China Inc. heads to Global South in the age of tariffs

China’s imports of goods from the Global South have also more than doubled since 2015, reaching $1 trillion. This is six times the value of its imports from the US ($165 billion) and four times that from Western Europe ($260 billion).

In relative terms, the Global South accounted for 44% of China’s exports in 2024, up from 35% in 2015. Over the same period, the US share fell to 15% from 18%, while Western Europe stayed at 14% (Figure 3). The Global South now contributes more than half (54%) of China’s trade surplus with the world, compared with 36% from the US and 23% from Western Europe.

Complicating these considerations are issues regarding trade composition, particularly for countries that export mainly commodities to China but import mostly manufactured goods. These issues are relevant not just for the oil exporters, but also for key exporters of critical minerals, as China continues to pursue global supplies of these minerals (see “China’s Global Reach Grows Behind Critical Minerals,” published Aug. 24, 2023).

These issues are structural in nature and are challenging to adjust. Proactive diversification of bilateral ties may help address them, but it will take substantial time for such efforts to bear fruit in this regard (see “Saudi-China ties and Renminbi-based oil trade,” published Aug. 21, 2024).

These factors highlight the complexity of trade relations in the age of tariffs. How can Chinese firms navigate the resulting uncertainties? Southeast Asia may provide some indications, as it is the region in the Global South where they are the most active.

Chinese firms have increasingly expanded to Southeast Asia, as the region’s trade with China has grown more than with any other part of the world over the past decade (Figure 5). China’s trade with Southeast Asia has risen from 17% of the region’s GDP in 2015 to 25% in 2024 — double Africa’s share and triple that of the Middle East and Latin America (Figure 4).

Chinese firms are not just redirecting goods for re-export through the region. They are increasingly producing them there. This requires investments in the local economy — in manufacturing capacity as well as infrastructure, support services, and worker training.

This is reflected in surging foreign direct investment (FDI) by Chinese firms across the region over the past decade (Figure 6). In Indonesia, Malaysia, Thailand and Vietnam — China’s four largest trading partners in Southeast Asia — Chinese FDI has quadrupled in the past decade, rising from an annual average of $2.2 billion in the early 2010s to $8.8 billion in recent years.

These figures exclude indirect flows via Singapore, which also saw Chinese FDI more than quadruple to $8.9 billion annually. Despite global trade tensions, the country has retained its role as the key financial center that facilitates investments from China and elsewhere into Southeast Asia, particularly as more Chinese firms see Singapore as a preferred jurisdiction for setting up regional headquarters.

In terms of industries, Chinese firms’ investments in the region have increasingly focused on manufacturing (Figure 7). These investments are often facilitated by government programs aiming to promote local manufacturing industries.

In Indonesia, Malaysia, Thailand and Vietnam, Chinese investments are focused on the production of consumer electronics, technology products, and electric vehicles (EVs). These investments often require parallel support in infrastructure and services, making those sectors the second-largest recipients of Chinese FDI.

The impact of Chinese investments is perhaps most evident in Indonesia, where manufacturing FDI from China has nearly tripled in recent years. The country has leveraged this capital to rapidly develop its nickel industry and position itself further up the EV supply chain (see box).

In Thailand, Chinese firms have concentrated investment in the Eastern Economic Corridor, a government-promoted manufacturing hub. They are also increasingly investing in the auto sector to take advantage of the country’s established auto supply infrastructure and supportive policies for the transition to EVs.

In Malaysia, nearly 80% of Chinese FDI has gone into manufacturing industries such as electronics, transport equipment and other products.

In Vietnam, Chinese investments have flowed into 18 of 21 economic sectors, with the processing and manufacturing industries receiving over 60% of total FDI and nearly 80% of Chinese FDI.

Chinese FDI into the Global South is likely to continue — not just to avoid new levies or secure resources, but to develop end markets and reduce reliance on US sales.

This diversification strategy may be one of the few feasible ways to manage the high uncertainties of the age of tariffs. Such a strategy, however, requires developing new markets, which will present challenges as well as opportunities for Chinese firms.

In addition to new customers or clients, firms entering new markets face different operating environments and less familiar counterparties. This raises execution risks ranging from ineffective sales approaches to renegotiations or nonperformance of contracts. Less developed legal and physical infrastructure in many jurisdictions tend to compound these risks.

Moreover, many businesses and policymakers in Global South markets are concerned about the risk of Chinese firms selling goods at excessively low prices to displace local competitors or to address their own overcapacity. Such concerns are particularly elevated for sectors showing signs of overinvestment in China, such as autos, chemicals, and electrical equipment (see “Where Are China’s Overinvestment Risks?,” published Aug. 7, 2024).

Regulators in many countries have raised scrutiny over these risks and could be more prone to take action. This elevates the likelihood of regulatory penalties or countervailing duties. Although these consequences would make such practices counterproductive to developing sustainable end markets, some firms may nevertheless adopt them as tactics, resulting in higher regulatory risks for themselves as well as other Chinese firms.

Some factors could facilitate Chinese firms’ operations in the Global South. Many countries in these regions have developmental priorities that may outrank protecting “national champions” or traditional industries, particularly where such champions are few or none and where such industries are low-skill and low value-added.

Aligning with such priorities could facilitate local operations, but it could also raise the potential for friction if the benefits envisaged by authorities are slow to materialize.

The interplay of these factors is perhaps most observable in auto markets across South and Southeast Asia, where Chinese automakers are rapidly building market presence under the region’s energy transition push. In the last three years, their sales have grown 13-fold in Malaysia, doubled in Thailand, Indonesia and the Philippines, and climbed over 50% in India and Vietnam (Figure 8).

Despite such gains, these countries have not imposed direct restrictions on Chinese automakers. This is in part because their auto markets either have no “national champions” (e.g., in Indonesia, Thailand, and the Philippines) or are dominated by Japanese, Korean and other foreign brands (e.g., in Malaysia, Vietnam, and India), with relatively small shares held by Chinese firms.

In markets where local automakers do hold a significant share, such as Malaysia and India, protection from foreign competition may be a higher priority. However, local firms in these markets produce mostly internal combustion engine vehicles. Protecting such players could mean supporting older technologies that increase emissions while new foreign competition — mostly EV makers — offer lower-emission alternatives.

Most governments in the region have prioritized the latter, offering sales, tax, import, and other incentives despite concerns of foreign competition (Figure 9).

In some cases, Chinese firms operate as partners rather than competitors. Geely Auto, which owns 49.9% of Malaysia’s second-largest automaker Proton, is an example. Geely helped Proton launch Malaysia’s first domestically branded EV in 2024, supporting the government’s goal of EV and hybrid sales reaching a fifth of the country’s new car sales by 2030.

As a result of these policies, South and Southeast Asia are likely to see 20% annual growth in EV sales over the next few years. The region is also likely to attract at least $20 billion of EV investments from Chinese firms (see “EV Makers To Bet $20 Billion On South And Southeast Asia,” published Oct. 29, 2024).

The experience of Chinese automakers in South and Southeast Asia may not play out in the same way in other markets. However, similar factors could facilitate their efforts to develop new markets as new tariffs arise, particularly in countries where their aims align with local priorities.

Across emerging auto markets, Chinese exports are gaining ground, driven by a global shift toward electrification and an evolving tariff landscape. After the US and EU implemented new tariffs relating to Chinese EVs in May and October 2024, respectively, China’s vehicle exports to the Global South grew by more than a third, while exports to other markets fell by 7% (Figure 10).

The more notable development is the exports of auto parts, which reflect both manufacturing and end-market demand. Parts are required for assembling vehicles for export as well as servicing vehicles sold locally. In the past year, parts exports to the Global South grew 7.4%, compared with 6.1% growth to other regions. This suggests that more vehicles were sold and maintained locally, even as exports to other countries slowed.

While the policy environment may differ, similar trends are also observable outside the auto industry. For example, China’s exports of home appliances to the Global South rose 22% over the past year — double the 11% growth rate to other countries (Figure 11). Meanwhile, exports of home appliance parts to the Global South grew at 19%, compared with 6% to other markets.

As a result of these shifts, Global South markets are now nearly or equally as important as other markets to Chinese producers in both industries. These regions account for 48% of China’s auto exports and 46% of its auto parts exports, along with 43% and 50% of its home appliance and appliance parts exports in 2024, respectively.

The phenomenon of leading Chinese firms heading to the Global South is also observable in many other industries as more firms see stronger growth prospects abroad than at home.

New US tariffs may not be the direct cause, but they serve as a common accelerant. They motivate firms to explore markets elsewhere, particularly among countries offering pull factors such as facilitating policies or deepening commercial relations with China.

The tariffs’ negative effects may also serve as a push factor as they weigh on a number of industrial and consumer sectors in China (see “China: Can Stimulus Offset Slow Growth And New Tariffs?,” published March 24, 2025).

Engineering and construction: Leading industry players such as CITIC Construction, China State Construction Engineering Corp., China Railway Construction Corp., and Power Construction Corp. have been pursuing growth across Asia-Pacific, Central Asia, Eastern Europe, Africa and Latin America, supported in part by China’s BRI (Figure 12).

Their international contracts are growing at double-digit rates yet still make up only 5% to 10% of total new contract value for most, implying room for growth. Recognizing this, many firms now consider expansion across the Global South a top priority to take advantage of opportunities from the BRI and other Chinese initiatives.

Machinery and equipment: Manufacturers such as Zoomlion Heavy Industries Science and Technology Co. Ltd., XCMG Construction Machinery, Sany Heavy Industries, and Huagong Technology show a similar pattern (Figure 12). Their overseas revenues have grown by 10% to 25% in 2024 while their domestic revenues slowed, stayed flat, or contracted by 10% to 25%. As a result, sales from abroad now account for as much as one-third to half of total revenue for several firms.

Their footprints abroad are also focused on the Global South and the BRI, with some covering as much as 95% of BRI participants. Their aims, however, are not just to ride the BRI’s coattails, but to truly globalize, as some are targeting overseas sales to account for as much as 30% to over 60% of revenues.

Building materials and metals: Leading manufacturers in this sector have also seen stronger growth from abroad (Figure 12). Overseas revenue grew from 15% to 30% last year, while domestic sales stagnated or fell by up to a third. These firms are prioritizing capital investment in Southeast Asia, Central Asia, and Africa.

For example, Anhui Conch Cement Co. Ltd., West China Cement Ltd., and Huaxin Cement Co. Ltd. are planning to double overseas production capacity, while CITIC Pacific Special Steel Group is looking to acquire local players in Southeast Asia.

Auto and EV: As noted earlier, Chinese automakers are benefiting from the global energy transition push, particularly in markets with no “national champions” or those dominated by other foreign brands (Figure 13). With intense competition at home and their global competitiveness, companies such as Great Wall Motor Co. Ltd., GAC Group, Chongqing Changan Auto. Co. Ltd., Geely Auto. Holdings Ltd., and BYD Co. Ltd. are aiming to double or triple overseas sales over the medium term.

Facing high tariffs in the US, their strategic focus is turning to Global South markets. Aside from Southeast Asia, where they have made the most advances, they are increasingly targeting end markets and localizing production in Africa, the Middle East, Latin America and Eastern Europe.

Retail and consumer products: Major Chinese brands are rapidly expanding to Global South markets, even in industries not directly affected by US tariffs (Figure 13). These markets tend to be countries with growing trade and investments from China.

MINISO Group Holdings Ltd. and Anta Sports Products Ltd. have expanded overseas retail outlets rapidly, first focusing on Southeast Asia, then the Middle East and Africa. Xiaomi Corp. has also expanded to and gained meaningful market share in these regions, while white-goods maker Midea Group Co. Ltd. and MSG-maker Fufeng Group Ltd. are seeing stronger sales across these and other overseas markets amid weaker sales at home.

These firms have also set overseas expansion as a top priority, backed by ambitious plans. MINISO plans to open some 3,000 overseas stores in five years, Xiaomi aims for 10,000 in the same period, and Midea plans to double its international branches in 2025. Fufeng is building two new overseas plants and expanding three regional sales offices.

Consumer services: Even service providers are looking abroad. Delivery giant Meituan, for example, may explore other Middle East markets after expanding to top cities across Saudi Arabia in 2024, its first market outside mainland China and Hong Kong.

Government initiatives such as the BRI and trade agreements can continue to support the overseas expansion of Chinese firms. While the BRI has primarily supported infrastructure and construction-related sectors, trade agreements are facilitating a broader range of industries, including both goods and services.

Beijing has been signing bilateral free trade agreements (FTAs) with Global South countries since the late 2000s. The push to sign more FTAs and to expand the coverage of existing FTAs accelerated in recent years, after the US increased tariffs in 2018.

Between 2019 and 2022, China signed new FTAs with Mauritius, Cambodia, Nicaragua, Ecuador, and Serbia, and upgraded existing FTAs with Chile and Pakistan (Figure 14). The new FTAs cut bilateral tariffs to zero on 90% to 95% of items, while the upgraded FTAs raised that to as high as 98% and added services to their coverage.

Multilaterally, China launched the upgraded China–ASEAN FTA in 2019 and signed the Regional Comprehensive Economic Partnership in 2020 alongside ASEAN countries plus Japan, South Korea, Australia and New Zealand. It also concluded the 10th round of negotiations toward an FTA with the Gulf Cooperation Council (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

Since the COVID-19 pandemic, China has reinforced its strategy for the age of tariffs by expanding FTAs, cutting tariffs, and stepping up engagement with key trading partners (Figure 14). Beijing has set trade liberalization toward the Global South as a top priority and has focused on deepening commercial ties, supported by a wide range of bilateral and multilateral agreements.

In 2024, China concluded the 11th round of FTA negotiations with the GCC, upgraded FTAs with Peru and Singapore, and signed a new FTA with the Maldives. Beijing also expanded zero-tariff treatment to cover 100% (from 98%) of items for 43 least- developed countries, including 33 in Africa. During the Central Economic Work Conference at the end of the year, President Xi set “voluntary and unilateral” opening up of trade as a key task for the government for 2025.

In early 2025, President Xi met with the Thai Prime Minister in Beijing, where both leaders stated support for multilateralism and the global trade order, and agreed to collaborate on developing infrastructure, technology, and manufacturing. In April, President Xi visited Vietnam, Malaysia and Cambodia, where he delivered similar joint statements and signed 30 or more cooperation agreements with each country.

Such statements and agreements were also announced during the Beijing visits by the president of Kenya in April and the president of Brazil in May. At the same time, signatories to the China–ASEAN FTA completed negotiations on the second upgrade of the agreement, with full signing targeted for the end of 2025. In June, Beijing announced plans to eliminate tariffs on all items from 53 African countries with diplomatic ties to China.

In its recent statements, the Chinese government noted the “rise of the Global South” as the “future of development.” This view is also reflected in the core strategies and future plans of many leading Chinese companies, signaling that they will continue to head to these markets in the coming years.

As they expand to these countries, authorities may look to leverage their investments to raise incomes, lift value-added, and develop know-how of the local economy. Yet these potential benefits come with substantial execution risks that could challenge the degree and pace of such improvements and impact the income and profitability of Chinese as well as local stakeholders.

Despite these risks, high uncertainties under US tariffs and China’s slowdown will continue to motivate Chinese firms to head to the Global South. The result could be a new order of global commerce where South–South trade becomes the new center of gravity and Chinese multinationals emerge as the new key players.