China’s Industrial Offensive into ASEAN Markets Reshaping Market Landscape as Lower Prices Create Barriers for Local Firms to Enter Markets

By Junichi Fukasawa / Yomiuri Shimbun Director and Senior Writer

16:50 JST, March 28, 2026

Chinese companies are accelerating their investment across all industries in Southeast Asian nations, with spending in 2023 overtaking Japan’s for the first time. China’s firms are looking beyond electric vehicles and are moving to capture the steadily growing e-commerce market, while companies in the digital and food service sectors are also actively breaking into the market.

According to the chart of “Direct investment in ASEAN (Association of Southeast Asian Nations) by Japan, China,” Chinese investment — once less than half of Japan’s investment — surged around 2018 with the onset of U.S.-China trade friction, and began a full-scale expansion period in 2021 following the pandemic.

There are two factors behind this. To avoid high tariffs imposed by the United States, Chinese companies rapidly shifted their production sites to ASEAN countries such as Thailand and Vietnam. The stagnation of the Chinese economy has also contributed to the move. With a slump in the real estate market and other issues contributing to dampened domestic demand, companies felt a pressing need to seek more profitable markets elsewhere.

The focus of ASEAN investments by Chinese companies is shifting dramatically across different sectors. According to a 2024 investment report by the ASEAN Secretariat and the U.N. Conference on Trade and Development, real estate and finance were the dominant sectors from 2010 to 2018 — before the onset of U.S.-China trade friction — accounting for about 50% of the total, while manufacturing stood at less than 10%.

However, the chart of “Chinese investment in ASEAN by sector” shows that average investment in the manufacturing sector for 2021-23 skyrocketed to 4.4 times the 2015-17 level, making it the dominant sector. The growth was driven by production bases for EVs, batteries and electronic equipment located in ASEAN countries such as Thailand and Indonesia. The information and communication sectors also surged about sixfold, while wholesale and retail trade doubled.

China’s expansion into nonmanufacturing areas is actively expanding and is set to outstrip manufacturing in the coming years. Chinese tech firms are increasing their presence in digital industries, including e-commerce, social media, video streaming, artificial intelligence, digital transformation and data centers.

With some Chinese firms moving their regional headquarters to Singapore and Thailand to serve as area hubs, their presence in the region is no longer merely to mitigate impact from U.S.-China tensions or the sluggish Chinese market. According to the report, companies see ASEAN as a strategic base to expand into global markets while mitigating geopolitical risks.

Japanese manufacturers under pressure

Japanese companies, which have long had a stronghold in Southeast Asia, are particularly affected by China’s investment offensive into manufacturing. As shown in the table, “Chinese firms blitz Southeast Asia,” Chinese competitors are ramping up their presence and exports in key sectors, including automobiles, home appliances, construction machinery and industrial robots.

In the automobile market, where Japanese automakers have long dominated in both production and sales, ASEAN nations have attracted Chinese electric vehicle hubs with tax incentives and subsidies, leading to a rapid concentration of production bases in Thailand, Indonesia, Malaysia and Vietnam. In 2025, the share of Japanese brand cars slipped below 70% of the market, sending shockwaves throughout the industry.

The construction equipment market is also facing a surge in exports from China. According to a major Japanese manufacturer, about 10 Chinese firms have ramped up their export offensive since around 2024 to clear excess inventory that resulted from a downturn in China’s domestic building sector. An official at a leading Japanese firm highlighted the relentless pressure from Chinese rivals, saying: “Their prices are about 20% lower, and they even offer payment deferrals of six months to a year. They are aggressive, jumping in without any hesitation.”

In Thailand, a major production hub for air conditioners, Chinese manufacturers began setting up large factories in 2021 after the pandemic. Parts are imported from Chinese suppliers, resulting in prices that are 20%-30% lower. An official at a Japanese trading house in Thailand noted that Japanese firms cannot compete on the same playing field, with no prospect of succeeding in the market for general-purpose products. As many as five Japanese processing machine manufacturers have reportedly withdrawn from the market.

Barriers for local firms

Meanwhile, the economic impact in ASEAN nations that attracted EV production hubs appears to be falling short of expectations for the Southeast Asian countries.

Somkiat Tangkitvanich, president of the Thailand Development Research Institute, said it is difficult for Thai companies to enter the EV supply chain because of the very low costs of products from Chinese suppliers.

It is not just about price competitiveness. Unlike in the past, Chinese companies have significantly upgraded their technological capabilities in various sectors, such as EVs and industrial robots. They secure vast sites in industrial parks and deploy cutting-edge facilities.

Yoji Okano, a senior manager at PwC Consulting LLC who is well-versed in the trends of Chinese companies, noted that these firms “tend to prioritize capturing market share before stabilizing their operations as they tackle emerging issues.”

He said the definitive shape of their strategies, such as supply chains, will become clear in one or two years.

Japanese firms need to rebuild their ASEAN strategies, including expansion into India, while keeping a close eye on these developments.

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China’s consumer brands outpace Japan in ASEAN markets

Even in the consumer market, which is expanding on the back of economic growth, Chinese firms are aggressively moving in with a multilayered approach. From digital platforms to the brick-and-mortar retail sector, Chinese brands are rapidly winning over ASEAN consumers with a wide-ranging portfolio that includes e-commerce, social media, luxury fashion and food-service chains.

An analysis by Google and other entities shows that the gross merchandise value of the ASEAN e-commerce market reached $185 billion (about ¥29 trillion) in 2025 by maintaining growth in the double digits. The market is projected to nearly double within the next five years.

In the ASEAN e-commerce market, Singapore-based Shopee remains a major player, but is facing intense pressure from Chinese rivals TikTok Shop and Lazada. TikTok Shop is making waves with its “live commerce” video strategy. A woman in her 30s in Bangkok said TikTok Shop has many promotions and the prices are low, so it is very popular among her friends.

Several Chinese brands have also made deep inroads through social media, particularly among female users. In the video streaming market, Chinese tech giants are closing in on Netflix by leveraging an extensive library of Chinese dramas dubbed or subtitled in local languages.

Japanese players have been left completely behind in key digital growth sectors, including e-commerce platforms, social media apps and video streaming services.

Chinese competitors are expanding their market presence at breakneck speed, with famous restaurant chains and outlets flocking to the region in search of new growth. Japanese firms must not fall into “the innovator’s dilemma” by clinging to past successful models. They must now demonstrate the will and the capacity to implement flexible transformation.

Junichi Fukasawa

Yomiuri Shimbun Director and Senior Writer