China Plus One Spurs ASEAN Investment Surge, Digital Trade Reform Needed

China Plus One Reshapes Manufacturing Flows

The "China Plus One" (C+1) strategy is significantly redirecting manufacturing investment into Southeast Asia. This approach allows companies to maintain substantial operations in China while establishing additional production capacity elsewhere, mitigating risks from tariffs or supply chain disruptions.

Foreign direct investment (FDI) into the Association of Southeast Asian Nations (ASEAN) has seen a marked increase, with annual inflows exceeding $200 billion since 2021, according to the ASEAN Investment Report 2025. This compares to an annual average of under $130 billion in the previous decade. In 2024 alone, ASEAN attracted $226 billion in FDI, an 8.5% rise, even as global FDI saw an 11% decline.

Foxconn Leads Investment, Further Growth Forecast

This investment trend is exemplified by Taiwan's Foxconn, which has committed a cumulative $5 billion in foreign direct investment to Vietnam between 2007–2026.

This has established manufacturing sites, such as its Bac Ninh province plant, which assembles Apple's AirPods and MacBooks, creating over 100,000 jobs in Vietnam, according to data from the Taiwan Stock Exchange and Bac Ninh local government.

DBS senior economists Han Teng Chua and Radhika Rao predict that FDI inflows into the ASEAN-6 bloc—Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—will grow at a 7% compound annual growth rate over the next decade.

Bridging ASEAN's Trade Finance Gap

Despite this investment surge, ASEAN faces a substantial trade finance deficit, estimated between $350 billion and $400 billion, states a February 2024 assessment by the UK Growth Gateway and Boston Consulting Group. Closing even 10% to 20% of this gap could unlock $85 billion to $105 billion in "trade value uplift" and generate around 6 million jobs.

Micro, small, and midsize enterprises (MSMEs) and SMEs, which constitute 97.2% to 99.9% of all ASEAN businesses and provide 85% of employment, are disproportionately affected. The Asian Development Bank (ADB) reports that approximately 40% of their trade finance applications are rejected, often due to insufficient collateral or incomplete documentation.

Digitalisation Key to Unlocking Trade Potential

To address these finance challenges and enhance trade efficiency, digital transformation is crucial. The Model Law on Electronic Transferable Records (MLETR) offers a legal framework for digital trade documents to hold the same status as paper originals.

Singapore implemented MLETR in 2021, and the Regional Comprehensive Economic Partnership (RCEP), which came into force in 2022, further supports intraregional trade by aiming to cut tariffs on over 90% of goods by 2042.

Alicia Garcia-Herrero, chief economist for Asia Pacific at Natixis, noted that widespread MLETR adoption across ASEAN would represent a "seismic" shift for regional trade.