MNI: China's Transshipment Strategy Unsustainable - Advisors

China’s reliance on ASEAN countries to reroute goods to the U.S. in a bit to skirt tariffs is unsustainable amid rising U.S. transshipment curbs, and will threaten export performance next year, policy advisors and industry insiders told MNI.

Chinese exporters are likely to scale back transshipments through ASEAN next year as Washington steps up scrutiny, said Loh Wee Keng, chairman of the Malaysian Chamber of Commerce and Industry in China, adding the recent surge was mainly driven by efforts to disguise origin and avoid high U.S. tariffs.

Southeast Asian countries have pledged tighter controls in exchange for lower tariffs in bilateral talks with the U.S., following the punitive levies of up to 40% on transshipped goods via Vietnam.

Washington may push to raise the required local content threshold above the current 40% or deploy commissioners to strengthen oversight, Loh warned, noting technology made tracing the source easy. 

Guotai Haitong Securities estimates ASEAN transshipments account for about 4.8% of China’s exports, with potential restrictions posing up to a 2-percentage-point drag on overall growth. Despite a more than 30% y/y drop in Chinese shipments to the U.S. in August, China’s overall exports grew 4.4% y/y in dollar terms on stronger sales to Africa (+26.4%), ASEAN (+22.5%) and the EU (+10.8%). China Customs data showed the country’s exports to the U.S. fell by 15.5% y/y as of August this year, while exports to ASEAN increased by 14.6%. (See MNI INTERVIEW: Tik-Tok Deal To Pave Way For Trump China Trip)

While Chinese goods make up most of Vietnam’s exports to the U.S., more than 80% of Chinese firms in Vietnam have secured certificates of origin, as over 40% of production and procurement is local, a Vietnam-based business chamber representative told MNI, adding this means most face only the standard 20% tariff on Vietnamese exports to the U.S. 

ALTERNATIVE MARKETS

Chinese exporters are increasingly turning to ASEAN as a replacement for the U.S. market, though sustainability remains uncertain. The U.S. share of Chinese imports fell to 14% in 2024 from 21% in 2018, while ASEAN’s rose to 11% from 7%, highlighting shifting trade flows.

A former Ministry of Commerce official declared the surge in exports to ASEAN unsustainable, attributing it to exporters attempts to replace lost U.S. market share and dodge tariffs. "Some have even cut prices to gain markets,” he said, adding ASEAN’s relatively low per capita GDP of under USD8,000 and weak growth outlook limits future demand.

The official also flagged lagging effects from new restrictions, noting Malaysia is introducing fresh curbs on transshipment. The full impact of tariffs will emerge next year, he said, warning that ASEAN nations' need to balance ties with both China and the U.S. makes reliance on the region a risky long-term strategy.

DEEPENING TRADE

While quantifying rerouted trade is difficult given the complexity of global supply chains, U.S. Customs and Border Protection alleged over USD400 million in duty evasion in 2025 alone so far, with nearly two-thirds of cases involving Chinese shell companies using ASEAN as transit points.

However, Xu Ningning, chairman with the Industry Cooperation Committee of the Regional Comprehensive Economic Partnership (RCEP), stressed the broader relationship remains solid, with the two sides each other’s largest trading partner for five consecutive years and bilateral trade reaching USD982 billion in 2024. He expects resilience so long as political stability in Southeast Asia holds, pointing to opportunities from the upcoming China-ASEAN FTA 3.0 upgrade and cooperation in developing third-party markets such as the EU.

The business chamber representative noted more Chinese manufacturers are relocating to ASEAN, including automakers, alongside labour-intensive industries like apparel, footwear and electronics. 

Loh added that industrial transfers will boost China’s exports of intermediate goods, partly offsetting any transshipment decline, while deeper regional integration could unlock further demand.

Zhao Jinping, former director of the Foreign Economic Research Department at the Development Research Center of the State Council, said China should deepen opening and gradually shift trade and investment focus to the Global South. “Exports remain resilient, partly because the full impact of tariffs has not yet materialised,” he said, warning U.S. tariff weaponisation is unlikely to ease in the short term. (See MNI: Beijing Targets Trump Visit, Sees Limited Deal – Advisors)