ASEAN has become China’s largest export market.

That’s putting a lot of zing into intra-regional trade, spurred in part by trade liberalisation measures like the Regional Comprehensive Economic Partnership (RCEP). This should also, to an extent, help put a floor under trade at a time when import demand in advanced markets has begun to sputter. Still, it’s important to keep such trade corridors in perspective: while there is clearly more and more connectivity between mainland China and ASEAN, much of this is still driven, ultimately, by demand elsewhere in the world.

Slowing growth in advanced economies, for example, should thus eventually also impact trade between mainland China and ASEAN. At the same time, the growing importance of regional trade also highlights that Asia isn’t losing its trade mojo: supply chains are being retooled, with components from mainland China feeding into final assembly in ASEAN (or South Asia), rather than being moved to other parts of the world in a relentless ‘re-shoring’ process. Factory Asia: still at the centre of it all.

For decades, the US and the EU were the two top destinations for Chinese goods. Japan, by contrast, after a period of equal relevance, has fallen back over the years, absorbing nowadays only about a third of what the US or the EU buys from China each year.

But take a look at the blue line. This is ASEAN: back in 2010, the region was equal in importance to Japan as an export market for Chinese producers (and less than half of the EU/US). Since then, however, exports from China to ASEAN have soared, with the pace accelerating in 2020 and exceeding all other destinations over the past year.

HSBC said ASEAN is now China’s biggest export market. But what about the other direction? Around 2008, the US, the EU, Japan and mainland China were of equal importance. However, since then, the latter has consistently been the largest market, exceeding the EU and Japan by a wide margin, and even the US, which continues to absorb a large share of shipments from ASEAN.

In short, one of the key trade corridors in Asia, and, indeed, in the world, is now that between ASEAN and mainland China. Intra-Asian trade is pulling its weight.

The story, however, is a little more nuanced than that. The big jump in Chinese shipments to ASEAN in recent years can to a large extent be explained by supply chain retooling: as final assembly moved increasingly to ASEAN, critical components continued to be sourced from China, driving exports from the latter to the former.

The final goods, however, aren’t all consumed in ASEAN. Rather, they end up being exported from ASEAN to other parts of the world, especially the US.

The share of value added in ASEAN exports is derived from mainland China via embedded components. Unfortunately, this data series only extends to 2018, but the trend is clear: over the years, ASEAN exports have come to rely increasingly on components from China (already a few years ago, 40% of value added in ASEAN exports was Chinese).

By contrast, the share of Chinese exports that rely on components from ASEAN has fallen over the years and was always much lower in any case.

“Chinese exports to ASEAN may be massive, but to a large extent that’s because they feed shipments from ASEAN to other parts of the world. Meanwhile, ASEAN exports to China are mostly consumed locally. ASEAN is thus far more exposed to the Chinese economy, than China is to the ASEAN economy. Strong connections, but not exactly equal”, said HSBC.