China-Asean trade: A missed tech opportunity

CHINA’S growing trade and investment footprint in Southeast Asia has served as a key economic engine for Asean member states.

At the heart of this relationship lies the Electrical and Electronics (E&E) sector, a critical component of global production networks and a powerful motor for development.

However, despite a decade of deepening trade relations and infrastructure investments, a crucial opportunity appears to have slipped through Asean’s grasp – the strategies to secure sustainable technology transfer. This lies a critical question: is Asean fully benefiting from technology transfer and innovation diffusion, or is it missing a key opportunity for sustainable technology development?

Trade relations between Asean and China have prospered. As of 2024, China remains Asean’s largest trading partner, with bilateral trade around US$1 trillion.

A large portion of this value is concentrated in the E&E sector, where Asean countries export components, intermediate goods, and finished products to China, while importing high-value, technology-intensive goods in return.

Such trade relationships expand the Asean local economies to progress in innovation, enhance local production capabilities, and foster regional technology diffusion.

Tech growth without tech gain

In reality, the outcomes have been mixed. Asean nations such as Malaysia, Thailand, and Vietnam have become key players in assembling and processing electronics goods for exports.

Yet, these activities do not encourage high-value-added creation within the production network.

Asean nations continue to see only modest gains in domestic value-added where the value added from China’s exports to Asean countries is significantly higher than the reverse, indicating that China contributes more to Asean’s domestic economic value through trade.

Asean countries, in contrast, show minimal value-added influence on China, reflecting a persistent imbalance in technology-intensive and innovation-driven trade.

Data suggests that the economic ripple effect or value-added multiplier of Asean’s E&E exports to China is significantly weaker than the impact of China’s exports to Asean.

As a result, Asean countries remain stuck at the lower end of the value chain, missing out on a full economic reward that deeper integration could bring.

While trade values between Asean and China increase, the technological diffusion gains lag behind.

The establishment of Regional Comprehension Partnership (RCEP) and bilateral investment frameworks have been crafted to encourage technology cooperation as a collective goal.

Many Asean E&E firms excel in assembly and basic processing, providing a solid platform to advance into higher-value activities.

Boosting strategic industrial planning and intellectual property protection may encourage greater technology-driven Foreign Direct Investment (FDI) inflows.

The missed opportunity becomes more evident when viewed through the prism of sustainability.

The United Nations has made it clear: for countries to grow sustainably, they need to build strong infrastructure, promote inclusive industries, and encourage innovation.

This message is central to Sustainable Development Goal 9.

One key part of that mission is helping developing nations strengthen their technological capabilities through meaningful technology transfer.

This has not been proven significantly as the proportion of domestic value added in bilateral E&E trade remains a big gap.

Based on the value-added multiplier calculated using the Multiregional Input-Output Table (MRIOT) from the Asian Development Bank (ADB), the domestic value added for China’s exports to Asean is greater than 1 but it is less than 0.05 for Asean’s exports to China.

This implies the gap for technology transfer through alliance between high technology firms and low technology firms in Asean countries. But the work does not stop there.

To truly thrive, countries shall focus on developing their own domestic technologies, not just importing them to spark long-term growth and resilience.

Asean’s current E&E trade model remains extractive rather than transformative.

Instead of knowledge fostering absorption and eco-friendly technologies, many countries have been comfortable by depending on low-margin export activities and absorbing low-skilled workers.

Without substantial shifts, the technological divide between China and Asean may widen, exacerbating inequality and slowing the region’s ability to transition toward sustainable industrial practices.

Structural challenges

Failing to seize the opportunity jeopardises Asean’s advancement by exacerbating the regional technology gap and hindering efforts toward inclusive, sustainable development. The challenge is faced by the local government to build a stronger national framework.

There are a few structural challenges which may inhibit Asean’s ability to capture the full benefits of E&E trade, (1) Limited Research and Development (R&D) Investment – Most Asean countries invest less than 1% of GDP in R&D, with only Singapore surpassing the 2% mark, reflecting regional underinvestment in innovation; (2) Weak Innovation Ecosystems – The disconnect between market initiatives and academic research limits the commercialisation of innovations and hinders dynamic tech development; (3) Skill Gaps – A shortage of professionals trained in Science, Technology, Engineering, and Mathematics (STEM), combined with limited industrial exposure and inadequate upskilling, restricts Asean’s capacity to absorb advanced technologies.

The way forward

Asean nations must redefine their engagement with China from passive participants to proactive partners in innovation.

These efforts include strengthening education in STEM fields, offering incentives for joint R&D ventures with China, building innovation hubs or green-tech incubators and enhancing Intellectual Property (IP) rights and tech certification frameworks.

The collective effort shall be initiated to negotiate technology access and set shared innovation standards within Asean.

Time for a strategic pivot

Asean has a vital opportunity to enhance its partnership with China by focusing on technological advancement rather than just trade volume While the region excels in assembling electronics, innovation and profits largely remain in China.

To move up the value chain, Asean should pursue strategies such as embedding technology transfer in trade deals, promoting R&D driven investment, and investing in workforce upskilling. With its youthful population and strategic location, Asean holds untapped potential to negotiate more balanced outcomes. Taking action now will ensure the region secures its place in the global tech landscape, especially in the AI and green energy era to achieve sustainable technology transfer.

Prof Dr Yong Chen Chen is a Professor at the Faculty of Business and Economics, Universiti Malaya. The views expressed here are entirely the writer’s own.

The SEARCH Scholar is a social responsibility programme jointly organised by the Southeast Asia Research Centre for Humanities (SEARCH) and Tunku Abdul Rahman University of Management and Technology (TAR UMT).