US President Donald Trump’s volatile tariff policy was supposed to hammer Gong Yongqiang’s Christmas decoration business.
Instead, his factories have been churning out goods at full capacity since May. Sales for the entire year are on track to grow by 20% from 2023, supported by a surprising surge in demand from countries including Muslim-majority Indonesia and Malaysia, according to Gong, who has been exporting Santa Claus figures and other Christmas objects from China for the past decade.
To cater to Southeast Asian customers, Gong said his company, Yiwu Sihai Christmas Crafts, made the Santa faces wider to look gentler and dressed them in different costumes.
“At this rate, it’s likely that Southeast Asia will soon surpass the US in market size for us,” Gong told Nikkei Asia from Yiwu, a wholesale hub in southern China. Southeast Asia currently accounts for less than 10% of overall sales, compared to up to 15% from the US market.
A wave of Chinese consumer-facing entrepreneurs like Gong had been targeting the region for some years, motivated by increasingly affluent populations with greater disposable incomes. The heightened US-China trade tensions have prompted Chinese producers to divert more goods to their southern neighbors or accelerate parts of their production there.
While there have been suggestions, particularly from the Trump administration in Washington, that this is just a transshipment ploy to avoid higher tariffs, there is substance to the regional growth story.
Many Chinese brands dominate local markets, including in textiles, furniture, food and beverages. Every four out of five electric vehicles sold in Indonesia, for example, are Chinese brands such as BYD and Chery, according to the Indonesian Automotive Industry Association. Aice, an ice cream brand owned by China’s Mengniu Dairy Group, is the market leader in Indonesia and the second biggest in the Philippines.
“It’s no longer steel, chemical, cement, or solar panels, it’s really starting to feed into consumer brands,” Frederic Neumann, chief Asia economist at HSBC, told Nikkei.
But the trend is also triggering a regionwide backlash as governments and businesses worry about an influx of Chinese goods that may displace local industries and jobs.
The Indonesian government in 2023 banned TikTok from processing online payments over fears that it would monopolize online shopping. A garment industry association has cautioned that mass layoffs could occur in the textile industry if local firms are unable to fend off the influx of low-cost clothing from China.
Last July, Thailand began charging 7% value-added tax on low-cost imported goods to boost the domestic economy. Thailand’s deputy finance minister Julapun Amornvivat had blamed cheap imports from China in particular for hurting local manufacturers. In April, the Vietnamese government said it plans to impose an anti-dumping levy as high as 37% on some Chinese steel products.
Chinese manufacturers have long had an interest in Southeast Asia, from smartphone brands Xiaomi and Oppo, to home appliance makers including Hisense. This ramped up a notch after US President Donald Trump’s first-term trade war with China, as companies making everything from furniture to shoes and toys set up production in Southeast Asia to bypass punishing levies.
Since 2020, ASEAN has overtaken the European Union and the US as China’s biggest trading partner, official data shows, although Europe remains the biggest export market.
“Our growth here has been phenomenal,” Chinese merchant Alan Peng told Nikkei from Jakarta. Peng began selling USB chargers and phone cables to local consumers from 2021 on TikTok after folding a retail store in Shenzhen the previous year. He spotted bigger opportunities in Indonesia, where consumers began to upgrade their smartphones and accessories more quickly as their incomes grew.
That rising prosperity was driven in part by an influx of Chinese money, according to Peng. More restaurants in the city now offer menus with Chinese versions. Teochew, a dialect spoken by expatriates from Fujian and Guangdong, can be easily overheard on the street. Mixue Bingcheng is a Chinese fast food chain selling jasmine tea and ice cream for as little as USD 1, and its stores are flooded with young people taking selfies, said Peng, who also coaches other Chinese sellers on how to market products on TikTok in Indonesia and Malaysia.
“In many ways, Indonesia feels like what China used to be ten years ago,” he said, “People have more leisure time for shopping and are willing to spend.”
Li Jianggan, founder and CEO of Momentum Works, a Singapore-based research firm, said many Chinese entrepreneurs have felt a stronger sense of urgency to go abroad since 2022, when China’s domestic economy was hammered by years-long pandemic curbs. This downturn, exacerbated by a prolonged housing slump and a sluggish job market, has become entrenched. The GDP deflator has been negative for nine straight quarters, which in turn has added further impetus for businesses to seek new markets.
“Southeast Asia is appealing for many Chinese businesses as they realize those markets usually are nowhere near as competitive as they are in China,” Li said. “Typically, Chinese businesses are able to offer lower prices to local consumers.”
Trinh Nguyen, a senior economist at French bank Natixis, said Southeast Asia offers not just a place for Chinese companies to offset persistent deflation at home, but also a possible shelter from geopolitical tensions between China and a US-led West.
“For China, it really needs to pivot,” she said, “The easiest pivot is to the region, because the length of the supply chain is much shorter and it’s one of the fastest growing markets in the world.”
Many entrepreneurs with existing footprints in ASEAN said they plan to ramp up production to shield themselves from Trump’s rollercoaster trade policy.
Between 2018–2021, China’s outbound investment in ASEAN’s manufacturing sector averaged around USD 10 billion each year, more than three times the average between 2014–2017, with Indonesia, Vietnam, and Thailand attracting more than 74% of total investment between 2018–2024, according to calculations by New York-based research firm Rhodium Group.
Among them, Chinese investments in sectors like household appliances and furniture that are subject to double-digit US tariffs, rose sharply from an annual average of USD 240 million between 2014–2017 to USD 560 million per year from 2018–2021.
“While export orientation remains dominant, part of these foreign direct investment flows also target rising local consumer demand,” wrote Armand Meyer and Agatha Kratz from Rhodium Group.
After ratcheting up tariffs on all Chinese goods to as high as 145% in April, the US slashed the rate the following month to 30% for 90 days amid ongoing negotiations with China. That is still significantly higher than existing levies on most other countries, which are subject to 10% duties.
At an exhibition organized by the Indonesian Petroleum Association, Kevin Jiang, a manager from Tianjin Victory Oilfield Equipment Manufacturing told Nikkei that the company is actively seeking to reduce reliance on US demand that makes up half of its buyers.
“Trump’s tariff policy has forced the company to look for potential new markets,” Jiang said. “Indonesia with its potential natural resources is a promising market for the company.”
Rene De Jong, owner of Resysta AV, an outdoor furniture maker, said he does not expect Trump to roll back existing tariffs on China. With factories in Guangdong as well as in Indonesia, he said he is aiming to triple production in Indonesia over time due to the tariff uncertainty.
“Everybody will step into the China-plus-one strategy. That’s more valid than ever,” he said, “If he [Trump] cancels tariffs tomorrow, do you think people trust him?”
GoldenHome, one of China’s biggest kitchen cabinet makers, set up a manufacturing site in Samut Prakan in central Thailand in 2019 in large part to skirt punishing duties imposed on Chinese goods by the US government. The majority of the components, from door panels to hinges and drawer glides, are produced in Thailand rather than sourcing from China, according to Pan Xiaozhen, the company’s CEO.
The company unveiled a flagship store in Malaysia last month in part to serve growing demand in the region, Pan said. It has paused further plans to expand in the US after opening its first assembly line in Cedar Hill, Texas in March, he added.
“We may shift more capacity to Malaysia if the country gets relatively lower tariffs from the US,” he said.
But not everyone is so gung-ho about Southeast Asia, despite Trump’s tariffs.
Gong from Yiwu Sihai Christmas Crafts said he’s not looking to relocate production to Vietnam or other countries in large part because overall costs in China remain competitive. While labor is typically cheaper in Southeast Asia, other hurdles remain.
“It’s hard to manage local workers. We heard they often refuse to work overtime. Plus, Chinese capital isn’t necessarily welcome in many parts of the world,” he said.
In Manila, Dee Xie, who sources smartphone accessories like headphones and sells to consumers in the Philippines and Indonesia, said his trading company’s profit margin had dropped to less than 20%, nearly half what it was when he first entered the market in 2017.
Production in China remains far more efficient than elsewhere, despite the tariff uncertainty, he added. Most of the components are still supplied by Chinese firms even if the final assembly is done elsewhere.
“Nowhere else can beat the quality of goods made in China,” Xie said. “As more Chinese competitors are coming over, we have to distinguish ourselves to survive.”
This article first appeared on Nikkei Asia. It has been republished here as part of 36Kr’s ongoing partnership with Nikkei.