Southeast Asia's local industries struggle with influx of Chinese imports

In Thailand's Lampang, half the ceramics factories have closed, Indonesia's textile workers face mass layoffs, and Malaysia's 10% e-commerce tax fails to shield manufacturers

In Southeast Asia, a flood of inexpensive Chinese imports is overwhelming local industries, causing widespread devastation and unemployment.

In Thailand’s northern Lampang province, half of the ceramics factories have shut down. Similarly, Indonesia has seen thousands of textile workers lose their jobs, and manufacturers in Malaysia claim that the government’s modest 10 per cent tax on e-commerce has done little to protect them from the influx of imports, according to a report by South China Morning Post (SCMP).

For Meelarp Tangsuwana, who established his ceramics factory 35 years ago, the situation is dire. His company, like many in Lampang, creates hand-painted soup bowls, which are carefully crafted and sold for 18 baht each to food stalls across Thailand and beyond. In contrast, Chinese competitors are flooding the market with similar bowls — without the artistic touch — priced at just 8 baht.

He expressed his confusion about how such drastic cost reductions are achievable. Meelarp’s frustration reflects a broader sentiment in the region, where producers of textiles, cosmetics, electronics, and kitchenware struggle to compete with Chinese manufacturers. The latter’s advanced automation and aggressive market expansion strategies are significantly altering the competitive environment, SCMP reported.

Challenges for Southeast Asia’s manufacturers

The report quoted Muhammad Zulfikar Rakhmat, head of the China-Indonesia desk at the Jakarta-based Centre of Economic and Law Studies think tank, as saying that as Western markets become more restrictive for Chinese goods, Southeast Asia is increasingly emerging as a key destination for Chinese exports.

The surge in Chinese goods is supported by the vast ecommerce market, along with newly constructed railways and improved ports that enhance logistical efficiency. Additionally, a complex network of free trade agreements, including the ASEAN Free Trade Area and the Regional Comprehensive Economic Partnership, facilitates the entry of Chinese products into local markets, the report said.

According to Yeah Kim Leng, an economics professor at Sunway University in Malaysia, Chinese manufacturers are adept at leveraging economies of scale and meeting the demand for consumer products on e-commerce platforms, SCMP reported.

Measures to combat the influx of cheap imports

However, this offers little reassurance to Meelarp, who is deeply concerned about the future of Thai ceramics and numerous other small and medium-sized businesses.

Without decisive intervention from the Thai government — such as implementing tariffs, restricting the influx of unsold Chinese products, and addressing illegal operations — these artisans could face an uncertain future.

It is now the government’s responsibility to safeguard our craft and us, Meelarp said, reflecting the shared concerns of many Southeast Asian craftsmen.

Facing a surge in business closures, Thailand’s new government is adopting a stricter approach following years of nurturing its relationship with its primary trading partner through mutual market access, logistics investments, and visa-free agreements.

Chinese companies have breathed new life into segments of Thailand’s sluggish economy since the pandemic. However, experts caution that, like many other Association of Southeast Asian Nations (ASEAN) members, Thailand now faces the challenge of balancing the protection of local businesses with compliance to trade agreements it has willingly entered into, SCMP reported.

Crackdown on low-cost imports

Last week, Thailand’s Commerce Minister Pichai Naripthaphan committed to addressing the issue of illegal imports and supporting local businesses that are struggling against a wave of low-priced competition.

Ecommerce giants such as Temu are being scrutinised for their role in saturating the market with inexpensive goods and may soon face requirements to register locally and endure increased tax rates.

Last month, former Prime Minister Thaksin Shinawatra, whose daughter Paetongtharn now heads the government, advocated for “modest protectionist measures” to address the influx of inexpensive Chinese products. For many Thais grappling with financial difficulties, these steps appear to be long overdue. The country’s small and medium enterprises, operating with minimal profit margins, are particularly feeling the strain, the report said.