How China Plus One Is Transforming ASEAN Trade

China Plus One (C+1) is a supply-chain strategy where companies maintain significant manufacturing and sourcing in China, while also incorporating at least one other country. This approach is rapidly shifting manufacturing to countries in the Association of Southeast Asian Nations (ASEAN), leading to increased foreign direct investment (FDI), expanding trade surpluses, and driving economic growth in the region.

Simultaneously, the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement comprising 10 ASEAN member countries along with Australia, China, Japan, New Zealand, and the Republic of Korea, is further promoting intraregional trade and the cross-border use of local currencies, fostering a potentially dominant Southeast Asian financial ecosystem.

China's extensive supplier network, scale, and infrastructure remain intact, but risk is reduced by establishing capacity in ASEAN (or elsewhere). In case of unexpected events such as tariffs hikes, lockdowns, or political shocks, production can be shifted without disrupting the process. This flexibility, combined with reduced costs, exemplifies C+1 in action.

For instance, Taiwan's Foxconn operates factories in Bac Ninh Province, Vietnam, assembling Apple's AirPods and MacBooks utilizing high-value parts manufactured in China. The industrial base stays in China, with ASEAN providing a buffer against tariffs and risk.

Vietnam has benefited immensely from Foxconn's $5 billion investment in the country from 2007-2026, creating manufacturing capacity and more than 100,000 jobs. This example of successful C+1 implementation has been replicated across ASEAN. According to the ASEAN Investment Report 2025, FDI in the region has surged to $226 billion annually in 2024, up 8.5% from the previous decade's average of $130 billion.

Evidently, the strategic importance of ASEAN in global supply chains has significantly strengthened over the past decade, fueled by C+1 and the adoption of risk-mitigating policies by companies.

However, two pressing issues persist alongside the FDI narrative: the financing gap in ASEAN trade and the reliance on micro, small, and medium-sized enterprises (MSMEs) and SMEs to sustain the region's economies. A joint analysis by the U.K. Growth Gateway and Boston Consulting Group, released in February 2024, reveals an unmet trade finance gap of approximately $350 billion to $400 billion in ASEAN, of which closing even 10%-20% could generate $85 billion to $105 billion in trade value uplift and create about 6 million jobs.

The significant challenge lies in the predominance of SMEs and MSMEs, which account for 97.2% to 99.9% of all business establishments in ASEAN, generating 85% of employment, 44.8% of GDP, and supplying 18% of national exports.

The lack of sufficient collateral, complete documentation, and an established credit history often leads to the rejection of 40% of trade-finance applications, according to the Asian Development Bank (ADB). Moreover, ASEAN's fragmented nature and the need to fully digitize trade and trade finance in a region still reliant on paper documentation exacerbate this issue.

The Model Law on Electronic Transferable Records (MLETR) offers a solution: a legal template that ASEAN countries can incorporate into law so that a digital original of trade documents holds the same legal status as a paper original. Singapore implemented MLETR in 2021, hoping to catalyze the rest of the region to follow suit.