but value poor
20:58by keeping the sale of these geopolitical assets, so to speak, nickel, rare earth and lithium and so on.
21:06At the lower end and not producing it and developing it domestically or at least regionally.
21:12Do you think that ASEAN has what it takes to learn from its previous trap of these commodity cycles
21:18and actually expound upon higher value chain activities
21:23and perhaps attract investors into this space even further?
21:27And in fact, from clean energy as well, so that, you know, you have a rather comprehensive selling point
21:35or proposition towards investors.
21:36There's clean energy, there's critical minerals and so on.
21:42I think the objective is both noble but also highly important.
21:46The whole discussion here is about can you control a design, a strategy or a pathway towards real value creation, right?
21:56I think resource nationalism without a strategy would end up repeating that old mistake.
22:03I think there's a few things going on here.
22:04I think one is can ASEAN nations invest in parallel in skills, in processing and in good governance
22:17so that as the money flow in, you're also building, you're training workers that are able to be upskilled.
22:24You're also obtaining that manufacturing process knowledge, right?
22:30You're also enhancing to a certain degree your ability to regulate and to a certain degree be transparent.
22:38I think that is going to be critical in alongside when you build out that clean energy upstream critical mineral node in the value chain.
22:50I think mineral policies should not depart from the same community or the same environment where these minerals are coming from, right?
22:59That means sound environmental standards, sound social credibility.
23:05How are you dealing with the communities that are displaced?
23:08Are you paying attention to the conservation of the biodiversity of the region?
23:13How are you coordinating between this sort of federal national level critical mineral policies
23:19with the local regulators and the local decision makers?
23:23Are you inserting yourself to be able to be part of that industrial ecosystem moving forward?
23:30And from that upstream, then you can look more downstream and look at where are the next notes?
23:38Is it batteries? Is it electric vehicles?
23:41How do you link these together?
23:44But I think to start, it requires degrees of good governance.
23:48And I think good governance with investments, that triangulation between industry, investments and education is really important.
23:58Skills transferability as well, that's the key part.
24:01Absolutely.
24:02Let's talk about the development realities versus climate transition.
24:06Real politics speak.
24:09Many of these ASEAN emerging economies are starving of developments, infrastructure building and so on.
24:22And when we talk about energy transition, it's most often spoken of in morality terms.
24:30Where do you think is the hardest trade-off between climate ambition versus affordability and industrial needs of these ASEAN nations?
24:40I think for ASEAN nations that are developing economies, you cannot pursue decarbonization without making it compatible with development.
24:50You cannot pursue energy transition at the expense of your economic competitiveness.
24:55The trade-off is true because if you're not focused on allocating your most immediate resources to delivering on the more immediate priorities in healthcare or education,
25:09you're not necessarily going to be able to invest that amount of capital or resources into the long-term climate issue.
25:19I think for ASEAN, climate policy must be able to connect with the delivery of jobs.
25:26It must be able to connect with the development reality of the regions.
25:32So take climate disasters, for example.
25:35Take the flooding that has just occurred.
25:38In Aceh, where thousands have died.
25:40In Aceh, in Malaysia, in Thailand, in Sri Lanka.
25:44And these all happen over, you know, weeks.
25:48You know, I think it's so easy to forget that if you invest one dollar in there today in preventing the future possibility of a climate catastrophe,
25:59you actually save more dollars on that one investment today.
26:02Yeah.
26:03Right?
26:03It has to go back to taking care of the communities that you come from.
26:08In climate adaptation, I think it's climate adaptation, it's so important for Southeast Asian economies because folks in communities,
26:18if you can be able to invest resources in training them to be better guardians of their own safety,
26:26of being better able to prevent or foresee or be able to better manage disasters through workshops or trainings,
26:35that's investing in the future.
26:38You cannot be shutting off a coal-fired power plant if you don't have the alternative to be able to generate electricity.
26:48So I think the contradiction there is difficult because Southeast Asia alone does not necessarily have the resources to pursue energy transition on its own.
26:59Which begs that question of financing these transitions.
27:02Do you feel that the current mechanism to fund climate transition is in place?
27:10Or do you feel that this is yet another mechanism where it is structurally biased towards more advanced economies
27:16and not necessarily going to work for ASEAN economies?
27:19I mean, there are going to be catalytical finance coming from philanthropic organizations, the regional multilateral development banks,
27:29to pilot or to test out an early stage project, but I think the real opportunity lies in making sense of private investments to come in,
27:41that can truly be able to help de-risk mechanisms and build public-private partnerships in climate mitigation or climate adaptation.
27:53The real challenge for the region is that the climate funding gap is so large that only simply governments or investors from philanthropies
28:05or multilateral development banks are simply not enough.
28:09So how do you make the case for private investors to be willing to invest in financing the energy transition?
28:18How do you get the attention of Western financiers?
28:23How do you use sovereign guarantees to help de-risk these various mechanisms?
28:31You know, I think it really begs the question of how and, you know, we are running out of time.
28:38But besides funding climate mitigation, how do you fund climate adaptation?
28:44Like, how do you have the funds to build sponge cities, right?
28:50Of course, you know, governments can pursue strategies to build out sponge cities, but can you make it investable?
28:59Can you make that, can you put that on the, you know, the desk of a private equity investor and say,
29:06how do you make, how do you generate a return off of it?
29:10I think that's the key question to consider.
29:12It's now 2026, the decade ahead.
29:16Where do you see the single biggest mistake ASEAN could make in managing its economic relationship with China?
29:24And what do you think ASEAN economies need to do to get that right in terms of avoiding this single biggest mistake?
29:33I think any country should not get into the false hope that by default you're going to be secure or protected from the geopolitics that are happening in the world.
29:50I think for ASEAN nations, there are sort of two things that you can do.
29:54One is to understand that, yes, you have so many priorities, but how do you prioritize?
30:00What are the most important issues?
30:03One, I would say, is keeping peace at home and building that cohesion.
30:08I mean, 2025 has been, on paper, a good year for Southeast Asia.
30:14But if you look just a bit further, you realize that climate resilience, you realize...
30:20Domestic policy, China, Cambodia, sorry, Thailand, Cambodia.
30:23Yes.
30:24The conflict, the cohesion, right?
30:26But on paper, it looks all good.
30:28On paper, it looks great.
30:29And I think optically that, you know, ASEAN summit delivered on what it's supposed to do.
30:35But also, I think the number two is, how do you really align the incentives between countries, intra-ASEAN countries?
30:45So then, you both have, you all have, of course, your own agenda.
30:51But how do you, can you really define that collective agenda and posture ASEAN as a region that is not divided,
30:59and to be able to sell it and use its collective power to be able to muscle on the international stage?
31:06I think that's a question that's yet to be figured out.
31:09And by being deliberate, by being cohesive, you can integrate, you can shape rules, you can form coalitions.
31:18I think that's the direction that you need to go.
31:21But I think 2025 has been a mix of a good and bad year for Southeast Asia.
31:28I think there's a lot in 2026 that we'll have to watch out for as well.
31:33Thank you very much, Kevin. That was Kevin Songshe Lee, the Asia Society Policy Institute Center for China Analysis,
31:40joining us, not just on this show, but joining us for the first time in his adult life in Kuala Lumpur.
31:45Thank you very much, Kevin, for coming over.
31:47Here at Astro Awani, we present some of these shows where we discuss policy matters as well.
31:53So do check it out on astroawani.com.
31:57But for now, Merry Christmas, Happy New Year, catch you in the next one.
32:03See you in the next one.
32:05Let's pray.
32:06See you in the next one.
32:07Please do check it out on a make-up band.
32:10Thank you for listening.
32:11I hope you enjoyed this recording.
32:13Have a great day.
32:14We'll see you soon.
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