In this explainer piece, our East Asia based analysts, Soojin and Wesley, examine how China’s deepening soft power in ASEAN is redefining trade, infrastructure, and digital ecosystems, generating significant commercial opportunities while also heightening geopolitical and regulatory uncertainty.
Executive Summary:
- China is strengthening its soft power in ASEAN by expanding trade and investment, advancing institutional integration through the Regional Comprehensive Economic Partnership (RCEP) and the ASEAN–China Free Trade Area (ACFTA), and expanding Belt and Road Initiative (BRI) infrastructure projects, thereby improving investment predictability and strengthening regional supply chain integration.
- However, ASEAN countries continue to pursue hedging strategies amid intensifying US–China competition. Political distrust, concerns over debt exposure, and persistent tensions in the South China Sea limit the durability and depth of China’s influence.
- China is increasingly deploying a “smart power” strategy centred on digital infrastructure, platform ecosystems, and AI-driven technologies, accelerating the formation of long-term commercial and technological ecosystems across Southeast Asia.
- Simultaneously, tightening data regulations, competition over technological standards, and increased Western restrictions are shifting digital competition into regulatory and normative competition, increasing uncertainty for business operations.
Why China’s soft power in ASEAN matters for investors?
China and ASEAN have rapidly deepened their relationship since establishing dialogue relations in 1991, with economic interdependence and supply chain linkages between the two sides being further strengthened through expanding trade and economic cooperation. China’s soft power in ASEAN rests on three mutually reinforcing pillars: economic scale, infrastructure connectivity, and cultural normalization, each carrying concrete business implications. Bilateral trade reached nearly US$798 billion in the first ten months of 2024, while Chinese FDI flows into ASEAN exceeded US$25 billion in 2023, with cumulative two-way investment surpassing US$400 billion, underscoring ASEAN’s position as China’s largest regional economic partner.
Deep integration under the RCEP and the upgraded ACFTA enhances regulatory predictability and supply-chain interdependence, lowering perceived market risk. Through the BRI, with dozens of operational projects across Southeast Asia, including 95 in 2021, China has strengthened transport and logistics corridors, thereby embedding technical standards and commercial networks that favour its firms. Meanwhile, educational exchanges and Confucius Institutes promote familiarity with the Chinese language and business practices. Together, these dynamics reduce political frictions, ease market entry for China-aligned companies, and gradually shape regional norms in ways that advantage firms embedded in China-centric value chains.
Durability in question: the structural limits of China’s influence in ASEAN
Nonetheless, China’s soft power in ASEAN faces structural constraints that limit its durability. Public opinion remains ambivalent: a 2024 report revealed persistent distrust of China’s strategic intentions in several member states, even as its economic centrality is acknowledged. Debt and dependency concerns further complicate perceptions: Laos’ public debt, for instance, has hovered around GDP in recent years, with most owed to China-linked creditors, fueling domestic sensitivity about fiscal sovereignty.
Reputational challenges also endure, notably repeated 2023–2024 confrontations between Chinese and Philippine vessels in the South China Sea, which have heightened nationalist sentiment. For businesses, these dynamics matter: China’s soft-power gains remainfragile and reversible, creating regulatory and political volatility for industries exposed to electoral turnover, leadership changes, or shifts in public opinion, particularly in infrastructure, energy, telecommunications, and other sectors closely tied to state-backed projects.
Where does Chinese soft power create space for growth?
In the context of economic cooperation, China’s strategy can be understood not as a strict dichotomy between hard power and soft power, but as a form of “smart power”, in which the expansion of hard power is used to maximise soft power. Under the Xi Jinping administration, China has more actively pursued economic diplomacy by strengthening economic ties with neighbouring countries, a trend that is particularly evident in Southeast Asia, which has emerged as a key arena of global investment competition.
A key area of focus is the expansion of soft power in the digital domain. China’s soft power is rapidly growing within digital and technological ecosystems, with major firms such as Huawei, ZTE, Alibaba, and Tencent deeply penetrating Southeast Asian markets through 5G networks, cloud services, e-commerce, and digital payment systems. They are also actively involved in expanding digital infrastructure through the construction of data centres, smart city projects, and AI-based public governance systems.
Alongside this, the expansion of AI start-ups such as DeepSeek demonstrates how Chinese technology is rapidly positioning itself as an alternative to Western technologies, supported by competitive open-source models and relatively low entry costs. As a result, China’s technology-driven soft power is evolving beyond image-based diplomacy as a ‘responsible major power’ into a strategy aimed at the long-term expansion of commercial ecosystems.
What could undermine China’s soft power and disrupt business?
China has expanded its soft power by strengthening its image as a ‘responsible major power’ through economic cooperation and good-neighbourly diplomacy(睦邻友好合作) with ASEAN. However, ASEAN countries continue to pursue a hedging strategy to avoid dependence on any single power amid intensifying US–China strategic competition, making it unlikely that economic cooperation with China will directly translate into political trust.
In addition, China is expanding its influence over digital trade rules and technical standards through digital cooperation with BRI partner countries, seeking to secure a leading position in the global digital order. However, regulatory issues such as data sovereignty, data protection, and cybersecurity are becoming increasingly prominent, while the US and the EU have tightened restrictions on Chinese technologies on security grounds. This environment is extending digital competition beyond technology into the realm of regulatory and normative competition, which may constrain China’s soft power expansion and increase uncertainty for business operations.
If you would like to learn more about the implications for your business, please contact us at ceo@northstar-insights.com